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What changed in MICROCHIP TECHNOLOGY INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of MICROCHIP TECHNOLOGY INC'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.

+394 added−349 removedSource: 10-K (2023-05-25) vs 10-K (2022-05-20)

Top changes in MICROCHIP TECHNOLOGY INC's 2023 10-K

394 paragraphs added · 349 removed · 282 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

49 edited+12 added−8 removed47 unchanged
Biggest changeMany independent companies also develop and market application development tools that support our microcontroller and microprocessor product architectures, including an extensive amount of third-party tool suppliers whose products support our microcontroller architectures. 6 Table of Contents We believe that familiarity with and adoption of development tools from Microchip as well as from third-party development tool partners by an increasing number of product designers will be an important factor in the future selection of our embedded control products.
Biggest changeWe believe that familiarity with and adoption of development tools from Microchip as well as from third-party development tool partners by an increasing number of product designers will be an important factor in the future selection of our embedded control products. These development tools allow design engineers to develop thousands of application-specific products from our standard mixed-signal microcontrollers.
Microcontrollers are primarily available in 8-bit through 32-bit architectures. 8-bit microcontrollers remain very cost-effective and easy to use for a wide range of high-volume embedded control applications and, as a result, continue to represent a significant portion of the overall microcontroller market. 16-bit and 32-bit microcontrollers provide higher performance and functionality, and are generally found in more complex embedded control applications.
Mixed-signal microcontrollers are primarily available in 8-bit through 32-bit architectures. 8-bit mixed-signal microcontrollers remain very cost-effective and easy to use for a wide range of high-volume embedded control applications and, as a result, continue to represent a significant portion of the overall mixed-signal microcontroller market. 16-bit and 32-bit mixed-signal microcontrollers provide higher performance and functionality, and are generally found in more complex embedded control applications.
By owning wafer fabrication facilities and our assembly and test operations, and by employing statistical techniques (statistical process control, designed experiments and wafer level monitoring), we have been able to achieve and maintain high production yields. Direct control over manufacturing resources allows us to shorten our design and production cycles.
By owning wafer fabrication facilities and our assembly and test operations, and by employing statistical techniques (such as statistical process control, designed experiments and wafer level monitoring), we have been able to achieve and maintain high production yields. Direct control over manufacturing resources allows us to shorten our design and production cycles.
A microcontroller is a self-contained computer-on-a-chip consisting of a central processing unit, often with on-board non-volatile program memory for program storage, random access memory for data storage and various analog and digital input/output peripheral capabilities.
A mixed-signal microcontroller is a self-contained computer-on-a-chip consisting of a central processing unit, often with on-board non-volatile program memory for program storage, random access memory for data storage and various analog and digital input/output peripheral capabilities.
Many of our CEMs, ESEs, and sales management have technical degrees or backgrounds and have been previously employed in high technology environments. We believe that the technical and business knowledge of our sales force is a key competitive advantage in the sale of our products.
Many of our CEMs, ESEs, and sales managers have technical degrees or backgrounds and have been previously employed in high technology environments. We believe that the technical and business knowledge of our sales force is a key competitive advantage in the sale of our products.
To address these requirements, manufacturers often use integrated circuit-based embedded control systems that enable them to: • differentiate their products • replace less efficient electromechanical control devices • reduce the number of components in their system • add product functionality • reduce the system level energy consumption • make systems safer to operate • add security to their products • decrease time to market for their products • significantly reduce product cost 4 Table of Contents Embedded control systems have been incorporated into thousands of products and subassemblies in a wide variety of applications and markets worldwide, including: • actuators • applications requiring touch buttons, touch screens and graphical user interfaces • automotive access control • automotive comfort, safety, information and entertainment applications • avionics • communication infrastructure systems • consumer electronics • defense and military hardware • electric vehicles • handheld tools • home and building automation • industrial automation • large and small home appliances • medical devices • motor controls • portable computers and accessories • power supplies • residential and commercial security systems • robotics • routers and video surveillance systems • satellites • smart home and IoT edge devices • smart meters and energy monitoring • storage and server systems • touch control • wireless communication Embedded control systems typically incorporate a microcontroller as the principal active, and sometimes sole, component.
To address these requirements, manufacturers often use integrated circuit-based embedded control systems that enable them to: • differentiate their products • replace less efficient electromechanical control devices • reduce the number of components in their system • add product functionality • reduce the system level energy consumption • make systems safer to operate • add security to their products • decrease time to market for their products • significantly reduce product cost Embedded control systems have been incorporated into thousands of products and subassemblies in a wide variety of applications and markets worldwide, including: • actuators • applications requiring touch buttons, touch screens and graphical user interfaces • automotive access control • automotive comfort, safety, information and entertainment applications • avionics • communication infrastructure systems • consumer electronics • defense and military hardware • electric vehicles • handheld tools • home and building automation • industrial automation • large and small home appliances • medical devices • motor controls • portable computers and accessories • power supplies • residential and commercial security systems • robotics • routers and video surveillance systems • satellites • smart home and IoT edge devices • smart meters and energy monitoring • storage and server systems • touch control • wireless communication Embedded control systems typically incorporate a mixed-signal microcontroller, microprocessor or FPGA as the principal active, and sometimes sole, component.
Our family of development tools for our microcontroller and microprocessor products range from entry-level systems, which include an assembler or a compiler and programmer or in-circuit debugging hardware, to fully configured systems that provide in-circuit emulation capability. We also offer a complete suite of compilers, software code configurators and simulators.
Our family of development tools for our mixed-signal microcontroller, FPGA and microprocessor products range from entry-level systems, which include an assembler or a compiler and programmer or in-circuit debugging hardware, to fully configured systems that provide in-circuit emulation capability. We also offer a complete suite of compilers, software code configurators and simulators.
We market and sell our analog product line into our microcontroller, microprocessor and FPGA customer base, and to customers who use microcontrollers and FPGA products from other suppliers and to customers who use other products that may not fit our traditional microcontroller, FPGA and memory products customer base.
We market and sell our analog product line into our mixed-signal microcontroller, microprocessor and FPGA customer base, and to customers who use mixed-signal microcontrollers and FPGA products from other suppliers and to customers who use other products that may not fit our traditional mixed-signal microcontroller, FPGA and memory products customer base.
Customers moving from entry-level designs to those requiring real-time emulation are able to preserve their investment in learning and tools as they migrate to future microcontroller devices in our portfolio.
Customers moving from entry-level designs to those requiring real-time emulation are able to preserve their investment in learning and tools as they migrate to future mixed-signal microcontroller devices in our portfolio.
We also generate fees for engineering services related to these technologies. We license our NVM technologies to foundries, integrated device manufacturers and design partners throughout the world for use in the manufacture of their advanced microcontroller products, gate array, RF, analog and neuromorphic compute products that require embedded non-volatile memory.
We also generate fees for engineering services related to these technologies. We license our Non-Volatile Memory technologies to foundries, integrated device manufacturers and design partners throughout the world for use in the manufacture of their advanced mixed-signal microcontroller products, gate array, RF, analog and neuromorphic compute products that require embedded non-volatile memory.
We leverage our circuit design, process technologies, development tools, applications knowledge, and manufacturing experiences to enable our customers to implement various embedded control functions in their end systems with our microcontrollers.
We leverage our circuit design, process technologies, development tools, applications knowledge, and manufacturing experiences to enable our customers to implement various embedded control functions in their end systems with our mixed-signal microcontrollers.
The primary mission of our ESE team is to provide technical assistance to customers and to conduct periodic training sessions for the balance of our sales team. ESEs also frequently conduct technical seminars and workshops in major cities around the world or through online webcasts.
The primary mission of our ESE team is to provide technical 8 Table of Contents assistance to customers and to conduct periodic training sessions for the balance of our sales team. ESEs also frequently conduct technical seminars and workshops in major cities around the world or through online webcasts.
In fiscal 2022, approximately 60% of our sales came from products that were produced at outside wafer foundries. Assembly and Test We perform product assembly and test at various facilities located around the world. During fiscal 2022, we increased capacity at our Thailand and Philippines facilities to support more technologies by making process improvements, upgrading existing equipment, and adding equipment.
In fiscal 2023, approximately 63% of our sales came from products that were produced at outside wafer foundries. Assembly and Test We perform product assembly and test at various facilities located around the world. During fiscal 2023, we increased capacity at our Thailand and Philippines facilities to support more technologies by making process improvements, upgrading existing equipment, and adding equipment.
Patents, Licenses and Trademarks We maintain a portfolio of U.S. and foreign patents, expiring on various dates from 2022 through 2041. We also have numerous additional U.S. and foreign patent applications pending. We do not expect that the expiration of any particular patent will have a material impact on our business.
Patents, Licenses and Trademarks We maintain a portfolio of U.S. and foreign patents, expiring on various dates from 2023 through 2042. We also have numerous additional U.S. and foreign patent applications pending. We do not expect that the expiration of any particular patent will have a material impact on our business.
During fiscal 2022, we increased Fab 2's capacity to support more advanced technologies by making process improvements, upgrading existing equipment, and adding equipment. Fab 4 currently produces 8-inch wafers using predominantly 0.13 microns to 0.5 microns manufacturing processes.
During fiscal 2023, we increased Fab 2's capacity to support more advanced technologies by implementing process improvements, upgrading existing equipment, and adding equipment. Fab 4 currently produces 8-inch wafers using predominantly 0.13 microns to 0.5 microns manufacturing processes.
Our synergistic product portfolio empowers disruptive growth trends, including 5G, data centers, artificial intelligence and machine learning, Internet of Things (IoT) and edge computing, advanced driver assist systems (ADAS) and autonomous driving, and electric vehicles, in key end markets such as automotive, aerospace and defense, communications, consumer appliances, data centers and computing, and industrial.
Our synergistic product portfolio empowers disruptive growth trends, including 5G, data centers, sustainability, Internet of Things (IoT) and edge computing, advanced driver assist systems (ADAS) and autonomous driving, and electric vehicles, in key end markets such as automotive, aerospace and defense, communications, consumer appliances, data centers and computing, and industrial.
In most cases we believe that we can obtain necessary licenses on commercially reasonable terms, however, we cannot be certain that this would be the case, or that litigation or damages for any past 9 Table of Contents infringement could be avoided.
In most cases we believe that we can obtain necessary licenses on commercially reasonable terms, however, we cannot be certain that this would be the case, or that litigation or damages for any past infringement could be avoided.
In addition to the microcontroller, a complete embedded control system often incorporates application-specific software, various analog, mixed-signal, timing, connectivity, security and non-volatile memory components such as EEPROMs and Flash memory. The increasing demand for embedded control systems has made the market for microcontrollers a significant segment of the semiconductor market at $22.5 billion in calendar year 2021.
In addition to the mixed-signal microcontroller, a complete embedded control system often incorporates application-specific software, various analog, mixed-signal, timing, connectivity, security and non-volatile memory components such as EEPROMs and Flash memory. The increasing demand for embedded control systems has made the market for mixed-signal microcontrollers a significant segment of the semiconductor market at $26.9 billion 1 in calendar year 2022.
Human Capital Resources Our Employees We invest in our highly-skilled global workforce of approximately 21,000 people in accordance with our Guiding Value: employees are our greatest strength.
Human Capital Resources Our Employees We invest in our highly-skilled global workforce of approximately 22,600 people in accordance with our Guiding Value: employees are our greatest strength.
We currently compete principally on the basis of the technical innovation and performance of our embedded control products, including the following product characteristics: • performance • analog, digital and mixed signal functionality and level of functional integration • field programmability • memory density • low power consumption • extended voltage ranges • reliability • security and functional safety • packaging alternatives • comprehensive suite of development tools We believe that other important competitive factors in the embedded control market include: • ease of use • functionality of application development systems • hardware, software and tool compatibility within product families to increase migration flexibility • dependable delivery, quality and availability • technical and innovative service and support • time to market • price We believe that we compete favorably with other companies on all of these factors, but we may be unable to compete successfully in the future, which could harm our business.
We currently compete principally on the basis of the technical innovation and performance of our embedded control products, including the following product characteristics: • performance • analog, digital and mixed-signal functionality and level of functional integration • field programmability • memory density • low power consumption • extended voltage ranges • reliability • security and functional safety • packaging alternatives • comprehensive suite of development tools We believe that other important competitive factors in the embedded control market include: • our broad product portfolio offers a Total System Solutions through a combination of hardware, software and services • ease of use • functionality of application development systems • hardware, software and tool compatibility within product families to increase migration flexibility • dependable delivery, quality and availability • technical and innovative service and support • time to market • total solution cost 9 Table of Contents • reference design We believe that we compete favorably with other companies on all of these factors, but we may be unable to compete successfully in the future, which could harm our business.
In fiscal 2022 and fiscal 2021, we derived 48% and 50%, respectively, of our net sales through distributors compared to 52% and 50%, respectively, of our net sales from customers serviced directly by us.
In fiscal 2023 and fiscal 2022, we derived 47% and 48%, respectively, of our net sales through distributors compared to 53% and 52%, respectively, of our net sales from customers serviced directly by us.
Executive Officers of the Registrant The following sets forth certain information regarding our executive officers as of April 30, 2022: Name Age Position Ganesh Moorthy 62 President, Chief Executive Officer, and Director Steve Sanghi 66 Executive Chair J. Eric Bjornholt 51 Senior Vice President and Chief Financial Officer Stephen V.
Executive Officers of the Registrant The following sets forth certain information regarding our executive officers as of April 30, 2023: Name Age Position Ganesh Moorthy 63 President, Chief Executive Officer, and Director Steve Sanghi 67 Executive Chair J. Eric Bjornholt 52 Senior Vice President and Chief Financial Officer Stephen V.
The ownership of a substantial portion of our manufacturing resources is an important component of our business strategy, enabling us to maintain a high level of manufacturing control, resulting in us being one of the lowest cost producers in the embedded control industry.
Manufacturing Our manufacturing operations include wafer fabrication, wafer probe, assembly and test. The ownership of a substantial portion of our manufacturing resources is an important component of our business strategy, enabling us to maintain a high level of manufacturing control, resulting in us being one of the lowest cost producers in the embedded control industry.
Moorthy has served as President since February 2016 and Chief Operating Officer since June 2009. He also served as Executive Vice President from October 2006 to August 2012 and as a Vice President in various roles since he joined Microchip in 2001. Prior to this time, he served in various executive capacities with other semiconductor companies. Mr.
He also served as Executive Vice President from October 2006 to August 2012 and as a Vice President in various roles since he joined Microchip in 2001. Prior to this time, he served in various executive capacities with other semiconductor companies. Mr.
During fiscal 2022, approximately 59% of our assembly requirements were being performed in our internal facilities and approximately 64% of our test requirements were performed in internal facilities. We 7 Table of Contents use third-party assembly and test contractors for the balance of our assembly and test requirements.
During fiscal 2023, approximately 59% of our assembly requirements were being performed in our internal facilities and approximately 67% of our test requirements were performed in internal facilities. We use third-party assembly and test contractors for the balance of our assembly and test requirements.
Our continuous focus on manufacturing productivity has allowed us to maintain excellent manufacturing yields at our facilities. Our manufacturing yields are primarily driven by a comprehensive implementation of statistical process control, extensive employee training and effective use of our manufacturing facilities and equipment. Maintenance of manufacturing productivity and yields are important factors in the achievement of our operating results.
Our manufacturing yields are primarily driven by a comprehensive implementation of statistical process control, extensive employee training and effective use of our manufacturing facilities and equipment. Maintenance of manufacturing productivity and yields are important factors in the achievement of our operating results.
Culture and Core Values Before Microchip went public in 1993, Microchip created a cultural framework to unite its employees through shared workplace values, and to guide employees’ strategies, decisions, actions and job performance. Microchip’s culture is centered on a values-based, highly-empowered, continuous-improvement oriented approach. This corporate culture strengthens our business, and enables us to fulfill our purpose.
Culture and Core Values Before Microchip went public in 1993, Microchip created a cultural framework to unite its employees through shared workplace values, and to guide employees’ strategies, decisions, actions and job performance. Microchip’s culture is centered 10 Table of Contents on a values-based, highly-empowered, continuous-improvement oriented approach.
Training and Development Microchip’s culture focuses on continuous improvement. We provide training on our culture, management skills, communication, technical skills, and personal improvement. Microchip also has a leadership program that provides for the growth and development of its future leaders.
Training and Development Microchip’s culture focuses on continuous improvement. We provide training on our culture, management skills, communication, technical skills, and personal improvement. Microchip also has a leadership program that provides for the growth and development of its future leaders. This program helps us develop leaders that serve as role models of Microchip culture, and support empowerment and open communication.
Business and Macroeconomic Environment The COVID-19 pandemic initially resulted in a global disruption in economic activity by adversely affecting production, creating supply chain and market disruption, and adversely impacting businesses and individuals. However, in the second half of fiscal 2021, business conditions were unexpectedly strong as businesses and individuals adapted to the effects of the pandemic.
Business and Macroeconomic Environment In the first half of fiscal 2021, the COVID-19 pandemic initially resulted in a global disruption in economic activity by adversely affecting production, creating supply chain and market disruption, and adversely impacting businesses and individuals.
Our focus on communication aims to provide transparency among leadership, to promote trust among employees, and is a critical part of Microchip’s culture.
This corporate culture strengthens our business, and enables us to fulfill our purpose. Our focus on communication aims to provide transparency among leadership, to promote trust among employees, and is a critical part of Microchip’s culture.
Sanghi was elected to the Board of Directors of Impinj, Inc. in March 2021 and will assume the role of Board Chair following Impinj's annual meeting of stockholders. Mr. Bjornholt was promoted to Senior Vice President in 2019 and has served as Vice President of Finance since 2008 and as Chief Financial Officer since January 2009.
Sanghi was elected to the Board of Directors of Impinj, Inc. in March 2021 and assumed the role of Board Chair in June 2022. 11 Table of Contents Mr. Bjornholt was promoted to Senior Vice President in 2019 and has served as Vice President of Finance since 2008 and as Chief Financial Officer since January 2009.
