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What changed in ONTO INNOVATION INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of ONTO INNOVATION 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.

+342 added−415 removedSource: 10-K (2024-02-26) vs 10-K (2022-02-25)

Top changes in ONTO INNOVATION INC.'s 2023 10-K

342 paragraphs added · 415 removed · 262 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

88 edited+15 added−46 removed37 unchanged
Biggest changeActions we have taken in pursuit of these commitments include the following environmental and social programs: • Demanded excellence in our quality and environmental performance, as demonstrated through our product and process qualification commitments, including ISO 9001 Quality Management; • Set goals to reduce our environmental impact, including a reduction of our carbon footprint, an increase in our use of renewable energy, a decrease in hazardous waste landfill, and a reduction in our freshwater usage; • Produced systems responsibly by offering tool trade-in, refurbishment and technology upgrade programs; • Provided corporate matching for employee donations to qualified nonprofit organizations; and • Engaged in community service projects in our communities globally.
Biggest changeActions we have taken in pursuit of these commitments include the following environmental and social programs: • Demanded excellence in our environmental performance, as illustrated in our annual ESG reports. • Demanded excellence in our quality performance, as demonstrated through our product and process qualification commitments, including ISO 9001 Quality Management; • Set goals to reduce our environmental impact, including an increase in our use of renewable energy, a decrease in hazardous waste landfill, an increase in recycling materials and beneficial reuse, and a reduction in our freshwater usage; • Committed to RBA Code of Conduct and humane treatment of all at Onto Innovation both upstream and downstream.
The breadth of our technology enables us to offer a diverse combination of process and process control solutions. Unique features have been designed into our lithography systems to meet our customers’ changing process requirements. Our metrology and inspection technologies provide process control for the majority of advanced node wafers processed today in a semiconductor wafer fab.
The breadth of our technology enables us to offer a diverse combination of metrology, inspection, and process control solutions. Unique features have been designed into our lithography systems to meet our customers’ changing process requirements. Our metrology and inspection technologies provide process control for the majority of advanced node wafers processed today in a semiconductor wafer fab.
The NovusEdge ® inspection tool has been installed at major silicon wafer manufacturers to detect backside contamination and edge cracking as a final quality control mechanism before wafers are shipped to the semiconductor fabrication processes. The top side of wafers used for the EUV process is covered with an epitaxial layer, which must also be scanned for any impurities.
Our NovusEdge ® inspection tool has been installed at major silicon wafer manufacturers to detect backside contamination and edge cracking as a final quality control mechanism before wafers are shipped to the semiconductor fabrication processes. The top side of wafers used for the EUV process is covered with an epitaxial layer, which must also be scanned for any impurities.
The markets for equipment and systems for manufacturing semiconductor devices and for performing OCD metrology, macro-defect inspection, advanced packaging lithography and thin film transparent and opaque process control metrology are characterized by continuous technological development and product innovations. We believe that the rapid and ongoing development of new products and enhancements to existing products is critical to our success.
The markets for equipment and systems for manufacturing semiconductor devices and for performing OCD metrology, macro-defect inspection, advanced packaging lithography and thin film transparent and opaque process control metrology are characterized by continuous technological development and product innovations. We believe that the rapid and ongoing development of new products and enhancements to existing products are critical to our success.
We provide local direct sales, service and application support through our worldwide offices located in the United States, South Korea, Japan, Taiwan, China, Singapore and Europe, and work with selected dealers and sales representatives on a more limited basis in various countries.
We provide local direct sales, service and application support through our worldwide offices located in the United States, South Korea, Japan, Taiwan, China, Vietnam Singapore and Europe, and work with selected dealers and sales representatives on a more limited basis in various countries.
Our automated and integrated metrology systems measure critical dimensions, device structures, topography, shape, and various thin film compositions, including three-dimensional features and film thickness, as well as optical, electrical and material properties.
Our automated and integrated metrology systems measure critical dimensions, device structures, topography, shape, and various thin film compositions, including three-dimensional features and film thickness, as well as optical and material properties.
Historically, integrated circuit packaging refers to the final stage of semiconductor device fabrication, in which a single circuit made from semiconducting material (a die or chip) is encased in a molded package using small wires to provide connections to a carrier that can be soldered to a printed circuit board and also prevents physical damage and corrosion to the chip.
Historically, IC packaging refers to the final stage of semiconductor device fabrication, in which a single circuit made from semiconducting material (a die or chip) is encased in a molded package using small wires to provide connections to a carrier that can be soldered to a printed circuit board and also prevents physical damage and corrosion to the chip.
Our lithography steppers use projection optics to expose circuit patterns from a mask or reticle onto a substrate to expose images with optimal fidelity. These systems employ a bright light that is transmitted through a mask or reticle containing display circuit patterns.
Advanced Packaging Lithography . Our lithography steppers use projection optics to expose circuit patterns from a mask or reticle onto a substrate to expose images with optimal fidelity. These systems employ a bright light that is transmitted through a mask or reticle containing display circuit patterns.
We provide process and yield management solutions used in bare silicon wafer production and wafer processing facilities, often referred to as “front-end” manufacturing, and advanced packaging of chips and test facilities, or “back-end” manufacturing, through a portfolio of standalone systems for optical metrology, macro-defect inspection, packaging lithography, probe card test and analysis, as well as transparent and opaque thin film measurements.
We provide process and yield management solutions used in bare silicon wafer production and wafer processing facilities, often referred to as “front-end” manufacturing, and advanced packaging of chips and test facilities, or “back-end” manufacturing, through a portfolio of standalone systems for optical metrology, macro-defect inspection, packaging lithography, as well as transparent and opaque thin film measurements.