Simoncic holds a B.S. degree in Electrical Engineering Technology from DeVry Institute of Technology. 11 Table of Contents Available Information Microchip Technology Incorporated was incorporated in Delaware in 1989. Our executive offices are located at 2355 West Chandler Boulevard, Chandler, Arizona 85224-6199 and our telephone number is (480) 792-7200. Our Internet address is www.microchip.com.
Simoncic held various roles in Design, Device/Yield Engineering and Quality Systems. Mr. Simoncic holds a B.S. degree in Electrical Engineering Technology from DeVry Institute of Technology. Available Information Microchip Technology Incorporated was incorporated in Delaware in 1989. Our executive offices are located at 2355 West Chandler Boulevard, Chandler, Arizona 85224-6199 and our telephone number is (480) 792-7200.
We comply with several quality systems, including: ISO9001 (2015 version), IATF16949 (2016 version), AS9100 (2016 version), and TL9000. Refer to "Item 2. Properties" for further information regarding the location and principal operations of our manufacturing facilities. Wafer Fabrication Fab 2 currently produces 8-inch wafers and supports various manufacturing process technologies, but predominantly utilizes our 0.25 microns to 1.0 microns processes.
Refer to "Item 2. Properties" for further information regarding the location and principal operations of our manufacturing facilities. Wafer Fabrication Fab 2 currently produces 8-inch wafers and supports various manufacturing process technologies, and predominantly utilizes our 0.25 microns to 1.0 microns processes.
Our memory products consist of EEPROMs, Serial Flash memories, Parallel Flash memories, Serial SRAM memories and EERAMs. Serial EEPROMs, Serial Flash memories, Serial SRAMs and EERAMs have a very low I/O pin requirement, permitting production of very small footprint devices. We sell our memory products primarily into the embedded control market, complementing our microcontroller offerings.
Our memory products consist of EEPROMs, Serial Flash memories, Parallel Flash memories, Serial SRAM memories and EERAMs. Serial EEPROMs, Serial Flash memories, Serial SRAMs and EERAMs have a very low I/O pin requirement, permitting production of very small footprint devices.
We do outsource a significant portion of our manufacturing requirements to third parties and the amount of our outsourced manufacturing has increased in recent years due to our acquisitions of Microsemi and other companies that outsourced all or substantial portions of their manufacturing.
We outsource a significant portion of our manufacturing requirements to third parties and the amount of our outsourced manufacturing has increased in recent years due to our acquisitions of Microsemi and other companies that outsourced all or substantial portions of their manufacturing. We comply with several quality systems, including: ISO9001 (2015 version), IATF16949 (2016 version), AS9100 (2016 version), and TL9000.
Microcontroller Development Tools We offer a comprehensive set of low-cost and easy-to-learn application development tools. These tools enable system designers to quickly and easily program our microcontroller and microprocessor products for specific applications and, we believe, they are an important factor for facilitating design wins.
These tools enable system designers to quickly and easily program our mixed-signal microcontroller, FPGA and microprocessor products for specific applications and, we believe, they are an important factor for facilitating design wins.
FPGAs are programmable integrated circuits that are used to implement complex logic functions and can be re-programmed at any time, allowing for multiple implementations and revisions during or after the end customer system is manufactured. Some versions of FPGAs also include a microcontroller or microprocessor core to provide additional system on chip functionality for compute intensive tasks.
FPGAs are programmable integrated circuits that are used to implement complex logic functions and can be re-programmed at any time, allowing for multiple implementations and revisions during or after the customer system is manufactured.
Our Products Our strategic focus is on providing cost-effective embedded control solutions that also offer the advantages of small size, high performance, extreme low power usage, wide voltage range operation, mixed signal integration, and ease of development, thus enabling timely and cost-effective integration of our solutions by our customers in their end products.
The analog segment of the semiconductor market was $93.8 billion 1 in calendar year 2022, and this market is fragmented into a large number of sub segments. 1 Source: 2022 Gartner Worldwide Semiconductor Market Share by End Market Our Products Our strategic focus is on providing cost-effective embedded control solutions that also offer the advantages of small size, high performance, extreme low power usage, wide voltage range operation, mixed-signal integration, and ease of development, thus enabling timely and cost-effective integration of our solutions by our customers in their end products.
Drehobl 60 Senior Vice President, MCU8 and MCU16 Business Units Mitchell R. Little 70 Senior Vice President, Worldwide Client Engagement Richard J. Simoncic 58 Senior Vice President, Analog Power and Interface Business Units Mr. Moorthy was appointed as Chief Executive Officer in March 2021 and to the Board of Directors in January 2021. Mr.
Drehobl 61 Senior Vice President, MCU8 and MCU16 Business Units Richard J. Simoncic 59 Executive Vice President, Analog Power and Interface Business Units Mr. Moorthy was appointed as Chief Executive Officer in March 2021 and to the Board of Directors in January 2021. Mr. Moorthy has served as President since February 2016 and Chief Operating Officer since June 2009.
Our total compensation package includes base pay, broad-based stock grants and bonuses, healthcare and retirement plans, employee stock purchase plans, and paid time off and family leave.
Compensation Programs We strive to provide competitive pay and benefits, that help meet the varying needs of our employees. Our total compensation package includes base pay, broad-based stock grants and bonuses, healthcare and retirement plans, employee stock purchase plans, paid time off and family leave.
Microcontrollers We offer a broad family of proprietary general purpose microcontroller products marketed under multiple brand names. We believe that our microcontroller product families provide leading function and performance characteristics in the 5 Table of Contents worldwide microcontroller market. We target the 8-bit, 16-bit, and 32-bit microcontroller and 32-bit embedded microprocessor markets.
Mixed-signal Microcontrollers We offer a broad family of proprietary general purpose mixed-signal microcontroller products, with significant analog and mixed-signal functionality incorporated within them, which are marketed under multiple brand names. We believe that our mixed-signal microcontroller product families provide leading function and performance characteristics in the worldwide market.
Over time, we intend to continue to migrate a portion of the outsourced assembly and test activities to our internal facilities. General Matters Impacting Our Manufacturing Operations Due to the high fixed costs inherent in semiconductor manufacturing, consistently high manufacturing yields have significant positive effects on our gross profit and overall operating results.
General Matters Impacting Our Manufacturing Operations Due to the high fixed costs inherent in semiconductor manufacturing, consistently high manufacturing yields have significant positive effects on our gross profit and overall operating results. Our continuous focus on manufacturing productivity has allowed us to maintain excellent manufacturing yields at our facilities.
As a result of our acquisition of Microsemi, we acquired several smaller wafer fabrication facilities, which utilize older technologies that are appropriate for the discrete products they manufacture.
We believe the combined capacity of Fab 2, Fab 4, and Fab 5 will allow us to respond to future demand for internally fabricated products with incremental capital expenditures. 7 Table of Contents As a result of our acquisition of Microsemi, we acquired several smaller wafer fabrication facilities, which utilize older technologies that are appropriate for the discrete products they manufacture.
Drehobl holds a Bachelor of Technology degree from the University of Dayton. Mr. Little was promoted to Senior Vice President in 2019 and has served as Vice President of Worldwide Sales since July 2000. He has been employed by Microchip since 1989 and has served as a Vice President in various roles since September 1993. Mr.
Drehobl holds a Bachelor of Technology degree from the University of Dayton. Mr. Simoncic was promoted to Executive Vice President in April 2023 and has served as Vice President, Analog Power and Interface Business Units since September 1999. From October 1995 to September 1999, he served as Vice President in various roles. Since joining Microchip in 1990, Mr.
In response to the pandemic, we have taken proactive preventative measures to enable a safe environment for our employees and operation of our manufacturing sites. While our global manufacturing sites are fully operational, we strategically implemented plans intended to provide more assurance of business continuity in the event severe outbreaks or government requirements were to impact our operations.
In response to the pandemic, we have taken proactive preventative measures to enable a safe environment for our employees and operation of our manufacturing sites.
We have shipped more than 31.6 billion microcontrollers to customers worldwide since 1990. We also offer specialized microcontrollers for automotive, industrial, computing, communications, lighting, power supplies, motor control, human machine interface, security, wired connectivity and wireless connectivity applications.
We target the 8-bit, 16-bit, and 32-bit mixed-signal microcontroller and 32-bit embedded mixed-signal microprocessor markets. We also offer specialized mixed-signal microcontrollers for automotive, industrial, computing, communications, lighting, power supplies, motor control, human machine interface, security, wired connectivity and wireless connectivity applications.
No distributor or end customer accounted for more than 10% of our net sales in fiscal 2022 or fiscal 2021. 8 Table of Contents With the exception of orders placed under our Preferred Supply Program, we do not have long-term purchase commitments from our distributors and we, or our distributors, may each terminate our relationship with little or no advanced notice.
Generally, we do not have long-term agreements with our distributors and we, or our distributors, may terminate our relationships with each other with little or no advance notice, with the exception of orders placed under our Preferred Supply Program or otherwise designated as non-cancellable.
Fab 5 currently manufactures discrete and specialty products in addition to a lower volume of a diversified set of standard products. We believe the combined capacity of Fab 2, Fab 4, and Fab 5 will allow us to respond to future demand of internally fabricated products with incremental capital expenditures.
A significant amount of additional clean room capacity in Fab 4 has been brought on line to support incremental wafer fabrication capacity needs. Fab 5 currently manufactures discrete and specialty products in addition to a lower volume of a diversified set of standard products on 6-inch wafers.
During fiscal 2022, we increased Fab 4's capacity to support more advanced technologies by making process improvements, upgrading existing equipment, and adding equipment. A significant amount of additional clean room capacity in Fab 4 is being brought on line to support incremental wafer fabrication capacity needs.
During fiscal 2023, we continued our multi-year $800 million expansion and capital equipment investment plan to increase Fab 4's capacity to support more advanced technologies by implementing process improvements, upgrading existing equipment, and adding new equipment and two clean rooms.
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However, strong customer demand outpaced capacity improvements in fiscal 2022 as we continued to experience constraints in our internal and external factories and their related manufacturing supply chains. We expect that certain supply chain constraints will persist through calendar 2022 and into calendar 2023.
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However, in the second half of fiscal 2021, business conditions were unexpectedly strong as businesses and individuals adapted to the effects of the pandemic.
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Industry Background Competitive pressures require OEMs of a wide variety of products to expand product functionality and provide differentiation while maintaining or reducing cost.
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Strong customer demand for our products continued to outpace capacity in fiscal 2022 and fiscal 2023. However, in recent months, many of our customers felt the effects of slowing economic activity and increasing business uncertainty and customer requests to push out or cancel backlog increased in the March 2023 quarter.
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The analog and mixed-signal segment of the semiconductor market was $72.8 billion in calendar year 2021, and this market is fragmented into a large number of sub segments.
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Consistent with the slowing macroeconomic environment, and the growth in our inventory, we have paused most of our factory expansion activity, reduced our planned capital investments for fiscal 2024, and taken steps to lower our inventory in the coming quarters. We are unable to predict the timing or impact of any such slowdown on our business.
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These development tools allow design engineers to develop thousands of application-specific products from our standard microcontrollers. Manufacturing Our manufacturing operations include wafer fabrication, wafer probe, assembly and test.
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Although orders under such program cannot be cancelled or rescheduled by the customer, in recent periods, we have accommodated requests by customers to push-out certain orders to help them manage inventory levels and, in some cases, to help other customers that are experiencing supply shortages.
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The decrease in the distribution percentage of our total net sales was primarily due to lower Preferred Supply Program participation among our distributors as priority of supply under the Preferred Supply Program is more prevalent with direct customers.
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Since the March 2022 quarter, we have been entering into long-term supply agreements (LTSAs) with certain of our customers for products that will be shipped in future periods. We also entered into certain LTSAs with key suppliers.
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This program helps us develop leaders that serve as role models of Microchip culture, and support empowerment and open communication. 10 Table of Contents Compensation Programs We strive to provide competitive pay and benefits, that help meet the varying needs of our employees.
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While our global manufacturing sites have been fully operational in recent periods, we strategically implemented plans intended to provide more assurance of business continuity in the event severe outbreaks or government requirements were to impact our operations. 4 Table of Contents Industry Background Competitive pressures require OEMs to expand product functionality and provide differentiation while maintaining or reducing cost.
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Little holds a B.S. degree in Engineering Technology from United Electronics Institute. In November 2021, Mr. Little notified the Company of his decision to retire from the Company effective May 31, 2022. Mr. Simoncic was promoted to Senior Vice President in 2019 and has served as Vice President, Analog Power and Interface Business Units since September 1999.
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Some versions of 5 Table of Contents FPGAs also include a mixed-signal microcontroller or microprocessor core to provide additional system on chip functionality to compute intensive tasks.
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From October 1995 to September 1999, he served as Vice President in various roles. Since joining Microchip in 1990, Mr. Simoncic held various roles in Design, Device/Yield Engineering and Quality Systems. Mr.
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We sell our memory products primarily into the embedded control market, complementing our mixed-signal microcontroller offerings. 6 Table of Contents Development Tools We offer a comprehensive set of low-cost and easy-to-learn application development tools.
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Many independent companies also develop and market application development tools that support our mixed-signal microcontroller and microprocessor product architectures, including an extensive amount of third-party tool suppliers whose products support our mixed-signal microcontroller architectures.
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In February 2023, we announced our plan to invest $880 million over the next several years to expand our silicon carbide (SiC) and silicon production capacity, including the production of 8-inch wafers, at our Fab 5 facility.
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We plan to continue to invest in assembly and test equipment to increase our internal capacity capabilities and transition certain outsourced assembly and test capacity to our internal facilities.
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With the exception of Arrow Electronics, our largest distributor, which made up 11% of our net sales, no other distributor or direct customer accounted for more than 10% of our net sales in fiscal 2023. In fiscal 2022, no distributor or direct customer accounted for more than 10% of our net sales.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

138 edited+63 added−12 removed157 unchanged
Biggest changeOur reliance on foreign operations, foreign suppliers, maintenance of substantially all of our finished goods inventory at foreign locations and significant foreign sales exposes us to foreign political and economic risks, including, but not limited to: • political, social and economic instability due to the COVID-19 pandemic or other factors; • trade restrictions and changes in tariffs; • supply chain disruptions or delays; • potentially adverse tax consequences; • economic uncertainty in the worldwide markets served by us; • import and export license requirements and restrictions; • changes in laws related to taxes, environmental, health and safety, technical standards and consumer protection; • currency fluctuations and foreign exchange regulations; • difficulties in staffing and managing international operations; • employment regulations; • disruptions due to cybersecurity incidents; • disruptions in international transport or delivery; • public health conditions (including viral outbreaks such as COVID-19); and • difficulties in collecting receivables and longer payment cycles.
Biggest changeOur reliance on foreign operations, foreign suppliers, maintenance of substantially all of our finished goods inventory at foreign locations and significant foreign sales exposes us to foreign political and economic risks, including, but not limited to: • economic uncertainty in the worldwide markets served by us; • political instability, including changes in relations between China and Taiwan which could disrupt the operations of our Taiwan-based third-party wafer foundries, and subcontractors; • social and economic instability due to public health concerns, wars, or other factors; • trade restrictions and changes in tariffs; • supply chain disruptions or delays; 16 Table of Contents • potentially adverse tax consequences; • import and export license requirements and restrictions; • changes in laws related to taxes, trade, environmental, health and safety, technical standards and consumer protection; • restrictions on the transfer of funds, including currency controls in China, which could negatively affect the amount and timing of certain customer payments, and as a results our cash flows; • currency fluctuations and foreign exchange regulations; • difficulties in staffing and managing international operations; • employment regulations; • disruptions due to cybersecurity incidents; • disruptions in international transport or delivery; • public health conditions (including viral outbreaks such as COVID-19); and • difficulties in collecting receivables and longer payment cycles.
Also, the reduced availability of necessary labor, the impact of the COVID-19 pandemic, or the application of sanctions, trade restrictions or tariffs by the U.S. or other countries may adversely impact the industry supply chain. For example, in 2019, the U.S. government increased tariffs on U.S. imports with China as their country of origin.
Also, the reduced availability of necessary labor, the application of sanctions, trade restrictions or tariffs by the U.S. or other countries or the impact of the COVID-19 pandemic, may adversely impact the industry supply chain. For example, in 2019, the U.S. government increased tariffs on U.S. imports with China as their country of origin.
The labor, supplies and equipment necessary for their businesses could become more difficult to obtain for various reasons not limited to business interruptions of suppliers, reduced availability of labor, consolidation in their supply chain, the impact of the COVID-19 pandemic, or sanctions, trade restrictions or tariffs that impair sourcing flexibility or increase costs.
The labor, supplies and equipment necessary for their businesses could become more difficult to obtain for various reasons not limited to business interruptions of suppliers, reduced availability of labor, consolidation in their supply chain, or sanctions, trade restrictions or tariffs or the impact of the COVID-19 pandemic that impair sourcing flexibility or increase costs.
Changes in tax policy, trade regulations or other matters, and any uncertainty surrounding the scope or timing of such changes, could negatively impact the stock market, and reduce the trading price of our stock. For example, in February 2022, the U.S. began implementing widescale sanctions against Russia due to Russia's invasion of the Ukraine.
Changes in tax policy, trade regulations or other matters, and any uncertainty surrounding the scope or timing of such changes, could negatively impact the stock market, and reduce the trading price of our stock. For example, in February 2022, the U.S. began implementing widescale sanctions against Russia due to Russia's invasion of Ukraine.
The financial failure of a large licensee, customer or distributor, an important supplier, or a group thereof, could have an adverse impact on our operating results and could result in our inability to collect our accounts receivable balances, higher allowances for credit losses, and higher operating costs as a percentage of net sales.
The financial failure of a large licensee, customer, reseller or distributor, an important supplier, or a group thereof, could have an adverse impact on our operating results and could result in our inability to collect our accounts receivable balances, higher allowances for credit losses, and higher operating costs as a percentage of net sales.
Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. Our senior secured notes are rated by certain major credit rating agencies. These credit ratings impact our cost of borrowing and our ability to access the capital markets and are based on our financial performance and financial metrics including debt levels.
Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. Our senior notes are rated by certain major credit rating agencies. These credit ratings impact our cost of borrowing and our ability to access the capital markets and are based on our financial performance and financial metrics including debt levels.
We must attract and retain qualified personnel to be successful, and competition for qualified personnel has intensified in recent periods in our industry due to high demand for skilled employees. Availability of labor is currently constrained in certain geographic markets in which we operate due to the tight and competitive labor market across our industry.
We must attract and retain qualified personnel to be successful, and competition for qualified personnel has intensified in recent periods in our industry due to high demand for skilled employees. Availability of labor is currently constrained in certain geographic markets in which we operate due to the tight and competitive labor market in our industry.
However, broad fluctuations in our business, changes in semiconductor industry and global economic conditions (including the impact of continued strong demand in the industry, the COVID-19 pandemic or trade tensions) and our acquisition activity (including our acquisition of Microsemi) have had and can have a more significant impact on our results than seasonality.
However, broad fluctuations in our business, changes in semiconductor industry and global economic conditions (including the impact of strong demand in the industry, the COVID-19 pandemic or trade tensions) and our acquisition activity (including our acquisition of Microsemi) have had and can have a more significant impact on our results than seasonality.
However, recent system improvements have not been fully effective in preventing attacks on our IT systems and data, including breaches of our security measures, and there can be no assurance that any future system improvements will be effective in preventing future cyber-attacks or disruptions or limiting the damage from any future cyber-attacks or disruptions.
However, our system improvements have not been fully effective in preventing attacks on our IT systems and data, including breaches of our security measures, and there can be no assurance that any future system improvements will be effective in preventing future cyber-attacks or disruptions or limiting the damage from any future cyber-attacks or disruptions.
Risks Related to Cybersecurity, Privacy, Intellectual Property, and Litigation • attacks on our IT systems, interruptions in our IT systems, or improper handling of data; • risks related to compliance with privacy and data protection laws and regulations; • risks related to legal proceedings, investigations or claims; • risks related to contractual relationships with our customers; and • protecting and enforcing our intellectual property rights.
Risks Related to Cybersecurity, Privacy, Intellectual Property, and Litigation • attacks on our IT systems, interruptions in our IT systems, our products or our improper handling of data; • risks related to compliance with privacy and data protection laws and regulations; • risks related to legal proceedings, investigations or claims; • risks related to contractual relationships with our customers; and • protecting and enforcing our intellectual property rights.
Sanctions against Belarus and certain Ukraine regions were later implemented. Because the actions by Russia against the Ukraine are in conflict with our Guiding Values, Microchip chose to cease shipments into Russia and Belarus, and we will continue to comply with applicable U.S. sanctions regarding Ukraine.
Sanctions against Belarus and certain Ukrainian regions were later implemented. Because the actions by Russia against Ukraine are in conflict with our Guiding Values, Microchip chose to cease shipments into Russia and Belarus, and we will continue to comply with applicable U.S. sanctions regarding Ukraine.
Operations at any of our facilities, at the facilities of any of our wafer fabrication or assembly and test subcontractors, or at any of our significant vendors, licensees or customers may be disrupted due to public health concerns (including outbreaks such as COVID-19), work stoppages or reduction in available labor, power loss, insufficient water, cyber attacks, computer network compromises, incidents of terrorism or security risk, political instability, telecommunications, transportation or other infrastructure failure, radioactive contamination, or fire, earthquake, floods, droughts, volcanic eruptions or other natural disasters.
Operations at any of our facilities, at the facilities of any of our wafer fabrication or assembly and test subcontractors, or at any of our significant vendors, licensees or customers may be disrupted due to public health concerns (including outbreaks such as COVID-19), work stoppages or reduction in available labor, power loss, insufficient water, cyber attacks, computer network compromises, incidents of terrorism or security risk, political instability, governmental actions, telecommunications, transportation or other infrastructure failure, radioactive contamination, or fire, earthquake, floods, droughts, volcanic eruptions or other natural disasters.
With the exception of orders placed under our Preferred Supply Program, we do not typically enter into long-term contracts with our non-distributor customers, and therefore we cannot be certain about future order levels from our customers.
With the exception of orders placed under our Preferred Supply Program and LTSAs, we do not typically enter into long-term contracts with our non-distributor customers, and therefore we cannot be certain about future order levels from our customers.
We could incur significant expenses related to such matters, including, but not limited to: • costs related to writing off the value of our inventory of nonconforming products; • recalling nonconforming products; • providing support services, product replacements, or modifications to products and the defense of such claims; • diversion of resources from other projects; • lost revenue or a delay in the recognition of revenue due to cancellation of orders or unpaid receivables; • customer imposed fines or penalties for failure to meet contractual requirements; and • a requirement to pay damages or penalties.
We could incur significant expenses related to such matters, including, but not limited to: • costs related to writing off the value of our inventory of nonconforming products; • recalling nonconforming products; • providing support services, product replacements, or modifications to products and the defense of such claims; • diversion of resources from other projects; • lost revenue or a delay in the recognition of revenue due to cancellation of orders, unpaid receivables, or reimbursement of costs or damages; • customer imposed fines or penalties for failure to meet contractual requirements; and • a requirement to pay damages, penalties or recall costs.
The success of our technology licensing business depends on various other factors, including, but not limited to: • proper identification of licensee requirements; • timely development and introduction of new or enhanced technology; • our ability to protect and enforce our intellectual property rights for our licensed technology; • our ability to limit our liability and indemnification obligations to licensees; • availability of development and support services to assist licensees in their design and manufacture of products; • availability of foundry licensees with sufficient capacity to support OEM production; and • market acceptance of our customers' end products.
The success of our technology licensing business depends on various other factors, including, but not limited to: • proper identification of licensee requirements; • timely development and introduction of new or enhanced technology; • our ability to protect and enforce our intellectual property rights for our licensed technology, and enforce the terms of our licenses; • our ability to limit our liability and indemnification obligations to licensees; • availability of development and support services to assist licensees in their design and manufacture of products; • availability of foundry licensees with sufficient capacity to support OEM production; and • market acceptance of our customers' end products.
If any of these risks occur or are worse than we anticipate, our sales could decrease and our operating results could suffer, we could face an increase in the cost of components, production delays, business interruptions, delays in obtaining export licenses, tariffs and other restrictions, longer payment cycles, increased taxes, restrictions on the repatriation of funds and the burdens of complying with a variety of foreign laws, any of which could ultimately have a material adverse effect on our business.
If any of these risks occur or are worse than we anticipate, our sales could decrease and our operating results could suffer, we could face an increase in the cost of components, production delays, business interruptions, delays in obtaining export licenses, or denials of such licenses, tariffs and other restrictions, longer payment cycles, increased taxes, restrictions on the repatriation of funds and the burdens of complying with a variety of foreign laws, any of which could ultimately have a material adverse effect on our business.
We may need or desire to refinance our current or future debt and there can be no assurance that we will be able to do so on reasonable terms, if at all. 29 Table of Contents Servicing our debt requires a significant amount of cash, we may not have sufficient cash to fund payments and adverse changes in our credit ratings could increase our borrowing costs and adversely affect our ability to access the debt markets.
We may need or desire to refinance our current or future debt and there can be no assurance that we will be able to do so on reasonable terms, if at all. 32 Table of Contents Servicing our debt requires a significant amount of cash, we may not have sufficient cash to fund payments and adverse changes in our credit ratings could increase our borrowing costs and adversely affect our ability to access the debt markets.
We depend on orders that are received and shipped in the same quarter and have limited visibility to product shipments other than orders placed under our Preferred Supply Program.
We depend on orders that are received and shipped in the same quarter and have limited visibility to product shipments other than orders placed under our Preferred Supply Program and under our LTSAs.
Interruptions in and unauthorized access to our IT systems, or improper handling of data, could adversely affect our business. We rely on the uninterrupted operation of complex IT systems and networks to operate our business.
Interruptions in and unauthorized access to our IT systems, our products, or our improper handling of data, could adversely affect our business. We rely on the uninterrupted operation of complex IT systems and networks to operate our business.
Should there be a loss or adverse judgment in an area for which we are self-insured, then our financial condition, results of operations and liquidity may be materially adversely affected. 22 Table of Contents Risks Related to Cybersecurity, Privacy, Intellectual Property, and Litigation We continue to be the target of attacks on our IT systems.
Should there be a loss or adverse judgment in an area for which we are self-insured, then our financial condition, results of operations and liquidity may be materially adversely affected. 24 Table of Contents Risks Related to Cybersecurity, Privacy, Intellectual Property, and Litigation We continue to be the target of attacks on our IT systems.
Although our business has not been materially adversely impacted by recent changes in the value of the U.S. dollar, there can be no assurance as to the future impact that any weakness or strength in the U.S. dollar will have on our business or results of operations. Item 1B. Unresolved Staff Comments None. 30 Table of Contents
Although our business has not been materially adversely impacted by recent changes in the value of the U.S. dollar, there can be no assurance as to the future impact that any weakness or strength in the U.S. dollar will have on our business or results of operations. Item 1B. Unresolved Staff Comments None. 33 Table of Contents
Further, determination by a government that we have failed to comply with trade regulations or anti-bribery regulations can result in penalties which may include denial of export privileges, fines, penalties, and seizure of products, any of which could have a material adverse effect on our business, sales and earnings.
Further, determination by a government that we have failed to comply with trade regulations or anti-bribery regulations can result in penalties which may include denial of export privileges, fines, penalties, and seizure of products, or loss of reputation, any of which could have a material adverse effect on our business, sales and earnings.
The U.S. government and its contractors may terminate their contracts with us at any time. For example, in 2014, the U.S. government terminated a $75 million contract with Microsemi. Uncertainty in government spending and termination of contracts for government related projects could have a material adverse impact on the revenue from our Microsemi acquisition.
The U.S. government and its contractors may terminate their contracts with us at any time. For example, in 2014, the U.S. government terminated a $75 million contract with Microsemi. Uncertainty in government spending and termination of contracts for government related projects could have a material adverse impact on the revenue from our government related business.
Because turns orders can be difficult to predict, especially in times of economic volatility where customers may change order levels within the quarter, varying levels of turns orders make it more difficult to forecast net sales. The level of turns orders may also decrease in periods where customers are holding excess inventory of our products.
Because turns orders can be difficult to predict, especially in times of economic volatility where customers may change order levels within the quarter, varying levels of turns orders make it more difficult to forecast net sales. The level of turns orders may also decrease in future periods in situations where customers are holding excess inventory of our products.
The supplies necessary for our business could become more difficult to obtain as worldwide use of semiconductors increases, or due to supply chain disruptions or political instability. Additionally, consolidation in our supply chain due to mergers and acquisitions may reduce the number of suppliers or change our relationships with them.
The supplies necessary for our business could become more difficult to obtain as worldwide use of semiconductors increases, or due to supply chain disruptions, trade restrictions or political instability. Additionally, consolidation in our supply chain due to mergers and acquisitions may reduce the number of suppliers or change our relationships with them.
These and any other data privacy laws and their interpretations continue to develop and their uncertainty and inconsistency may increase the cost of compliance, cause compliance challenges, restrict our ability to offer products in certain locations in the same way that we have been, potentially adversely affect certain third-party service providers, or subject us to sanctions by data protection regulators, all of which could adversely affect our business, financial condition and results of operations.
These and any other data privacy laws and their interpretations continue to develop and their uncertainty and inconsistency may increase the cost of compliance, cause compliance challenges, restrict our ability to offer products in certain locations in the same way that we have been, potentially adversely affect certain third-party service 26 Table of Contents providers, or subject us to sanctions by data protection regulators, all of which could adversely affect our business, financial condition and results of operations.
These legal proceedings and claims, even if meritless, have in the past and could in the future result in substantial costs to us.
These legal proceedings and claims, even if meritless, have in the past and could in the future result in unexpected and substantial costs to us.
The subsidy grant agreements typically contain economic incentive, headcount, capital and research and development expenditures and other covenants that must be met to receive and retain grant benefits, and these programs can be subjected to periodic review by the relevant governments.
Tax arrangements and subsidy grant agreements typically contain economic incentive, headcount, capital and research and development expenditures and other covenants that must be met to receive and retain benefits, and these programs can be subjected to periodic review by the relevant governments.
Historically, average selling prices in the semiconductor industry decrease over the life of a product. The average selling prices of our microcontroller, FPGA products, and proprietary products in our analog product line have remained relatively constant over time, while average selling prices of our memory and non-proprietary products in our analog product line have declined over time.
Historically, average selling prices in the semiconductor industry decrease over the life of a product. The average selling prices of our mixed-signal microcontroller, FPGA products, and proprietary products in our analog product line have remained relatively constant over time, while average selling prices of our memory and non-proprietary products in our analog product line have declined over time.
If the U.S. government fails to complete its annual budget process or to provide for a continuing resolution to fund government operations, another federal government shutdown may occur, during which we may experience further delays, reductions in or terminations of government contracts or subcontracts, which could materially and adversely affect our operating results.
If the U.S. government fails to complete its annual budget process, provide for a continuing resolution to fund government operations or increase the federal debt limit, another federal government shutdown may occur, during which we may experience further delays, reductions in or terminations of government contracts or subcontracts, which could materially and adversely affect our operating results.
Our operating results will suffer if we are unable to maintain yields at or above approximately the current levels. This could include delays in the recognition of revenue, loss of revenue, and penalties for failure to meet shipment deadlines. Our operating results are adversely affected when we operate below normal capacity.
Our operating 18 Table of Contents results will suffer if we are unable to maintain yields at or above approximately the current levels. This could include delays in the recognition of revenue, loss of revenue, and penalties for failure to meet shipment deadlines. Our operating results are adversely affected when we operate below normal capacity.
While the proposed rule is not yet in effect and is subject to change as a result of the SEC comment process, if it were to go in effect in its current form, we would incur significant additional costs of compliance due to the need for expanded data collection, analysis, and certification.
While the proposed rule is not yet in effect and is subject to change as a result of the SEC comment process, if it 30 Table of Contents were to go in effect in its current form, we would incur significant additional costs of compliance due to the need for expanded data collection, analysis, and certification.
Any such breach or loss of data by our third-party service providers could negatively impact our business, operations and financial results, as well as our relationship with our customers. 23 Table of Contents Our failure to comply with federal, state, or international privacy and data protection laws and regulations may materially adversely affect our business, results of operations and financial condition.
Any such breach or loss of data by our third-party service providers could negatively impact our business, operations and financial results, as well as our relationship with our customers. Our failure to comply with federal, state, or international privacy and data protection laws and regulations may materially adversely affect our business, results of operations and financial condition.
Integrated circuits manufacturing processes are complex and sensitive to many factors, including contaminants in the 17 Table of Contents manufacturing environment or materials used, the performance of our personnel and equipment, and other quality issues. As is typical in the industry, we have from time to time experienced lower than anticipated manufacturing yields.
Integrated circuits manufacturing processes are complex and sensitive to many factors, including contaminants in the manufacturing environment or materials used, the performance of our personnel and equipment, and other quality issues. As is typical in the industry, we have from time to time experienced lower than anticipated manufacturing yields.
Federal Acquisition Regulation prohibited U.S. governmental agencies from buying equipment using covered telecommunications equipment as a substantial component or critical technology where the technology came from certain Chinese companies.
Federal Acquisition Regulation prohibited U.S. governmental agencies from buying equipment incorporating covered telecommunications equipment, as a substantial component or critical technology, where the technology came from certain Chinese companies.
As a result of the foregoing risks or similar risks, the imposition of sanctions could have a material adverse effect on our business, results of operations or financial condition. 27 Table of Contents We are subject to stringent environmental and other regulations, which may force us to incur significant expenses.
As a result of the foregoing risks or similar risks, the imposition of sanctions could have a material adverse effect on our business, results of operations or financial condition. We are subject to stringent environmental and other regulations, which may force us to incur significant expenses.
In order to win important designs, avoid losing business to competitors, maintain existing business, or be permitted to bid on new business, we have, and may in the future, have to agree to uncapped liability for such items as intellectual property infringement or product failure.
In order to win important designs, avoid losing business to competitors, maintain existing business, or be permitted to bid on new business, we have, and may in the future, have to agree to uncapped liability for such items as intellectual property infringement or product failure, or have to agree to liquidated damage provisions.
To that end, we have acquired certain patents and licenses and intend to continue to seek patents on our technology and manufacturing processes. The process of seeking patent protection can be expensive, 25 Table of Contents and patents may not be issued from currently pending or future applications.
To that end, we have acquired certain patents and licenses and intend to continue to seek patents on our technology and manufacturing processes. The process of seeking patent protection can be expensive, and patents may not be issued from currently pending or future applications.
Our ability to compete successfully depends on a number of factors, including, but not limited to: • the relative impact of the COVID-19 pandemic on us relative to our competitors; • changes in demand in the markets that we serve and the overall rate of growth or contraction of such markets, including but not limited to the automotive, personal computing and consumer electronics markets; • our ability to obtain adequate foundry and assembly and test capacity and supplies at acceptable prices; • our ability to ramp production and increase capacity, at our wafer fabrication and assembly and test facilities; • the quality, performance, reliability, features, ease of use, pricing and diversity of our products; • our success in designing and manufacturing new products including those implementing new technologies; • the rate at which customers incorporate our products into their applications and the success of such applications; • the rate at which the markets that we serve redesign and change their own products; • product introductions by our competitors; • the number, nature and success of our competitors in a given market; • our ability to protect our products and processes by effective utilization of intellectual property rights; • our ability to address the needs of our customers; and • general market and economic conditions.
Our ability to compete successfully depends on a number of factors, including, but not limited to: • changes in demand in the markets that we serve and the overall rate of growth or contraction of such markets, including but not limited to the automotive, personal computing and consumer electronics markets; • our ability to obtain adequate foundry and assembly and test capacity and supplies at acceptable prices; • our ability to ramp production and increase capacity as needed, at our wafer fabrication and assembly and test facilities; • the quality, performance, reliability, features, ease of use, pricing and diversity of our products; • our success in designing and manufacturing new products including those implementing new technologies; • the rate at which customers incorporate our products into their applications and the success of such applications; • the rate at which the markets that we serve redesign and change their own products; • product introductions by our competitors; • the number, nature and success of our competitors in a given market; • our ability to protect our products and processes by effective utilization of intellectual property rights; • our ability to address the needs of our customers; and • general market and economic conditions.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, in August 2012, the SEC released investigation, and disclosure requirements regarding the use of "conflict" minerals mined from the Democratic Republic of Congo and adjoining countries. We filed a Form SD with the SEC regarding such matters on May 28, 2021. Other countries are considering similar regulations.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, in August 2012, the SEC released investigation, and disclosure requirements regarding the use of "conflict" minerals mined from the Democratic Republic of Congo and adjoining countries. We filed a Form SD with the SEC regarding such matters on May 27, 2022. Other countries are considering similar regulations.
Some of the factors that may affect our operating results include: • general economic, industry, public health or political conditions in the U.S. or internationally, including uncertain economic conditions in China or the ongoing uncertainty surrounding the COVID-19 pandemic and its implications; • disruptions in our business, our supply chain or our customers' businesses due to public health concerns (including viral outbreaks such as COVID-19), cybersecurity incidents, terrorist activity, armed conflict, war (including Russia's invasion of the Ukraine), worldwide oil prices and supply, fires, natural disasters or disruptions in the transportation system; • availability of raw materials, supplies and equipment due to supply chain constraints or other factors; • constrained availability from other electronic suppliers impacting our customers' ability to ship their products, which in turn may adversely impact our sales to those customers; • our ability to continue to increase our factory capacity to respond to changes in customer demand; • our ability to secure sufficient wafer foundry, assembly and testing capacity; • increased costs and availability of raw materials, supplies, equipment, utilities, labor, and/or subcontracted services for wafers, assembly and test; • changes in demand or market acceptance of our products and products of our customers, and market fluctuations in the industries into which such products are sold; • the level of order cancellations or push-outs due to the impact of the COVID-19 pandemic or other factors; • trade restrictions and increase in tariffs, including those on business in China, or focused on specific companies; • the mix of inventory we hold and our ability to satisfy orders from our inventory; • changes in utilization of our manufacturing capacity and fluctuations in manufacturing yields; • changes or fluctuations in customer order patterns and seasonality; • changes in tax regulations in countries in which we do business; • new accounting pronouncements or changes in existing accounting standards and practices; • levels of inventories held by our customers; • risk of excess and obsolete inventories; • competitive developments including pricing pressures; • unauthorized copying of our products resulting in pricing pressure and loss of sales; • our ability to successfully transition to more advanced process technologies to reduce manufacturing costs; • the level of orders that are received and can be shipped in a quarter, including the impact of product lead times; • the level of sell-through of our products through distribution; • our ability to continue to realize the expected benefits of our past or future acquisitions; • fluctuations in our mix of product sales; • announcements of other significant acquisitions by us or our competitors; • costs and outcomes of any current or future tax audits or any litigation, investigation or claims involving intellectual property, our Microsemi acquisition, customers or other issues; 13 Table of Contents • rising interest rates or inflation; and • property damage or other losses, whether or not covered by insurance.
Some of the factors that may affect our operating results include: • general economic, industry, public health or political conditions in the U.S. or internationally, including uncertain economic conditions in U.S., China and Europe, increases in interest rates, high inflation or instability in the banking sector; • disruptions in our business, our supply chain or our customers' businesses due to public health concerns (including viral outbreaks such as COVID-19), cybersecurity incidents, terrorist activity, armed conflict, war (including Russia's invasion of Ukraine), worldwide oil prices and supply, fires, natural disasters or disruptions in the transportation system; • the level of order cancellations or push-outs due to uncertain economic conditions or other factors; • availability of raw materials including rare earth minerals, supplies and equipment due to supply chain constraints or other factors; • constrained availability from other electronic suppliers impacting our customers' ability to ship their products, which in turn may adversely impact our sales to those customers; • our ability to continue to increase our factory capacity as needed to respond to changes in customer demand; • our ability to secure sufficient wafer foundry, assembly and testing capacity; • increased costs and availability of raw materials, supplies, equipment, utilities, labor, and/or subcontracted services for wafers, assembly and test; • changes in demand or market acceptance of our products and products of our customers, and market 13 Table of Contents fluctuations in the industries into which such products are sold; • trade restrictions and increase in tariffs, including those on business in China, or focused on specific companies; • the mix of inventory we hold and our ability to satisfy orders from our inventory; • changes in utilization of our manufacturing capacity and fluctuations in manufacturing yields; • changes or fluctuations in customer order patterns and seasonality; • changes in tax regulations in countries in which we do business; • new accounting pronouncements or changes in existing accounting standards and practices; • levels of inventories held by our customers and the customers of our distributors; • risk of excess and obsolete inventories; • competitive developments including pricing pressures; • unauthorized copying of our products resulting in pricing pressure and loss of sales; • our ability to successfully transition to more advanced process technologies to reduce manufacturing costs; • the level of orders that are received and can be shipped in a quarter, including the impact of product lead times; • the level of sell-through of our products through distribution or resale; • our ability to continue to realize the expected benefits of our past or future acquisitions; • fluctuations in our mix of product sales; • announcements of other significant acquisitions by us or our competitors; • costs and outcomes of any current or future tax audits or any litigation, investigation or claims involving intellectual property, our Microsemi acquisition, customers or other issues; and • property damage or other losses, whether or not covered by insurance.
We are exposed to various risks related to legal proceedings, investigations or claims. We are currently, and in the future may be, involved in legal proceedings, investigations or claims regarding intellectual property rights, product failures, our Microsemi acquisition, contracts and other matters.
We are exposed to various risks related to legal proceedings, investigations or claims. We are currently, and in the future may be, involved in legal proceedings, investigations or claims regarding intellectual property rights, product failures, our Microsemi acquisition, contracts, export controls and sanctions, and other matters.
Uncertain global economic and public health conditions, such as the COVID-19 pandemic, have caused and may in the future cause our operating results to fluctuate significantly and make comparisons between periods less meaningful. Our operating results may be adversely impacted if economic conditions impact the financial viability of our licensees, customers, distributors, or suppliers.
Uncertain global economic and public health conditions, such as the COVID-19 pandemic, have caused and may in the future cause our operating results to fluctuate significantly and make comparisons between periods less meaningful. Our operating results may be adversely impacted by the financial viability and performance of our licensees, customers, distributors, or suppliers.
We and others in the industry have, from time to time, experienced difficulties in transitioning to advanced 18 Table of Contents process technologies and have suffered reduced manufacturing yields or delays in product deliveries. Our future operating results could be adversely affected if any transition to future process technologies is substantially delayed or inefficiently implemented.
We and others in the industry have, from time to time, experienced difficulties in transitioning to advanced process technologies and have suffered reduced manufacturing yields or delays in product deliveries. Our future operating results could be adversely affected if any transition to future process technologies is substantially delayed or inefficiently implemented.
While sales of our products into the regions impacted by the Russia Ukraine conflict, and to customers that sell into these regions, have been negatively impacted by the Russian invasion of the Ukraine, at this time, we have not experienced a material impact on our business, results of operations or financial condition.
While sales of our products into the regions, and to customers that sell into these regions, have been negatively impacted by the Russian invasion of Ukraine, at this time, we have not experienced a material impact on our business, results of operations or financial conditions.
Any significant disruption to our systems or networks, including, but not limited to, new system implementations, computer viruses, security breaches, facility issues, natural disasters, terrorism, war, telecommunication failures or energy blackouts could have a material adverse impact on our business, operations, supply chain, sales and operating results.
Any improper handling of confidential data, or significant disruption to our systems or networks, including, but not limited to, new system implementations, computer viruses, security breaches, facility issues, natural disasters, terrorism, war, telecommunication failures or energy blackouts could have a material adverse impact on our business, operations, supply chain, sales and operating results.
We may lose sales if suppliers of raw materials, components or equipment fail to meet our or our customers' needs, increase prices or are impacted by increases in tariffs. Our manufacturing operations require raw and processed materials and equipment that must meet exacting standards.
We may lose sales if suppliers of raw materials, components or equipment fail to meet our or our customers' needs, increase prices, are impacted by increases in tariffs, or such raw materials, components or equipment become restricted or unavailable. Our manufacturing operations require raw and processed materials and equipment that must meet exacting standards.
We believe this program will enable us to be in a stronger position to make capacity and raw material commitments to our suppliers, buy capital equipment with confidence, hire employees and ramp up manufacturing and manufacture products more efficiently.
We believe these programs will enable us to be in a stronger position to make capacity and raw material commitments to our suppliers, buy capital equipment with confidence, hire employees and ramp up manufacturing and manufacture products more efficiently.
The U.S. and other countries have levied tariffs and taxes on certain goods, implemented trade restrictions, and introduced national security protection policies. Trade tensions between the U.S. and China, which escalated in 2018, have 26 Table of Contents continued and include the U.S. increasing tariffs on Chinese origin goods and China increasing tariffs on U.S. origin goods.
The U.S. and other countries have levied tariffs and taxes on certain goods, implemented trade restrictions, and introduced national security protection policies. Trade tensions between the U.S. and China, which escalated in 2018, have continued and include the U.S. increasing tariffs on Chinese origin goods and China increasing tariffs on U.S. origin goods.
For example, in fiscal 2022, COVID-19 related restrictions adversely impacted our manufacturing operations in the U.S., Philippines and Thailand along with our subcontractors' manufacturing operations in Malaysia, Taiwan and China. Similar challenges arose for our logistics service providers, which adversely impacted their ability to ship product to our customers.
For example, in the first three months of fiscal 2023 and in fiscal 2022, COVID-19 related restrictions adversely impacted our manufacturing operations in the U.S., Philippines and Thailand along with our subcontractors' manufacturing operations in Malaysia, Taiwan and China. Similar challenges arose for our logistics service providers, which adversely impacted their ability to ship product to our customers.
If this occurs, it may limit the amounts of net sales that we can achieve or require us to make significant investments to be able to manufacture these products in our own facilities or at other foundries and assembly and testing contractors.
If this occurs, it may limit the amounts of net sales that we can achieve or require us to make significant investments to be able to 15 Table of Contents manufacture these products in our own existing facilities, at new facilities or at other foundries and assembly and testing contractors.
Regulatory authorities in jurisdictions into or from which we ship our products or import supplies could levy fines, restrict or delay our ability to export products or import supplies, or increase costs associated with the manufacture or transfer of products. A significant portion of our sales require export and import activities.
Regulatory authorities in jurisdictions into or from which we ship our products or import supplies could issue new export controls or trade sanctions, levy fines, restrict or delay our ability to export products or import supplies, or increase costs associated with the manufacture or transfer of products. A significant portion of our sales require export and import activities.
Our inability to timely obtain a license, for any reason, including a delay in license processing due to a federal government shutdown like that which occurred in 2018, could cause a delay in scheduled shipments which could have a material adverse impact on our revenue within the quarter of a shutdown, and in following quarters depending on the extent that license processing is delayed.
Our inability to timely obtain a license, for any reason, including a delay in license processing due to a federal government shutdown like that which occurred in 2018, or changes in government policies of approval or denial of licenses, could cause a delay in scheduled shipments which could have a material adverse impact on our revenue within the quarter of a shutdown, and in following quarters depending on the extent that license processing is delayed.
For example, under certain contracts we have committed to supply products on scheduled delivery dates, or extended our obligations for liabilities such as warranties or indemnification for quality issues or intellectual property infringement.
For example, under certain contracts we have committed to supply products on scheduled delivery dates, or extended 27 Table of Contents our obligations for liabilities such as warranties or indemnification for quality issues or intellectual property infringement.
Turns orders correlate to overall semiconductor industry conditions and product lead times. Although our backlog has been very strong in recent periods due to favorable industry conditions and the impact of our Preferred Supply Program, turns orders remain important to our ability to meet our business objectives.
Turns orders correlate to overall semiconductor industry conditions and product lead times. Although our backlog has been strong in recent periods due to favorable industry conditions and the impact of our Preferred Supply Program and our LTSAs, in the future we expect turns orders to remain important to our ability to meet our business objectives.
Although our Board of Directors has authorized share repurchases of up to $4.00 billion, the authorization does not obligate us to acquire any particular amount of shares. We cannot guarantee that our share repurchase authorization will be fully consummated or that it will enhance long-term shareholder value.
Although our Board of Directors has authorized share repurchases of up to $4.00 billion, of which $2.63 billion is still available, the authorization does not obligate us to acquire any particular amount of shares. We cannot guarantee that our share repurchase authorization will be fully consummated or that it will enhance long-term shareholder value.
While we had approximately 124,000 customers, and our ten largest direct customers accounted for approximately 12% of our total revenue in fiscal 2022, and five of our top ten direct customers are contract manufacturers that perform manufacturing services for many customers, cancellation of customer contracts could have an adverse impact on our revenue and profits.
While we had approximately 125,000 customers, and our ten largest direct customers accounted for approximately 12% of our total revenue in fiscal 2023, and four of our top ten direct customers are contract manufacturers that perform manufacturing services for many customers, cancellation of customer contracts could have an adverse impact on our revenue and profits.
We rely on a direct labor force at our manufacturing facilities. Any inability to maintain our labor force at our facilities may disrupt our operations, delay production, shipments and revenue and result in us being unable to timely satisfy customer demand, and ultimately could materially and adversely affect our business, financial condition and results of operations.
Any inability to maintain our labor force at our facilities may disrupt our operations, delay production, shipments and revenue and result in us being unable to timely satisfy customer demand, and ultimately could materially and adversely affect our business, financial condition and results of operations.
When we do enter into customer contracts (other than under our Preferred Supply Program), the contract is generally cancelable based on standard terms and conditions. Under our Preferred Supply Program, customers may cancel contracts in the event of price increases.
When we enter into customer contracts (other than under our Preferred Supply Program and LTSAs), the contracts are generally cancelable based on standard terms and conditions. Under our Preferred Supply Program and LTSAs, customers may cancel contracts in the event of price increases.
The future trading price of our common stock could be subject to wide fluctuations in response to a variety of factors, many of which are beyond our control, including, but not limited to: • global economic and financial uncertainty due to the COVID-19 pandemic or other factors; • quarterly variations in our operating results or the operating results of other technology companies; • changes in our financial guidance or our failure to meet such guidance; • changes in analysts' estimates of our financial performance or buy/sell recommendations; • general conditions in the semiconductor industry; • the amount and timing of repurchases of shares of our common stock; • our ability to realize the expected benefits of our completed or future acquisitions; and • actual or anticipated announcements of technical innovations or new products by us or our competitors.
The future trading price of our common stock could be subject to wide fluctuations in response to a variety of factors, many of which are beyond our control, including, but not limited to: • global economic and financial uncertainty due to higher interest rates, higher inflation, instability in the banking sector, public health concerns or other factors; • quarterly variations in our operating results or the operating results of other technology companies; • changes in our financial guidance or our failure to meet such guidance; • changes in analysts' estimates of our financial performance or buy/sell recommendations; • general conditions in the semiconductor industry; • the amount and timing of repurchases of shares of our common stock; • our ability to realize the expected benefits of our completed or future acquisitions; and • actual or anticipated announcements of technical innovations or new products by us or our competitors.
If our customers are not able to produce their products, then their need for our products will decrease. Such interruptions of our customers’ businesses could harm our business. We do not purchase significant amounts of equipment from Russia, Belarus, or the Ukraine.
If our customers are not able to produce their products, then their need for our products will decrease. Such interruptions of our customers’ businesses could harm our business. We do not, nor have we historically, purchased significant amounts of equipment from Russia, Belarus, or Ukraine.
During fiscal 2022, approximately 78% of our net sales were made to foreign customers, including 22% in China and 15% in Taiwan. During fiscal 2021, approximately 77% of our net sales were made to foreign customers, including 22% in China and 16% in Taiwan. A strong position in the Chinese market is a key component of our global growth strategy.
During fiscal 2023, approximately 78% of our net sales were made to foreign customers, including 21% in China and 14% in Taiwan. During fiscal 2022, approximately 78% of our net sales were made to foreign customers, including 22% in China and 15% in Taiwan. A strong position in the Chinese market is a key component of our global growth strategy.
As a result of our acquisition activity, our goodwill and intangible assets have increased significantly in recent years and we may in the future incur impairments to goodwill or intangible assets. When we acquire a business, a substantial portion of the purchase price of the acquisition is allocated to goodwill and other identifiable intangible assets.
As a result of our acquisition activity, including our acquisition of Microsemi in May 2018, our goodwill and intangible assets increased significantly and we may in the future incur impairments to goodwill or intangible assets. When we acquire a business, a substantial portion of the purchase price of the acquisition is allocated to goodwill and other identifiable intangible assets.
Such disruption could result in an unauthorized release of our, our suppliers’ or our customers’ intellectual property or confidential, proprietary or sensitive information, or the release of personal data.
Such improper handling of confidential data, or system or network disruption, could result in an unauthorized release of our, our suppliers’ or our customers’ intellectual property or confidential, proprietary or sensitive information, or the release of personal data.
Our ability to make scheduled payments of principal, interest, or to refinance our indebtedness, including our outstanding Convertible Debt and Senior Notes, depends on our future performance, which is subject to economic, competitive and other factors including those related to the COVID-19 pandemic.
Our ability to make scheduled payments of principal, interest, or to refinance our indebtedness, including our outstanding Convertible Debt and Senior Notes, depends on our future performance, which is subject to economic, competitive and other factors.
The amount of the purchase price which is allocated to goodwill is determined by the excess of the purchase price over the net identifiable assets acquired. As of March 31, 2022, we had goodwill of $6.67 billion and net intangible assets of $4.04 billion.
The amount of the purchase price which is allocated to goodwill is determined by the excess of the purchase price over the net identifiable assets acquired. As of March 31, 2023, we had goodwill of $6.67 billion and net intangible assets of $3.37 billion.
Our future operating results could suffer if a significant contractor were to experience production difficulties, insufficient capacity, decreased manufacturing, reduced availability of labor, assembly and test yields, or increased costs due to disruptions from the COVID-19 pandemic, political upheaval or infrastructure disruption.
Our use of third parties reduces our control over the subcontracted portions of our business. Our future operating results could suffer if a significant contractor were to experience production difficulties, insufficient capacity, decreased manufacturing, reduced availability of labor, assembly and test yields, or increased costs due to disruptions from political upheaval, infrastructure disruption or the COVID-19 pandemic.
As of March 31, 2022, the principal amount of our outstanding indebtedness was $7.84 billion. As a result of our acquisition of Microsemi, we have substantially more debt than we had prior to May 2018.
As of March 31, 2023, the principal amount of our outstanding indebtedness was $6.47 billion. As a result of our acquisition of Microsemi, we have substantially more debt than we had prior to May 2018.
The program is not a guarantee of supply; however, it will provide the highest priority for those orders which are under this program, and the capacity priority will be on a first-come, first-served basis until the available capacity is booked. A significant portion of our capacity is booked under this new program.
The Preferred Supply Program and the LTSAs are not a guarantee of supply; however, they will provide the highest priority for those orders which are under these programs, and the capacity priority will be on a first-come, first-served basis until the available capacity is booked. A significant portion of our capacity is booked under these programs.
In particular, in connection with our Microsemi and Atmel acquisitions, we became involved with third-party claims, litigation, governmental investigations and disputes related to such businesses and transactions. See Note 11 to our consolidated financial statements for information regarding such matters.
In particular, in connection with our Microsemi and Atmel acquisitions, we became involved with third-party claims, litigation, governmental investigations and disputes related to such businesses and transactions. See "Note 10. Commitments and Contingencies " to our consolidated financial statements for information regarding such matters which are still pending.
At March 31, 2022, we had $1.40 billion in outstanding borrowings under our Revolving Credit Facility which provides up to $2.75 billion of revolving loan commitments that terminate in 2026. At March 31, 2022, we had $5.60 billion in aggregate principal amount of Senior Notes and $838.1 million in aggregate principal of Convertible Debt outstanding.
At March 31, 2023, we had $100.0 million in outstanding borrowings under our Revolving Credit Facility which provides up to $2.75 billion of revolving loan commitments that terminate in 2026. At March 31, 2023, we had $5.60 billion in aggregate principal amount of Senior Notes and $766.6 million in aggregate principal of Convertible Debt outstanding.
Our customers may have increased their order levels in previous periods to help ensure they have sufficient inventory of our products to meet their needs, or they may have been unable to sell their products at their forecasted levels.
Our customers may have increased their order levels in recent previous periods to help ensure they have sufficient inventory of our products to meet their needs, or they may have been unable to sell their products at their forecasted levels which would reduce our level of turns orders.
Risk Factor Summary Risks Related to Our Business, Operations, and Industry • impact of global economic conditions on our operating results, net sales and profitability; • impact of economic conditions on the financial viability of our licensees, customers, distributors, or suppliers; • impact of the COVID-19 pandemic, increased tariffs or other factors affecting our suppliers; • dependency on wafer foundries and other contractors by our licensees and ourselves; • dependence on foreign sales, suppliers, and operations, which exposes us to foreign political and economic risks; • limited visibility to product shipments; • intense competition in the markets we serve, leading to pricing pressures, reduced sales or market share; • ineffective utilization of our manufacturing capacity or failure to maintain manufacturing yields; • impact of seasonality and wide fluctuations of supply and demand in the industry; • dependency on distributors; • ability to introduce new products on a timely basis; • business interruptions, including natural disasters, affecting our operations or that of key vendors, licensees or customers; • technology licensing business exposes us to various risks; • reliance on sales into governmental projects, and compliance with associated regulations; • risks related to grants from governments, agencies and research organizations; • future acquisitions or divestitures; • future impairments to goodwill or intangible assets; • our failure to maintain proper and effective internal control and remediate future control deficiencies; • customer demands to implement business practices that are more stringent than legal requirements; • ability to attract and retain qualified personnel; and • the occurrence of events for which we are self-insured, or which exceed our insurance limits.
Risk Factor Summary Risks Related to Our Business, Operations, and Industry • impact of global economic conditions on our operating results, net sales and profitability; • impact of economic conditions on the financial viability and performance of our licensees, customers, distributors, or suppliers; • impact of price increases, increased tariffs, raw material availability or other factors affecting our suppliers; • dependence on wafer foundries and other contractors by our licensees and ourselves; • dependence on foreign sales, suppliers, and operations, which exposes us to foreign political and economic risks; • dependence on orders received and shipped in the same quarter, limited visibility to product shipments other than those shipped through our Preferred Supply Program or LTSAs; • intense competition in the markets we serve, leading to pricing pressures, reduced sales or market share; • ineffective utilization of our manufacturing capacity or failure to maintain manufacturing yields; • inability to achieve expected returns from capacity expansions; • impact of seasonality and wide fluctuations of supply and demand in the industry; • dependence on distributors; • ability to introduce new products on a timely basis; • business interruptions affecting our operations or that of key vendors, licensees or customers; • technology licensing business exposes us to various risks; • reliance on sales into governmental projects, and compliance with associated regulations; • risks related to grants from, or tax arrangements with, governments, agencies and research organizations; • ability to realize anticipated benefits from completed or future acquisitions or divestitures; 12 Table of Contents • future impairments to goodwill or intangible assets; • our failure to maintain proper and effective internal control and remediate future control deficiencies; • customer demands to implement business practices that are more stringent than legal requirements; • ability to attract and retain qualified personnel; and • the occurrence of events for which we are self-insured, or which exceed our insurance limits.
In the event that customers under this program attempt to cancel or reschedule orders, we may have to take legal or other action to enforce the terms of the program, and any such actions could result in damage to our customer relationships or cause us to incur significant costs.
However, in the event that customers under these programs attempt to cancel or reschedule orders, or refuse shipment, we may have to take legal or other action to enforce the terms of the 17 Table of Contents programs, and any such actions could result in damage to our customer relationships or cause us to incur significant costs.
Weakening of foreign markets could result in lower demand for our products, which could have a material adverse effect on our business, results of operations or financial conditions. We purchase a substantial portion of our raw materials and equipment from foreign suppliers.
Weakening of foreign markets could result in lower demand for our products, which could have a material adverse effect on our business, results of operations or financial conditions. We purchase a substantial portion of our raw materials and equipment from foreign suppliers. Please see the risks related to access to raw materials, components, or equipment on page 14 .
To participate in the program, customers have to place 12 months of orders, which cannot be cancelled or rescheduled except in the event of price increases. The capacity priority began for shipments in July 2021.
To participate in the Preferred Supply Program, customers are expected to place 12 months of orders, which cannot be cancelled or rescheduled by the customer except in the event of price increases. The capacity priority under the Preferred Supply Program began for shipments in July 2021.
Risks Related to Taxation, Laws and Regulations • impact of new accounting pronouncements or changes in existing accounting standards and practices; • fines, restrictions or delay in our ability to export or import products, or increase costs associated with the manufacture or transfer of products; 12 Table of Contents • outcome of future examinations of our income tax returns; • exposure to greater than anticipated income tax liabilities, changes in or the interpretation of tax rules and regulations including the TCJA, the American Rescue Plan Act of 2021 (ARPA), or unfavorable assessments from tax audits; • impact of the legislative and policy changes implemented globally by the current or future administrations; • impact of stringent environmental, climate change, conflict-free minerals and other regulations or customer demands; and • requirement to fund our foreign pension plans.
Risks Related to Taxation, Laws and Regulations • impact on our reported financial results by new accounting pronouncements or changes in existing accounting standards and practices; • the issuance of new export controls or trade sanctions, fines, restrictions or delays in our ability to export or import products, or increase costs associated with the manufacture or transfer of products; • outcome of future examinations of our income tax returns; • exposure to greater than anticipated income tax liabilities, changes in or the interpretation of tax rules and regulations including the TCJA, or unfavorable assessments from tax audits; • impact of the legislative and policy changes implemented globally by the current or future administrations; • impact of stringent environmental, climate change, conflict-free minerals and other regulations or customer demands; • ESG considerations; and • requirement to fund our foreign pension plans.
We also use several contractors located primarily in Asia for a portion of the assembly and testing of our products. Specifically, during fiscal 2022, approximately 41% of our assembly requirements and 36% of our test requirements were performed by third-party contractors compared to approximately 47% of our assembly requirements and 43% of our test requirements during fiscal 2021.
We also use several contractors for a portion of the assembly and testing of our products. Specifically, during fiscal 2023, approximately 41% of our assembly requirements and 33% of our test requirements were performed by third-party contractors compared to approximately 41% of our assembly requirements and 36% of our test requirements during fiscal 2022.
If we are unable to resolve or settle a matter, obtain necessary licenses on reasonable terms, reengineer products or processes to avoid infringement, provide a cost-effective remedy, or successfully prosecute or defend our position, we could incur uninsured liability in any of them, be required to take a charge to operations, be enjoined from selling a material portion of our products or using certain processes, suffer a reduction or elimination in the value of our inventories, and our business, financial condition or results of operations could be harmed. 24 Table of Contents It is also possible that from time to time we may be subject to claims related to the manufacture, performance, or use of our products.
If we are unable to resolve or settle a matter, obtain necessary licenses on reasonable terms, reengineer products or processes to avoid infringement, provide a cost-effective remedy, or successfully prosecute or defend our position, we could incur uninsured liability in any of them, be required to take a charge to operations, be enjoined from selling a material portion of our products or using certain processes, suffer a reduction or elimination in the value of our inventories, incur reputational damage, and our business, financial condition or results of operations could be harmed.
The success of our new product introductions depends on various factors, including, but not limited to: • effective new product selection; • timely completion and introduction of new product designs; • availability of skilled employees; • procurement of licenses for intellectual property rights from third parties under commercially reasonable terms; • timely filing and protection of intellectual property rights for new product designs; • availability of development and support tools and collateral literature that make complex new products easy for engineers to understand and use; and • market acceptance of our customers' end products.
The success of our new product introductions depends on various factors, including, but not limited to: • effective new product selection; • timely completion and introduction of new product designs; • availability of skilled employees; • procurement of licenses for intellectual property rights from third parties under commercially reasonable terms, including those that may be needed to offer interoperability between our products and third-party products; • implementation of appropriate technical standards developed by standard setting organizations; • timely filing and protection of intellectual property rights for new product designs; • availability of development and support tools and collateral literature that make complex new products easy for engineers to understand and use; and • market acceptance of our customers' end products.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe currently believe that our existing facilities are suitable and will be adequate to meet our requirements for at least the next 12 months. See page 42 for a discussion of the capacity utilization of our manufacturing facilities.
Biggest changeWe currently believe that our existing facilities are suitable and will be adequate to meet our requirements for at least the next 12 months.
Principal Operations Gresham, Oregon 826,500 Wafer fabrication (Fab 4), R&D center, warehousing and administrative offices Chandler, Arizona 687,000 Executive and administrative offices, wafer probe, R&D center, sales and marketing, and computer and service functions Lamesa, Calamba, Philippines 610,300 Assembly and test, warehousing and administrative offices Chacherngsao, Thailand 498,100 Assembly and test, wafer probe, sample center, warehousing and administrative offices Colorado Springs, Colorado 480,000 Wafer fabrication (Fab 5), test and R&D Canlubang, Calamba, Philippines 460,000 Wafer probe, test, warehousing and administrative offices Tempe, Arizona 388,100 Wafer fabrication (Fab 2), R&D center, warehousing and administrative offices Bangalore, India 294,000 R&D center, sales and marketing support and administrative offices Chacherngsao, Thailand 267,100 Assembly and test, warehousing and administrative offices Chennai, India 187,000 R&D center Lawrence, Massachusetts 160,000 Manufacturing and administrative offices Rousset, France 144,500 Test, R&D and administrative offices Mount Holly Springs, Pennsylvania 100,000 Manufacturing, R&D and administrative offices Garden Grove, California 98,100 Manufacturing, R&D and administrative offices San Jose, California 98,000 R&D and administrative offices Neckarbischofsheim, Germany 83,800 Manufacturing and administrative offices Nantes, France 77,000 Wafer probe, test, R&D, warehousing and administrative offices San Jose, California 71,000 R&D and administrative offices San Jose, California 57,000 R&D and administrative offices Beverly, Massachusetts 52,100 Manufacturing Heilbronn, Germany 48,000 R&D and administrative offices Karlsruhe, Germany 46,000 R&D and administrative offices Ennis County, Ireland 40,000 Manufacturing, R&D and administrative offices Simsbury, Connecticut 32,500 Manufacturing, R&D and administrative offices Shanghai, China 21,000 R&D, sales and marketing support and administrative offices Hsinchu, Taiwan 15,000 R&D and administrative offices In addition to the facilities we own, we lease several manufacturing, research and development facilities and sales offices in North America, Europe and Asia.
Principal Operations Gresham, Oregon 826,500 Wafer fabrication (Fab 4), R&D center, warehousing and administrative offices Chandler, Arizona 720,000 Executive and administrative offices, wafer probe, R&D center, sales and marketing, and computer and service functions Lamesa, Calamba, Philippines 610,300 Assembly and test, warehousing and administrative offices Chacherngsao, Thailand 498,100 Assembly and test, wafer probe, sample center, warehousing and administrative offices Colorado Springs, Colorado 480,000 Wafer fabrication (Fab 5), test and R&D Canlubang, Calamba, Philippines 460,000 Wafer probe, test, warehousing and administrative offices Tempe, Arizona 388,100 Wafer fabrication (Fab 2), R&D center, warehousing and administrative offices Bangalore, India 294,000 R&D center, sales and marketing support and administrative offices Chacherngsao, Thailand 287,300 Assembly and test, warehousing and administrative offices Chennai, India 187,000 R&D center Lawrence, Massachusetts 160,000 Manufacturing and administrative offices Rousset, France 144,500 Test, R&D and administrative offices Mount Holly Springs, Pennsylvania 100,000 Manufacturing, R&D and administrative offices Garden Grove, California 98,100 Manufacturing, R&D and administrative offices San Jose, California 98,000 R&D and administrative offices Neckarbischofsheim, Germany 83,800 Manufacturing and administrative offices Nantes, France 77,000 Wafer probe, test, R&D, warehousing and administrative offices San Jose, California 71,000 R&D and administrative offices San Jose, California 57,000 R&D and administrative offices Beverly, Massachusetts 52,100 Manufacturing Heilbronn, Germany 48,000 R&D and administrative offices Karlsruhe, Germany 46,000 R&D and administrative offices Ennis County, Ireland 40,000 Manufacturing, R&D and administrative offices Simsbury, Connecticut 32,500 Manufacturing, R&D and administrative offices Shanghai, China 21,000 R&D, sales and marketing and administrative offices Hsinchu, Taiwan 15,000 R&D and administrative offices In addition to the facilities we own, we lease several manufacturing, research and development facilities and sales offices in North America, Europe and Asia.
Item 2. Properties At March 31, 2022, we owned and used the facilities described below: Location Approximate Total Sq. Ft.
Item 2. Properties At March 31, 2023, we owned and used the facilities described below: Location Approximate Total Sq. Ft.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

6 edited+1 added−1 removed1 unchanged
Biggest change(www.researchdatagroup.com) The information in this Form 10-K appearing under the heading "Stock Price Performance Graph" is being "furnished" pursuant to Item 201(e) of Regulation S-K and shall not be deemed to be "soliciting material" or "filed" with the SEC or subject to Regulation 14A or 14C, other than as provided in Item 201(e) of Regulation S-K, or to the liabilities of Section 18 of the Exchange Act except to the extent that we specifically request that it be treated as such. 32 Table of Contents On May 12, 2022, there were approximately 546 holders of record of our common stock.
Biggest change(www.researchdatagroup.com) The information in this Form 10-K appearing under the heading "Stock Price Performance Graph" is being "furnished" pursuant to Item 201(e) of Regulation S-K and shall not be deemed to be "soliciting material" or "filed" with the SEC or subject 35 Table of Contents to Regulation 14A or 14C, other than as provided in Item 201(e) of Regulation S-K, or to the liabilities of Section 18 of the Exchange Act except to the extent that we specifically request that it be treated as such.
Comparison of 5 year Cumulative Total Return* *$100 invested on March 31, 2017 in stock or index, including reinvestment of dividends Fiscal year ending March 31. Copyright © 2022 Standard & Poor's, a division of S&P Global. All rights reserved.
Comparison of 5 year Cumulative Total Return* *$100 invested on March 31, 2018 in stock or index, including reinvestment of dividends Fiscal year ending March 31. Copyright © 2023 Standard & Poor's, a division of S&P Global. All rights reserved.
There is no expiration date associated with this authorization. Item 6. [Reserved] 33 Table of Contents
There is no expiration date associated with this authorization. Item 6. [Reserved] 36 Table of Contents
Security Ownership of Certain Beneficial Owners And Management And Related Stockholder Matters," at page 50 below, for the information required by Item 201(d) of Regulation S-K with respect to securities authorized for issuance under our equity compensation plans at March 31, 2022.
Refer to "Item 12. Security Ownership of Certain Beneficial Owners And Management And Related Stockholder Matters," at page 51 below, for the information required by Item 201(d) of Regulation S-K with respect to securities authorized for issuance under our equity compensation plans at March 31, 2023.
Issuer Purchases of Equity Securities The following table sets forth our purchases of our common stock in the three months ended March 31, 2022: Period Total number of shares purchased Average price paid per share Total number of shares purchased as part of publicly announced program Approximate dollar value of shares that may yet be purchased under the program (1) (in millions) January 1, 2022 - January 31, 2022 — $ — — February 1, 2022 - February 28, 2022 2,115,188 $ 73.14 2,115,188 March 1, 2022 - March 31, 2022 1,519,444 $ 69.06 1,519,444 3,634,632 3,634,632 $ 3,574.4 (1) In November 2021, our Board of Directors authorized the repurchase of up to $4.00 billion of our common stock in the open market or in privately negotiated transactions.
Issuer Purchases of Equity Securities The following table sets forth our purchases of our common stock in the three months ended March 31, 2023: Period Total number of shares purchased Average price paid per share Total number of shares purchased as part of publicly announced program Approximate dollar value of shares that may yet be purchased under the program (1) (in millions) January 1, 2023 - January 31, 2023 — $ — — February 1, 2023 - February 28, 2023 1,846,335 $ 83.08 1,846,335 March 1, 2023 - March 31, 2023 1,471,341 $ 81.87 1,471,341 3,317,676 3,317,676 $ 2,628.6 (1) In November 2021, our Board of Directors authorized the repurchase of up to $4.00 billion of our common stock in the open market or in privately negotiated transactions.
This figure does not reflect beneficial ownership of shares held in nominee names. For a description of our dividend policies, see Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources," included herein. Refer to "Item 12.
On May 22, 2023, there were approximately 547 holders of record of our common stock. This figure does not reflect beneficial ownership of shares held in nominee names. For a description of our dividend policies, see Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources," included herein.
Removed
Cumulative Total Return March 2017 March 2018 March 2019 March 2020 March 2021 March 2022 Microchip Technology Incorporated 100.00 125.97 116.39 96.66 224.15 219.65 S&P 500 Stock Index 100.00 113.99 124.82 116.11 181.54 209.94 Philadelphia Semiconductor Index 100.00 133.58 143.08 157.93 331.62 368.27 Data acquired by Research Data Group, Inc.
Added
Cumulative Total Return March 2018 2019 2020 2021 2022 2023 Microchip Technology Incorporated 100.00 92.40 76.74 177.94 174.37 197.78 S&P 500 Stock Index 100.00 109.50 101.86 159.25 184.17 169.94 Philadelphia Semiconductor Index 100.00 107.11 118.23 248.25 275.69 263.73 Data acquired by Research Data Group, Inc.

Item 7. Management's Discussion & Analysis

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

84 edited+33 added−46 removed56 unchanged
Biggest changeThese forward-looking statements include, without limitation, statements regarding the following: • Our expectation that certain supply chain constraints will continue through calendar 2022 and into calendar 2023; • That local governments could require us or our suppliers to reduce production, cease operations, or implement mandatory vaccine requirements, and we could experience constraints in fulfilling customer orders; • The effects that uncertain global economic conditions and fluctuations in the global credit and equity markets may have on our financial condition and results of operations; • The effects and amount of competitive pricing pressure on our product lines and modest pricing declines in certain of our more mature proprietary product lines; • Our ability to moderate future average selling price declines; • The effect of product mix, capacity utilization, yields, fixed cost absorption, competition and economic conditions on gross margin; • The amount of, and changes in, demand for our products and those of our customers; • The impact of national security protections, trade restrictions and changes in tariffs, including those impacting China; • Our expectation that in the future we will acquire additional businesses that we believe will complement our existing businesses; • Our expectation that in the future we will enter into joint development agreements or other strategic relationships with other companies; • The level of orders that will be received and shipped within a quarter, including the impact of our product lead times; • Our expectation that our days of inventory at June 30, 2022 will be 128 to 134 days; • Our belief that customers recognize our products and brand name and use distributors as an effective supply channel; • The accuracy of our estimates of the useful life and values of our property, assets and other liabilities; • Our ability to increase the proprietary portion of our analog product line and the effect of such an increase; • The impact of any supply disruption we may experience; • Our ability to effectively utilize our facilities at appropriate capacity levels and anticipated costs; • That we adjust capacity utilization to respond to actual and anticipated business and industry-related conditions; • That manufacturing costs will be reduced by transition to advanced process technologies; • Our ability to maintain manufacturing yields; • Continuing our investments in new and enhanced products; • The cost effectiveness of using our own assembly and test operations; • Our expectation that foundry capacity will continue to be limited due to strong demand for wafers across the industry; • Our expectation that we will continue to operate our manufacturing facilities at or above normal capacity if the current supply constraints relative to demand continue; • Our anticipated level of capital expenditures; • Continuation and amount of quarterly cash dividends; • The sufficiency of our existing sources of liquidity to finance anticipated capital expenditures and otherwise meet our anticipated cash requirements, and the effects that our contractual obligations are expected to have on them; • The impact of seasonality on our business; • Our belief that our IT system compromise has not had a material adverse effect on our business or resulted in any material damage to us; 34 Table of Contents • Our expectation that we will continue to be the target of cyber-attacks, computer viruses, unauthorized access and other attempts to breach or otherwise compromise the security of our IT systems and data; • The accuracy of our estimates used in valuing employee equity awards; • That the resolution of legal actions will not have a material effect on our business, and the accuracy of our assessment of the probability of loss and range of potential loss; • The accuracy of our estimated tax rate; • Our expectation regarding the treatment of our unrecognized tax benefits in calendar year 2022; • Our belief that the expiration of any tax holidays will not have a material impact on our effective tax rate; • The impact of the geographical dispersion of our earnings and losses on our effective tax rate; • Our belief that the estimates used in preparing our consolidated financial statements are reasonable; • Our actions to vigorously and aggressively defend and protect our intellectual property on a worldwide basis; • Our ability to obtain patents and intellectual property licenses and minimize the effects of litigation; • The level of risk we are exposed to for product liability claims or indemnification claims; • The effect of fluctuations in market interest rates on our income and/or cash flows; • The effect of fluctuations in currency rates; • That we could increase our borrowings or seek additional equity or debt financing to maintain or expand our facilities, or to fund cash dividends, share repurchases, acquisitions or other corporate activities, and that the timing and amount of such financing requirements will depend on a number of factors; • Our expectations regarding the amounts and timing of repurchases under our stock repurchase program; • Our intention to satisfy the lesser of the principal amount or the conversion value of our Convertible Debt in cash; • Our expectation that our reliance on third-party contractors may increase over time as our business grows; • Our ability to collect accounts receivable; and • The impact of the legislative and policy changes implemented or which may be implemented by the current administration, on our business and the trading price of our stock.
Biggest changeThese forward-looking statements include, without limitation, statements regarding the following: • The future impact on our business in response to the COVID-19 pandemic or other public health concerns; • Our expectation that we will experience period-to-period fluctuations in operating results, gross margins, product mix and average gross profit per unit; • The effects that uncertain global economic conditions and fluctuations in the global credit and equity markets may have on our financial condition and results of operations; • The effects and amount of competitive pricing pressure on our product lines and modest pricing declines in certain of our more mature proprietary product lines; • Our ability to moderate future average selling price declines; • The amount of, and changes in, demand for our products and those of our customers; • The impact of national security protections, trade restrictions and changes in tariffs, including those impacting China; • Our intent to vigorously defend our legal positions; • Our goal to continue to be more efficient with our selling, general and administrative expenses; • Our expectation that our days of inventory at June 30, 2023 will be 159 to 164 days; • Our belief that customers recognize our products and brand name and our use of distributors as an effective supply channel; • Our belief that familiarity with and adoption of development tools from us and from our third-party development tool partners will be an important factor in the future selection of our embedded control products; • The accuracy of our estimates of the useful life and values of our property, assets and other liabilities; • Fluctuations in our analog product line; • The impact of any supply disruption we may experience; • Our ability to effectively utilize our facilities at appropriate capacity levels; • Our ability to maintain manufacturing yields; • The maintenance of our competitive position based on our investments in new and enhanced products; • The cost effectiveness of using our own assembly and test operations; • Our plans to continue to transition certain outsourced assembly and test capacity to our internal facilities; • Our expectation of continued investment in expanding our manufacturing capacity during the next 12 months; • The continued development of the embedded control market based on our strong technical service presence; • Our anticipated level of capital expenditures; • The possibility that loss of, or disruption in the operations of, one or more of our distributors could reduce our future net sales and/or increase our inventory returns; • Our expectations regarding LTSAs and Preferred Supply Program; • The continuation and amount of quarterly cash dividends; • The sufficiency of our existing sources of liquidity to finance anticipated capital expenditures and otherwise meet our anticipated cash requirements, and the effects that our contractual obligations are expected to have on them; • Our belief that the capital expenditures to be incurred over the next 12 months will provide sufficient manufacturing capacity to support the growth of our production capabilities for our new products and technologies and to bring in-house more of the production requirements that are currently outsourced; • Our belief that our IT system compromise has not had a material adverse effect on our business or resulted in any material damage to us; • Our expectation that we will continue to be the target of cyber-attacks, computer viruses, unauthorized access and other attempts to breach or otherwise compromise the security of our IT systems and data; • The impact of the resolution of legal actions on our business, and the accuracy of our assessment of the probability of loss and range of potential loss; 37 Table of Contents • The amounts and timing, and our plans and expectations relating to the Statutory Notice of Deficiency and proposed income adjustment from the Malaysian Inland Revenue Board; • Our expectation regarding the treatment of our unrecognized tax benefits in calendar year 2023; • Our belief that the expiration of any tax holidays will not have a material impact on our effective tax rate; • The impact of the geographical dispersion of our earnings and losses on our effective tax rate; • Our belief that the estimates used in preparing our consolidated financial statements are reasonable; • Our actions to vigorously and aggressively defend and protect our intellectual property on a worldwide basis; • Our ability to obtain and maintain patents and intellectual property licenses and minimize the effects of litigation or other disputes or the loss of patent protection; • The level of risk we are exposed to for product liability claims or indemnification claims; • The effect of fluctuations in market interest rates on our income and/or cash flows; • The effect of fluctuations in currency rates; • The impact of inflation on our business; • Our ability to increase our borrowings or seek additional equity or debt financing to maintain or expand our facilities, or to fund cash dividends, share repurchases, acquisitions or other corporate activities, and that the timing and amount of such financing requirements will depend on a number of factors; • Our expectations regarding the amounts and timing of repurchases under our stock repurchase program; • Our expectation that our reliance on third-party contractors may increase over time as our business grows; • Our ability to collect accounts receivable; • The impact of the legislative and policy changes implemented or which may be implemented by the current administration, on our business and the trading price of our stock; • Our belief that our culture, values, and organizational development and training programs provide an inclusive work environment where our employees are empowered and engaged to deliver the best embedded control solutions; • Our belief that our continued success is driven by the skills, knowledge, and innovative capabilities of our personnel, a strong technical service presence, and our ability to rapidly commercialize new and enhanced products; • The potential impact of changes in regulations or in their enforcement, including with respect to the capital expenditures or other costs or expenses; • The impact of any failure by use to adequately control the storage, use, discharge and disposal of regulated substances; • Estimates and plans regarding pension liability and payments expected to be made for benefits earned; and • The impact on our business stemming from Russia’s invasion of Ukraine.
We use words such as "anticipate," "believe," "plan," "expect," "future," "continue," "intend" and similar expressions to identify forward-looking statements. Our actual results could differ materially from the results anticipated in these forward-looking statements as a result of certain factors including those set forth under "Risk Factors," beginning at page 12 and elsewhere in this Form 10-K.
We use words such as "anticipate," "believe," "can," "continue," "could," "expect," "future," "intend," "plan," and similar expressions to identify forward-looking statements. Our actual results could differ materially from the results anticipated in these forward-looking statements as a result of certain factors including those set forth under "Risk Factors," beginning at page 12 and elsewhere in this Form 10-K.
Operating Activities Net cash provided by operating activities was $2.84 billion for fiscal 2022, primarily due to higher net income of $1.29 billion, adjusted for non-cash and non-operating charges of $1.52 billion and net cash inflows of $34.2 million from changes in our operating assets and liabilities.
Net cash provided by operating activities was $2.84 billion in fiscal 2022, primarily due to net income of $1.29 billion, adjusted for non-cash and non-operating charges of $1.52 billion and net cash inflows of $34.2 million from changes in our operating assets and liabilities.
Other factors that we believe contributed to changes in our reported net sales for fiscal 2022 compared to fiscal 2021 and which are drivers of long-term trends in our net sales but which factors we are not able to quantify include: • semiconductor industry conditions; • our various new product offerings that have increased our served available market; • customers’ increasing needs for the flexibility offered by our programmable solutions; and • increasing semiconductor content in our customers’ products through our Total Systems Solutions.
Other factors that we believe contributed to changes in our reported net sales for fiscal 2023 compared to fiscal 2022 and which are drivers of long-term trends in our net sales but which factors we are not able to quantify include: • semiconductor industry conditions; • our various new product offerings that have increased our served available market; • customers’ increasing needs for the flexibility offered by our programmable solutions; and • increasing semiconductor content in our customers’ products through our Total Systems Solutions.
Our tax holiday periods in Thailand expire at various times in the future; however, we actively seek to obtain new tax holidays, otherwise we will be subject to tax at the statutory tax rate of 20%.
Our tax holiday periods in Thailand expire at various times in the future; however, we actively seek to obtain new tax holidays, otherwise we will be subject to tax at the statutory tax rate of 20.0%.
We anticipate that our gross margins will fluctuate over time, driven primarily by capacity utilization levels, the overall product mix of microcontroller, analog, FPGA products, memory products, and technology licensing revenue and the percentage of net sales of each of these products in a particular quarter, as well as manufacturing yields, fixed cost absorption, and competitive and economic conditions in the markets we serve.
We anticipate that our gross margins will fluctuate over time, driven primarily by capacity utilization levels, the overall product mix of mixed-signal microcontroller, analog, FPGA products, memory products, and technology licensing revenue and the percentage of net sales of each of these products in a particular quarter, as well as manufacturing yields, fixed cost absorption, and competitive and economic conditions in the markets we serve.
We disclaim any obligation to update the information contained in any forward-looking statement. 35 Table of Contents Introduction The following discussion should be read in conjunction with the consolidated financial statements and the related notes that appear elsewhere in this document, as well as with other sections of this Annual Report on Form 10-K, including "Item 8.
We disclaim any obligation to update the information contained in any forward-looking statement. 38 Table of Contents Introduction The following discussion should be read in conjunction with the consolidated financial statements and the related notes that appear elsewhere in this document, as well as with other sections of this Annual Report on Form 10-K, including "Item 8.
Our Thailand manufacturing operations are currently subject to numerous tax holidays granted to us based on our investment in property, plant, and equipment in Thailand.
Additionally, our Thailand manufacturing operations are currently subject to numerous tax holidays granted to us based on our investment in property, plant, and equipment in Thailand.
We believe that the capital expenditures anticipated to be incurred over the next twelve months will provide sufficient manufacturing capacity to support the growth of our production capabilities for our new products and technologies and to bring in-house more of the assembly and test operations that are currently outsourced.
We believe that the capital expenditures anticipated to be incurred over the next 12 months will provide sufficient manufacturing capacity to support the growth of our production capabilities for our new products and technologies and to bring in-house more of the assembly and test operations that are currently outsourced.
Net sales of our other product line can fluctuate over time based on general economic and semiconductor industry conditions as well as changes in demand for our FPGA products, licenses, engineering services, memory products, and manufacturing services (wafer foundry and assembly and test subcontracting).
Net sales of our other product line can fluctuate over time based on general economic and semiconductor industry conditions as well as changes in demand for our FPGA products, licenses, engineering services, memory products, timing systems, and manufacturing services (wafer foundry and assembly and test subcontracting).
The increase in net sales was due primarily to strength in demand for our microcontroller products in end markets that we serve and our price increases. Historically, average selling prices in the semiconductor industry decrease over the life of any particular product.
The increase in net sales was due primarily to strength in demand for our mixed-signal microcontroller products in end markets that we serve and our price increases. Historically, average selling prices in the semiconductor industry decrease over the life of any particular product.
We then discuss our results of operations for fiscal 2022 compared to fiscal 2021, followed by an analysis of changes in our balance sheet and cash flows, and discuss our financial commitments in the section titled "Liquidity and Capital Resources." Our liquidity and capital resources section generally discusses fiscal 2022 compared to fiscal 2021.
We then discuss our results of operations for fiscal 2023 compared to fiscal 2022, followed by an analysis of changes in our balance sheet and cash flows, and discuss our financial commitments in the section titled "Liquidity and Capital Resources." Our liquidity and capital resources section generally discusses fiscal 2023 compared to fiscal 2022.
Our non-U.S. blended statutory tax rates in fiscal 2022 and fiscal 2021 were lower than this amount. The difference in rates applicable in foreign jurisdictions results from a number of factors, including lower statutory rates, tax holidays, financing arrangements and other factors.
Our non-U.S. blended statutory tax rates in fiscal 2023 and fiscal 2022 were lower than this amount. The difference in rates applicable in foreign jurisdictions results from a number of factors, including lower statutory rates, tax holidays, financing arrangements and other factors.
We sell a large number of products to a large and diverse customer base and there was not any single product or customer that accounted for a material portion of the change in our net sales in fiscal 2022 or fiscal 2021.
We sell a large number of products to a large and diverse customer base and there was not any single product or customer that accounted for a material portion of the change in our net sales in fiscal 2023 or fiscal 2022.
There can be no assurance that any financing will be available on acceptable terms due to uncertainties resulting from the COVID-19 pandemic, rising interest rates, higher inflation, economic uncertainty, or other factors, and any additional equity financing would result in incremental ownership dilution to our existing stockholders.
There can be no assurance that any financing will be available on acceptable terms due to uncertainties resulting from rising interest rates, higher inflation, economic uncertainty, instability in the banking sector, the COVID-19 pandemic, or other factors, and any additional equity financing would result in incremental ownership dilution to our existing stockholders.
We will record an adjustment to a previously recorded position if new information or facts related to the position are identified in a subsequent period. All adjustments to the positions are recorded through the income statement.
We will record an adjustment to a previously recorded position if new information or facts related to the position are identified in a subsequent period. Generally, adjustments to the positions are recorded through the income statement.
However, the overall average selling prices of our microcontroller products have increased in recent periods and have remained relatively stable over time due to the proprietary nature of these products.
However, the overall average selling prices of our mixed-signal microcontroller products have increased in recent periods and have remained relatively stable over time due to the proprietary nature of these products.
No distributor or end customer accounted for more than 10% of our net sales in fiscal 2022 or fiscal 2021. Our distributors focus primarily on servicing the product requirements of a broad base of diverse customers. We believe that distributors provide an effective means of reaching this broad and diverse customer base.
In fiscal 2022, no distributor or direct customer accounted for more than 10% of our net sales. Our distributors focus primarily on servicing the product requirements of a broad base of diverse customers. We believe that distributors provide an effective means of reaching this broad and diverse customer base.
We record benefits for uncertain tax positions based on an assessment of whether it is more likely than not that the tax positions will be sustained based on their technical merits under currently enacted law. If this threshold is not met, no tax benefit of the uncertain tax position is recognized.
We record benefits for uncertain tax positions based on an assessment of whether it is more likely than not that the tax positions will be sustained based on their technical merits under currently enacted law. If this threshold 46 Table of Contents is not met, no tax benefit of the uncertain tax position is recognized.
Other income, net, in fiscal 2022 was $2.8 million compared to other loss, net of $3.8 million in fiscal 2021. The primary reasons for the change in other (loss) income, net during fiscal 2022 compared to fiscal 2021 relates to foreign currency exchange rate fluctuations and gains on equity investments.
Other income, net, in fiscal 2023 was $3.8 million compared to other income, net of $2.8 million in fiscal 2022. The primary reasons for the change in other income during fiscal 2023 compared to fiscal 2022 relates to foreign currency exchange rate fluctuations and gains on equity investments.
For our discussion of our fiscal 2021 results compared to fiscal 2020 for both our results of operations and our liquidity and capital resources sections, refer to "Item 7.
For our discussion of our fiscal 2022 results compared to fiscal 2021 for both our results of operations and our liquidity and capital resources sections, refer to "Item 7.
We have in the past been able to, and expect in the future to be able to, moderate average selling price declines in our microcontroller product lines by introducing new products with more features and higher prices. 40 Table of Contents Analog Our analog product line includes analog, interface, mixed signal and timing products.
We have in the past been able to, and expect in the future to be able to, moderate average selling price declines in our mixed-signal microcontroller product lines by introducing new products with more features and higher prices. Analog Our analog product line includes analog, interface, mixed-signal and timing products.
However, the ultimate outcome of disputes of this nature is uncertain, and if the IRS were to prevail on all of its assertions, the assessed tax, penalties, and deficiency interest could have a material adverse impact on our financial position, results of operations or cash flows.
However, the ultimate outcome of disputes of this nature is uncertain, and if the IRS and IRB were to prevail on their assertions, the assessed tax, penalties, and deficiency interest could have a material adverse impact on our financial position, results of operations or cash flows.
The loss of, or the disruption in the operations of, one or more of our distributors could reduce our future net sales in a given quarter and could result in an increase in inventory returns. At March 31, 2022, our distributors maintained 17 days of inventory of our products compared to 22 days at March 31, 2021.
The loss of, or the disruption in the operations of, one or more of our distributors could reduce our future net sales in a given quarter and could result in an increase in inventory returns. At March 31, 2023, our distributors maintained 24 days of inventory of our products compared to 17 days at March 31, 2022.
Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended March 31, 2021 filed with the SEC on May 18, 2021, which is incorporated by reference herein.
Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended March 31, 2022 filed with the SEC on May 20, 2022 which is incorporated by reference herein.
The increase in net sales was primarily due to strength in demand for our analog products in end markets that we serve and our price increases. We consider a majority of the products in our analog product line to be proprietary in nature, where prices are relatively stable, similar to the pricing stability experienced in our microcontroller products.
The increase in net sales was primarily due to strength in demand for our analog products in end markets that we serve and our price increases. 42 Table of Contents We consider a majority of the products in our analog product line to be proprietary in nature, where prices are relatively stable, similar to the pricing stability experienced in our mixed-signal microcontroller products.
Investing Activities Net cash used in investing activities was $477.7 million for fiscal 2022 compared to $173.3 million for fiscal 2021. Fiscal 2022 and fiscal 2021 investing cash flows primarily related to capital purchases and investments in other assets. Our level of capital expenditures varies from time to time as a result of actual and anticipated business conditions.
Investing Activities Net cash used in investing activities was $599.5 million for fiscal 2023 compared to $477.7 million for fiscal 2022. Fiscal 2023 and fiscal 2022 investing cash flows primarily related to capital purchases and investments in other assets. Our level of capital expenditures varies from time to time as a result of actual and anticipated business conditions.
The Credit Agreement also permits us, subject to certain conditions, to add one or more incremental term loan facilities or increase the revolving loan commitments up to $750.0 million. As of March 31, 2022, the principal amount of our outstanding indebtedness was $7.84 billion.
The Credit Agreement also permits us, subject to certain conditions, to add one or more incremental term loan facilities or increase the revolving loan commitments up to $750.0 million. As of March 31, 2023, the principal amount of our outstanding indebtedness was $6.47 billion.
Results of Operations The following table sets forth certain operational data as a percentage of net sales for fiscal 2022 and fiscal 2021: Fiscal Year Ended March 31, 2022 2021 Net sales 100.0 % 100.0 % Cost of sales 34.8 37.9 Gross profit 65.2 62.1 Research and development 14.5 15.4 Selling, general and administrative 10.5 11.2 Amortization of acquired intangible assets 12.7 17.1 Special charges and other, net 0.4 — Operating income 27.1 % 18.4 % Net Sales We operate in two industry segments and engage primarily in the design, development, manufacture and sale of semiconductor products as well as the licensing of our SuperFlash and other technologies.
Results of Operations The following table sets forth certain operational data as a percentage of net sales for fiscal 2023 and fiscal 2022: Fiscal Year Ended March 31, 2023 2022 Net sales 100.0 % 100.0 % Cost of sales 32.5 34.8 Gross profit 67.5 65.2 Research and development 13.3 14.5 Selling, general and administrative 9.5 10.5 Amortization of acquired intangible assets 7.8 12.7 Special (income) charges and other, net — 0.4 Operating income 36.9 % 27.1 % Net Sales We operate in two industry segments and engage primarily in the design, development, manufacture and sale of semiconductor products as well as the licensing of our SuperFlash and other technologies.
The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, business combinations, share-based compensation, inventories, income taxes, Convertible Debt and contingencies.
The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, inventories, income taxes and contingencies.
Our long-term liquidity requirements primarily arise from working capital requirements, interest and principal repayments related to our outstanding indebtedness, capital expenditures, cash dividends, share repurchases, and income tax payments. For additional information regarding our cash requirements see "Note 11. Commitments and Contingencies", "Note 10. Leases", "Note 6. Debt" and "Note 12.
Our long-term liquidity requirements primarily arise from working capital requirements, interest and principal repayments related to our outstanding indebtedness, capital expenditures, cash dividends, share repurchases, and income tax payments. For additional information regarding our cash requirements see "Note 10. Commitments and Contingencies", "Note 9. Leases", "Note 5. Debt" and "Note 11. Income Taxes" to our consolidated financial statements.
Our primary performance obligation related to these agreements is to provide the licensee the right to use the intellectual property. The final transaction price is determined by multiplying the usage of the license by the royalty, which is fixed in the licensing agreement. Revenue is recognized as usage of the license occurs.
Revenue generated from our licensees is governed by licensing agreements. Our primary performance obligation related to these agreements is to provide the licensee the right to use the intellectual property. The final transaction price is determined by multiplying the usage of the license by the royalty, which is fixed in the licensing agreement.
Significant transactions affecting our net financing cash flows include: • in fiscal 2022, $1.38 billion of cash used to pay down certain principal of our debt, including the cash portion of the settlement of our 2015 Senior Convertible Debt, our 2017 Senior Convertible Debt, and our 2017 Junior Convertible Debt, our Revolving Credit Facility and our 3.922% 2021 Notes, partially funded by the issuance of our senior notes, and • in fiscal 2021, $1.41 billion of cash used to pay down certain principal of our debt, including our Revolving Credit Facility, Term Loan Facility and Bridge Loan Facility, and the cash portion of the settlement of our 2015 Senior Convertible Debt, our 2017 Senior Convertible Debt, and our 2017 Junior Convertible Debt, partially funded by the issuance of our senior notes, and • in fiscal 2022 and fiscal 2021, we paid cash dividends to our stockholders of $503.8 million and $388.3 million, respectively, and • in fiscal 2022, we repurchased shares of our common stock for $425.6 million.
Significant transactions affecting our net financing cash flows included: • in fiscal 2023, $1.47 billion of cash used to pay down certain principal of our debt, including our 2015 Senior Convertible Debt, our 2017 Senior Convertible Debt, our 2017 Junior Convertible Debt, and our Revolving Credit Facility, and 47 Table of Contents • in fiscal 2022, $1.38 billion of cash used to pay down certain principal of our debt, including the cash portion of the settlement of our 2015 Senior Convertible Debt, our 2017 Senior Convertible Debt and our 2017 Junior Convertible Debt, our Revolving Credit Facility and our 3.922% 2021 Notes, partially funded by the issuance of our senior notes, and • in fiscal 2023 and fiscal 2022, we paid cash dividends to our stockholders of $695.3 million and $503.8 million, respectively, and • in fiscal 2023 and fiscal 2022, we repurchased shares of our common stock for $945.8 million and $425.6 million, respectively.
Revenue from these services and products accounted for approximately 15.6% and 17.6% of our net sales in fiscal 2022 and fiscal 2021, respectively. Net sales related to these products and services increased approximately 11.4% in fiscal 2022 compared to fiscal 2021.
Revenue from these services and products accounted for approximately 15.5% and 15.6% of our net sales in fiscal 2023 and fiscal 2022, respectively. Net sales related to these products and services increased approximately 22.4% in fiscal 2023 compared to fiscal 2022.
The effective tax rates that we pay in these jurisdictions vary widely, but they are generally lower than our combined U.S. federal and state effective tax rate. Our domestic blended statutory tax rate in each of fiscal 2022 and fiscal 2021 was approximately 22%.
We are subject to taxation in many jurisdictions in which we have operations. The effective tax rates that we pay in these jurisdictions vary widely, but they are generally lower than our combined U.S. federal and state effective tax rate. Our domestic blended statutory tax rate in each of fiscal 2023 and fiscal 2022 was approximately 22%.
Capital Returns In November 2021, our Board of Directors authorized the repurchase of up to $4.00 billion of our common stock in the open market or in privately negotiated transactions. In fiscal 2022, we repurchased approximately 5.6 million shares of our common stock for $425.6 million under this authorization.
Capital Returns In November 2021, our Board of Directors authorized the repurchase of up to $4.00 billion of our common stock in the open market or in privately negotiated transactions. In fiscal 2023, we repurchased approximately 12.9 million shares of our common stock for $945.8 million under this authorization.
Our analog product line accounted for approximately 28.4% and 27.9% of our net sales in fiscal 2022 and fiscal 2021, respectively. Net sales from our analog product line increased approximately 27.6% in fiscal 2022 compared to fiscal 2021.
Our analog product line accounted for approximately 28.2% and 28.4% of our net sales in fiscal 2023 and fiscal 2022, respectively. Net sales from our analog product line increased approximately 22.6% in fiscal 2023 compared to fiscal 2022.
Capital expenditures were $370.1 million and $92.6 million in fiscal 2022 and fiscal 2021, respectively. Capital expenditures were primarily for the expansion of production capacity and the addition of research and development equipment.
Capital expenditures were $486.2 million and $370.1 million in fiscal 2023 and fiscal 2022, respectively. Capital expenditures were primarily for the expansion of production capacity and the addition of research and development equipment.
Net sales by product line for fiscal 2022 and fiscal 2021 were as follows (dollars in millions): Fiscal Year Ended March 31, 2022 % 2021 % Microcontrollers $ 3,814.8 56.0 $ 2,961.0 54.5 Analog 1,939.1 28.4 1,519.8 27.9 Other 1,067.0 15.6 957.6 17.6 Total net sales $ 6,820.9 100.0 $ 5,438.4 100.0 Microcontrollers Our microcontroller product line represents the largest component of our total net sales.
Net sales by product line for fiscal 2023 and fiscal 2022 were as follows (dollars in millions): Fiscal Year Ended March 31, 2023 % 2022 % Mixed-signal Microcontrollers $ 4,755.7 56.3 $ 3,814.8 56.0 Analog 2,376.9 28.2 1,939.1 28.4 Other 1,306.1 15.5 1,067.0 15.6 Total net sales $ 8,438.7 100.0 $ 6,820.9 100.0 Mixed-signal Microcontrollers Our mixed-signal microcontroller product line represents the largest component of our total net sales.
We believe that the final adjudication of this matter will not have a material impact on our consolidated financial position, results of operations or cash flows and that we have adequate tax reserves for all tax matters.
We believe that the final adjudication of these matters will not have a material impact on our consolidated financial position and results of operations or cash flows.
Net impact of product mix and average gross profit per unit - The net impact of product mix and average gross profit per unit may fluctuate over time due to sales volumes of lower or higher margin products, changes in selling prices, and fluctuations in product costs.
The net impact of product mix and average gross profit per unit may fluctuate over time due to the mix of sales volumes of lower or higher margin products, changes in selling prices, and fluctuations in product costs. We are not able to separately quantify these impacts on our gross profit.
In estimating reserves for obsolescence, we evaluate projected demand over periods that align with demand forecasts used to develop manufacturing plans and inventory build decisions and provide reserves for inventory on hand in excess of estimated demand. Management reviews and adjusts the estimates as appropriate based on specific situations.
In determining whether there is a risk of obsolescence, we evaluate projected demand over periods that align with demand forecasts used to develop manufacturing plans and inventory build decisions and write down inventory on hand that is in excess of estimated demand. Management reviews and adjusts the estimates as appropriate based on specific situations.
We believe that the assembly and test operations performed at our internal facilities provide us with significant cost savings compared to contractor assembly and test costs, as well as increased 42 Table of Contents control over these portions of the manufacturing process. We plan to continue to transition certain outsourced assembly and test capacity to our internal facilities.
We believe that the assembly and test operations performed at our internal facilities provide us with significant cost savings compared to third party contractor assembly and test costs, as well as increased control over these portions of the manufacturing process.
R&D expenses include labor, depreciation, masks, prototype wafers, and expenses for the development of process technologies, new packages, and software to support new products and design environments. R&D expenses increased $152.7 million, or 18.3%, for fiscal 2022 compared to fiscal 2021.
R&D expenses include labor, depreciation, masks, prototype wafers, and expenses for the development of process technologies, new packages, and software to support new products and design environments. R&D expenses increased $129.2 million, or 13.1%, for fiscal 2023 compared to fiscal 2022.
Due to the complexity of the implementation of the price increases and the changes in product, geographic and customer mix, we are not able to quantify the impact of the price increases on our net sales.
These price increases also contributed to the increase in net sales during fiscal 2023 compared to fiscal 2022. Due to the complexity of the implementation of the price increases and the changes in product, geographic and customer mix, we are not able to quantify the impact of the price increases on our net sales.
We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income within the relevant jurisdiction and to the extent we believe that recovery is not likely, we must establish a valuation allowance.
These temporary differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheets. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income within the relevant jurisdiction and to the extent we believe that recovery is not likely, we must establish a valuation allowance.
Sales by Geography Sales by geography for fiscal 2022 and fiscal 2021 were as follows (dollars in millions): Fiscal Year Ended March 31, 2022 % 2021 % Americas $ 1,659.3 24.3 $ 1,389.1 25.5 Europe 1,391.0 20.4 1,042.9 19.2 Asia 3,770.6 55.3 3,006.4 55.3 Total net sales $ 6,820.9 100.0 $ 5,438.4 100.0 41 Table of Contents Americas sales include sales to customers in the U.S., Canada, Central America and South America.
Sales by Geography Sales by geography for fiscal 2023 and fiscal 2022 were as follows (dollars in millions): Fiscal Year Ended March 31, 2023 % 2022 % Americas $ 2,169.0 25.7 $ 1,659.3 24.3 Europe 1,774.8 21.0 1,391.0 20.4 Asia 4,494.9 53.3 3,770.6 55.3 Total net sales $ 8,438.7 100.0 $ 6,820.9 100.0 Americas sales include sales to customers in the U.S., Canada, Central America and South America.
Our effective tax rate has been and will continue to be impacted by the geographical dispersion of our earnings and losses. Our foreign tax rate differential benefit primarily relates to our operations and assets in Thailand and Ireland.
Our effective tax rate has been and will continue to be impacted by the geographical dispersion of our earnings and losses. Our foreign tax rate differential benefit primarily relates to our operations in Malta taxed at a 5.0% statutory tax rate and Ireland taxed at a 12.5% statutory tax rate.
The primary reason for the decrease in acquired intangible asset amortization was due to the use of accelerated amortization methods. 43 Table of Contents Special Charges and Other, Net During fiscal 2022, we incurred special charges and other, net of $29.5 million primarily related to restructuring of acquired and existing wafer fabrication operations to increase operational efficiency, legal contingencies and exiting non-manufacturing facilities including contract termination costs, employee severance, and the disposal of assets.
During fiscal 2022, we incurred special charges and other, net of $29.5 million primarily related to restructuring of acquired and existing wafer fabrication operations to increase operational efficiency, legal contingencies and exiting non-manufacturing facilities including contract termination costs, employee severance, and the disposal of assets.
Additionally, demand for our products was positively impacted by strength in our microcontroller and analog product lines. Due to the size, complexity and diversity of our customer base, we are not able to quantify any material factor contributing to the change other than net demand fluctuations in the end markets that we serve.
Additionally, the increase in net sales was positively impacted by strength in all of our product lines. Due to the size, complexity and diversity of our customer base, we are not able to quantify any material factor contributing to the changes other than the net demand fluctuations in the end market we serve. See our Item 1.
Microcontrollers and associated application development systems accounted for approximately 56.0% and 54.5% of our net sales in fiscal 2022 and fiscal 2021, respectively. Net sales of our microcontroller products increased approximately 28.8% in fiscal 2022 compared to fiscal 2021.
Mixed-signal microcontrollers and associated application development systems accounted for approximately 56.3% and 56.0% of our net sales in fiscal 2023 and fiscal 2022, respectively. Net sales of our mixed-signal microcontroller products increased approximately 24.7% in fiscal 2023 compared to fiscal 2022.
In December 2021, we filed a petition in the United States Tax Court challenging the Notice. We intend to vigorously defend our position and we are confident in our ability to prevail on the merits. We regularly assess the likelihood of adverse outcomes resulting from examinations such as this to determine the adequacy of our tax reserves.
We intend to vigorously defend our positions and we are confident in our ability to prevail on the merits. We regularly assess the likelihood of adverse outcomes resulting from examinations such as these to determine the adequacy of our tax reserves.
Net cash provided by operating activities was $1.92 billion for fiscal 2021, primarily due to net income of $349.4 million, adjusted for non-cash and non-operating charges of $1.59 billion and net cash outflows of $27.0 million from changes in our operating assets and liabilities.
Operating Activities Net cash provided by operating activities was $3.62 billion in fiscal 2023, primarily due to higher net income of $2.24 billion, adjusted for non-cash and non-operating charges of $1.40 billion and net cash outflows of $16.0 million from changes in our operating assets and liabilities.
During fiscal 2022, approximately 64% of our test requirements were performed in our internal test facilities, compared to approximately 57% during fiscal 2021.
Approximately 59% of our assembly requirements were performed in our internal assembly facilities during each of fiscal 2023 and fiscal 2022. During fiscal 2023, approximately 67% of our test requirements were performed in our internal facilities, compared to approximately 64% during fiscal 2022.
We believe these investments are significant factors in maintaining our competitive position. R&D costs are expensed as incurred. Assets purchased to support our ongoing research and development activities are capitalized when related to products which have achieved technological feasibility or that have alternative future uses and are amortized over their expected useful lives.
Assets purchased to support our ongoing research and development activities are capitalized when related to products which have achieved technological feasibility or that have alternative future uses and are amortized over their expected useful lives.
Income Taxes" of the notes to our consolidated financial statements. The semiconductor industry is capital intensive and in order to remain competitive, we must constantly evaluate the need to make significant investments in capital equipment for both production and research and development.
The semiconductor industry is capital intensive and in order to remain competitive, we must constantly evaluate the need to make significant investments in capital equipment for both production and research and development and to expand our existing facilities or potentially construct new facilities.
We believe that customers recognize Microchip for its products and brand name and use distributors as an effective supply channel. Generally, we do not have long-term agreements with our distributors and we, or our distributors, may terminate our relationships with each other with little or no advance notice, with the exception of orders placed under our Preferred Supply Program.
Generally, we do not have long-term agreements with our distributors and we, or our distributors, may terminate our relationships with each other with little or no advance notice, with the exception of orders placed under our Preferred Supply Program or otherwise designated as non-cancellable.
In certain circumstances, a customer's financial condition may require collateral, and, in such cases, the collateral would be typically provided in the form of letters of credit. 39 Table of Contents The following table summarizes our net sales for fiscal 2022 and fiscal 2021 (dollars in millions): Fiscal Year Ended March 31, 2022 2021 Change Net sales $ 6,820.9 $ 5,438.4 25.4 % The increase in net sales in fiscal 2022 compared to fiscal 2021 was primarily due to strong business conditions that began in the second half of fiscal 2021 as businesses and individuals adapted to the effects of the COVID-19 pandemic.
The following table summarizes our net sales for fiscal 2023 and fiscal 2022 (dollars in millions): Fiscal Year Ended March 31, 2023 2022 Change Net sales $ 8,438.7 $ 6,820.9 23.7 % 41 Table of Contents The increase in net sales in fiscal 2023 compared to fiscal 2022 was primarily due to strong business conditions that began in the second half of fiscal 2021 as businesses and individuals adapted to the effects of the COVID-19 pandemic.
We sell our products to distributors and OEMs in a broad range of markets, perform ongoing credit evaluations of our customers and generally require no collateral.
We sell our products to distributors and OEMs in a broad range of markets, perform ongoing credit evaluations of our customers and generally require no collateral. In certain circumstances, a customer's financial condition may require collateral, and, in such cases, the collateral would be typically provided in the form of letters of credit.
Substantially all of the 36 Table of Contents revenue generated from contracts with direct customers is recognized at, or near to, the time risk and title of the inventory transfers to the customer. Revenue generated from our licensees is governed by licensing agreements.
Substantially all of the revenue generated from contracts with direct customers is recognized at, or near to, the time risk and title of the inventory transfers to the customer. 39 Table of Contents We entered into LTSAs with certain of our customers that purchase through distributors or directly from us.
However, in December 2020, we restored previous reductions in compensation and resumed hiring. R&D expenses fluctuate over time, primarily due to revenue and operating expense investment levels. Selling, General and Administrative Selling, general and administrative expenses for fiscal 2022 were $718.9 million, or 10.5% of net sales, compared to $610.3 million, or 11.2% of net sales, for fiscal 2021.
R&D expenses fluctuate over time, primarily due to revenue and operating expense investment levels. 44 Table of Contents Selling, General and Administrative Selling, general and administrative expenses for fiscal 2023 were $797.7 million, or 9.5% of net sales, compared to $718.9 million, or 10.5% of net sales, for fiscal 2022.
Our effective tax rate in fiscal 2021 includes a $47.6 million tax benefit received from generated R&D credits, which reduced our effective tax rate by 14.0%; a $12.3 million tax benefit for share-based compensation deductions, which reduced our effective tax rate by 3.6%; a $28.1 million tax expense related to changes in various tax reserves, which increased our effective tax rate by 8.3%; a $122.5 million tax expense for the effects of foreign operations, which increased our effective tax rate by 36.1%; a $48.1 million tax benefit related to the settlement of convertible debt, which reduced our effective tax rate by 14.2%; and a $63.8 million tax benefit related to intra-group transfers of certain intellectual property rights, which reduced our effective tax rate by 18.8%.
Our effective tax rate in fiscal 2023 includes a $63.8 million tax benefit received from current year generated R&D credits, which reduced our effective tax rate by 2.2%; an $11.4 million tax benefit for share-based compensation deductions, which reduced our effective tax rate by 0.4%; a $50.6 million tax expense related to changes in various tax reserves, which increased our effective tax rate by 1.7%; and a $258.9 million tax expense for the effects of foreign operations, which increased our effective tax rate by 8.9%.
We rely on outside wafer foundries for a significant portion of our wafer fabrication requirements. Approximately 60% of our net sales came from products that were produced at outside wafer foundries in fiscal 2022, compared to 61% in fiscal 2021.
During fiscal 2023, approximately 63% of our net sales came from products that were produced at outside wafer foundries, compared to approximately 60% during fiscal 2022.
Our price increases were implemented at various times and in various amounts throughout fiscal 2022 with respect to our very broad range of customers and products.
Additionally, semiconductor industry conditions have resulted in increased costs throughout our supply chain, which we have been generally passing on to our customers in the form of price increases. Our price increases were implemented at various times and in various amounts throughout fiscal 2022 and fiscal 2023 with respect to our very broad range of customers and products.
Sales to foreign customers accounted for approximately 78% and 77% of our net sales in fiscal 2022 and fiscal 2021, respectively. Substantially all of our foreign sales are U.S. dollar denominated.
Sales to foreign customers accounted for approximately 78% of our total net sales in each of fiscal 2023 and fiscal 2022.
In October 2002, we announced that our Board of Directors had approved and instituted a quarterly cash dividend on our common stock. To date, our cumulative dividend payments have totaled approximately $5.05 billion. Cash dividends paid per share were $0.910 and $0.747 during fiscal 2022 and fiscal 2021, respectively.
Our current intent is to regularly repurchase shares of our common stock over time based on our cash generation, leverage metrics, and market conditions. In October 2002, we announced that our Board of Directors had approved and instituted a quarterly cash dividend on our common stock. To date, our cumulative dividend payments have totaled approximately $5.74 billion.
This process involves estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheets.
Income Taxes As part of the process of preparing our consolidated financial statements, we are required to record our income taxes in each of the jurisdictions in which we operate. This process involves determining our actual current tax exposure together with assessing temporary and permanent differences resulting from differing treatment of items for tax and accounting purposes.
Research and Development R&D expenses for fiscal 2022 were $989.1 million, or 14.5% of net sales, compared to $836.4 million, or 15.4% of net sales, for fiscal 2021. We are committed to investing in new and enhanced products, including development systems software, and in our design and manufacturing process technologies.
We continue to transition products to more advanced process technologies to reduce future manufacturing costs. Research and Development R&D expenses for fiscal 2023 were $1.12 billion, or 13.3% of net sales, compared to $989.1 million, or 14.5% of net sales, for fiscal 2022.
Sales to customers in Europe as a percentage of total net sales increased in fiscal 2022 compared to fiscal 2021 primarily due to strength in demand in our microcontroller and analog product lines. Our sales force in the Americas and Europe supports a significant portion of the design activity for products which are ultimately shipped to Asia.
Our sales force in the Americas and Europe supports a significant portion of the design activity for products which are ultimately shipped to Asia. 43 Table of Contents Gross Profit Our gross profit in fiscal 2023 was $5.70 billion, or 67.5% of net sales, compared to $4.45 billion, or 65.2% of net sales, in fiscal 2022.
The primary reason for the decrease in interest expense in fiscal 2022 compared to fiscal 2021 relates to the cumulative pay down of our debt and lower interest rates on our outstanding variable rate debt. Loss on settlement of debt in fiscal 2022 was $113.4 million compared to $299.6 million in fiscal 2021.
The primary reasons for the decrease in interest expense in fiscal 2023 compared to fiscal 2022 relates to the adoption of ASU 2020-06 on April 1, 2022, which eliminated the amortization of debt discount on our Convertible Debt, and the cumulative pay down of our debt offset by higher interest rates on our outstanding variable rate debt.
Provision for Income Taxes Our provision or benefit for income taxes is attributable to U.S. federal, state, and foreign income taxes. A comparison of our tax rates in fiscal 2022 and fiscal 2021 is not meaningful due to the amount of pre-tax income, and income tax benefit recorded during the prior period.
Provision for Income Taxes Our provision or benefit for income taxes is attributable to U.S. federal, state, and foreign income taxes. Our effective tax rate for the fiscal year ended March 31, 2023, increased significantly over the same period last year primarily due to a provision in the TCJA.
We expect to finance our capital expenditures through our existing cash balances and cash flows from operations. Financing Activities Net cash used in financing activities was $2.33 billion for fiscal 2022 compared to net cash used in financing activities of $1.86 billion for fiscal 2021.
Financing Activities Net cash used in financing activities was $3.10 billion for fiscal 2023 compared to net cash used in financing activities of $2.33 billion for fiscal 2022.
In fiscal 2021, the losses primarily related to the settlement of a portion of our outstanding 2015 Senior Convertible Debt, our 2017 Senior Convertible Debt, and our 2017 Junior Convertible Debt as well as the payment of all amounts outstanding under our Bridge Loan Facility, and our Term Loan Facility.
Loss on settlement of debt in fiscal 2023 was $8.3 million compared to $113.4 million in fiscal 2022. In fiscal 2023, the losses related to the settlement of a portion of our outstanding 2015 Senior Convertible Debt, our 2017 Senior Convertible Debt, and our 2017 Junior Convertible Debt.
The primary drivers of the changes in operating assets and liabilities in fiscal 2022 include an increase in trade accounts receivable driven primarily by higher net sales and an increase in inventories related to increased production levels and higher costs of materials and production costs in support of customer demand for our products, offset by increases in accounts payable, accrued and other liabilities driven by timing of payments to our suppliers, higher accrued employee compensation and sales related reserves.
The primary drivers of the changes in operating assets and liabilities in fiscal 2023 include an increase in trade accounts receivable driven primarily by higher net sales and an increase in inventories related to increased raw materials, foundry wafers, finished goods, receipt of strategic last time buy materials, and accommodating requests form certain customers to push-out orders, offset by increases in accrued and other liabilities driven by higher deferred revenue and sales related reserves, including cash collected from customers under our LTSAs.
In September 2021, we received a Statutory Notice of Deficiency (Notice) from the Internal Revenue Service (IRS) for fiscal 2007 through fiscal 2012. The disputed amounts largely relate to transfer pricing matters. We firmly believe that the assessments are without merit and plan to pursue all available administrative and judicial remedies necessary to resolve this matter.
We do not expect the future expiration of any of our tax holiday periods in Thailand to have a material impact on our effective tax rate. In September 2021, we received a Statutory Notice of Deficiency (Notice) from the United States Internal Revenue Service (IRS) for fiscal 2007 through fiscal 2012. The disputed amounts largely relate to transfer pricing matters.
During fiscal 2021, we incurred special charges and other, net of $1.7 million primarily related to the restructuring of our wafer fabrication operations partially offset by asset sales and other acquisition related activity. Restructuring expenses incurred during fiscal 2022 and fiscal 2021 include $21.1 million and $15.0 million, respectively, related to the restructuring of our wafer fabrication operations.
Restructuring expenses incurred during fiscal 2023 and fiscal 2022 include $16.8 million and $21.1 million, respectively, related to the restructuring of our wafer fabrication operations. Other Income (Expense) Interest income in fiscal 2023 was $2.1 million compared to $0.5 million in fiscal 2022. Interest expense in fiscal 2023 was $203.9 million compared to $257.0 million in fiscal 2022.
Selling, general and administrative expenses fluctuate over time, primarily due to revenue and operating expense investment levels. Amortization of Acquired Intangible Assets Amortization of acquired intangible assets in fiscal 2022 was $862.5 million compared to $932.3 million in fiscal 2021.
Selling, general and administrative expenses increased $78.8 million, or 11.0%, for fiscal 2023 compared to fiscal 2022. The primary reasons for the increase in selling, general and administrative expenses were increases in headcount and employee compensation. Selling, general and administrative expenses fluctuate over time, primarily due to revenue and operating expense investment levels.
Total dividend payments amounted to $503.8 million and $388.3 million during fiscal 2022 and fiscal 2021, respectively. A quarterly dividend of $0.276 per share was declared on May 9, 2022 and will be paid on June 3, 2022 to stockholders of record as of May 20, 2022.
A quarterly dividend of $0.383 per share was declared on May 4, 2023 and will be paid on June 5, 2023 to stockholders of record as of May 22, 2023. We expect the aggregate cash dividend for the June 2023 quarter to be approximately $209.0 million.
If the threshold is met, we recognize the largest amount of the tax benefit that is more than 50% likely to be realized upon ultimate settlement. 45 Table of Contents Liquidity and Capital Resources We had $319.4 million in cash, cash equivalents and short-term investments at March 31, 2022, an increase of $37.4 million from the March 31, 2021 balance.
If the threshold is met, we recognize the largest amount of the tax benefit that is more than 50% likely to be realized upon ultimate settlement. In August 2022, the U.S. government enacted the Inflation Reduction Act into law.
At March 31, 2022, we had $1.40 billion of outstanding borrowings under the Revolving Credit Facility compared to $2.35 billion at March 31, 2021. During fiscal 2021, we used borrowings under our Revolving 46 Table of Contents Credit Facility and proceeds from the issuance of our 0.972% 2024 Notes to repay all amounts outstanding under our Term Loan Facility.
At March 31, 2023, we had $100.0 million of outstanding borrowings under the Revolving Credit Facility compared to $1.40 billion at March 31, 2022. Our 4.333% 2023 Notes mature on June 1, 2023, and we intend to finance the repayment of such notes using available borrowings under our Revolving Credit Facility.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeWe do have interest rate exposure with respect to the $1.40 billion of our variable interest rate debt outstanding as of March 31, 2022. A 50-basis point increase in interest rates would impact our expected annual interest expense for the next 12 months by approximately $7.0 million.
Biggest changeWe have interest rate exposure with respect to the $100.0 million of our variable interest rate debt outstanding under our Revolving Credit Facility as of March 31, 2023. A 50-basis point increase in interest rates would increase our expected annual interest expense for the next 12 months by approximately $0.5 million.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk As of March 31, 2022, our long-term debt totaled $7.84 billion. We have no interest rate exposure to rate changes on our fixed rate debt, which totaled $6.44 billion as of March 31, 2022.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk As of March 31, 2023, our current and long-term debt totaled $6.47 billion. We have no interest rate exposure to rate changes on our fixed rate debt, which totaled $6.37 billion as of March 31, 2023.
Added
We intend to finance the repayment of a portion of our fixed rate debt maturing within the next 12 months using available borrowings under our Revolving Credit Facility, at which point, changes in interest rates will have a more significant impact on our interest expense. For additional information, refer to "Note 5.
Added
Debt" for a summary of our debt obligations by maturity date. Inflation Risk Inflation has not had a material adverse impact on our operating results in recent periods.
Added
However, if our costs were to continue to become subject to significant inflationary pressures, we may not be able to continue to offset such higher costs through price increases which could adversely impact our operating results.

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