We provide balanced compensation programs that focus on the following five key elements: • Pay-for-performance - Reward those who achieve or exceed set goals and objectives, while also recognizing those making significant, impactful contributions; • External market based - Pay levels that are competitive with respect to the labor market in which we compete for talent; • Internal equity - Providing fair compensation programs within the Company; • Fiscal responsibility - Providing programs which can be responsibly supported by our operations; and • Legal compliance - Ensure compliance with the applicable laws of the states and countries in which we operate in all material respects. 10 Table of Contents Safety, Health and Wellness .
We provide balanced compensation programs that focus on the following five key elements: • Pay-for-performance - Reward those who achieve or exceed set goals and objectives, while also recognizing those making significant, impactful contributions; 8 Table of Contents • External market based - Pay levels that are competitive with respect to the labor market in which we compete for talent; • Internal equity - Providing fair compensation programs within the Company; • Fiscal responsibility - Providing programs which can be responsibly supported by our operations; and • Legal compliance - Ensure compliance with the applicable laws of the states and countries in which we operate in all material respects.
Industry Background We participate in the sale, design, manufacture, marketing and support of process control systems for optical critical dimension (“OCD”) metrology, thin film metrology, silicon wafer inspection, 2D and 3D macro inspection and lithography tools for advanced packaging and advanced analytical software for semiconductor manufacturing as well as inspection systems 2 Table of Contents for certain industrial applications and scientific research .
Industry Background We participate in the sale, design, manufacture, marketing and support of process control systems for optical critical dimension (“OCD”) metrology, thin film metrology, silicon wafer inspection, 2D and 3D macro inspection and lithography tools for advanced packaging and advanced analytical software for semiconductor manufacturing as well as inspection systems for certain industrial applications and scientific research.
Our core focus is the measurement and control of the structure, composition, and geometry of semiconductor devices as they are fabricated on silicon wafers to improve device performance and manufacturing yields. Our end customers manufacture many types of integrated circuits for a multitude of applications, each having unique manufacturing challenges.
Our core focus is the measurement and control of the structure, composition, and geometry of semiconductor devices as they are fabricated on silicon wafers to improve device performance and manufacturing yields. Our end customers manufacture many types of ICs for a multitude of applications, each having unique manufacturing challenges.
PULSE ® technology uses an ultra-fast laser to generate acoustic waves that pass down through a stack of opaque films such as those used in copper or aluminum interconnect processes, as well as the hard mask layer in 3D NAND chips, sending back to the 6 Table of Contents surface a reflected signal (echo) that indicates film thickness, density, and other process critical parameters.
PULSE TM technology uses an ultra-fast laser to generate acoustic waves that pass down through a stack of opaque films such as those used in copper or aluminum interconnect processes, as well as the hard mask layer in 3D NAND chips, sending back to the surface a reflected signal (echo) that indicates film thickness, density, and other process critical parameters.
We provide system support to our customers through factory technical support and globally deployed field service personnel. The factory technical support operations provide customers with telephonic technical support access, direct training programs, operating manuals and other technical support information to enable effective use of our metrology and measurement instruments and systems.
We provide system support to our customers through factory technical support and globally deployed field service personnel. 6 Table of Contents The factory technical support operations provide customers with telephonic technical support access, direct training programs, operating manuals and other technical support information to enable effective use of our metrology and measurement instruments and systems.
The software is supported by NanoGen, an enterprise scale computing hardware system that is deployed to run the computing intensive analysis software. NanoGen leverages commercial server chips and networking architecture and is optimized to support the workload of AI Diffract and SpectraProbe analysis. 5 Table of Contents Integrated Metrology Systems .
The software is supported by NanoGen, an enterprise scale computing hardware system that is deployed to run the computing intensive analysis software. NanoGen leverages commercial server chips and networking architecture and is optimized to support the workload of AI Diffract and SpectraProbe analysis. Integrated Metrology Systems .
Accordingly, we devote a significant portion of our technical, management and financial resources to research and development programs. Intellectual Property We believe that our success will depend to a great degree upon innovation, technological expertise and our ability to adapt our products to new technology.
Accordingly, we devote a significant portion of our technical, management and financial resources to research and development programs. 7 Table of Contents Intellectual Property We believe that our success will depend to a great degree upon innovation, technological expertise and our ability to adapt our products to new technology.
Our principal market is semiconductor capital equipment. Semiconductors packaged as integrated circuits, or “chips”, are used in consumer electronics, server and enterprise systems, mobile computing (including smart phones and tablets), data storage devices, and embedded automotive and control systems.
Our principal market is semiconductor capital equipment. Semiconductors packaged as ICs, or “chips”, are used in consumer electronics, server and enterprise systems, mobile computing (including smart phones and tablets), data storage devices, and embedded automotive and control systems.
The Firefly ® series, designed for high resolution inspection, can provide defect detection and location information to the JetStep X500 tool for each die, which greatly improves lithography throughput using our exclusive StepFAST™ process. It also delivers a combination of defect classification and process throughput in a single software platform.
The Firefly ® series of panel level macro inspection tools, designed for high resolution inspection, can provide defect detection and location information to the JetStep X500 tool for each die, which greatly improves lithography throughput using our exclusive StepFAST™ process. It also delivers a combination of defect classification and process throughput in a single software platform.
The IMPULSE ® family of products includes the latest technology for OCD, and thin film metrology, and have been successfully qualified on numerous independent Wafer Fabrication Equipment Suppliers’ platforms. Silicon Wafer All-surface Inspection/Characterization . “All-surface” refers to inspection of the wafer frontside, edge, and backside as well as wafer’s locator notch.
The IMPULSE ® family of products includes the latest technology for OCD, and thin film metrology, and has been successfully qualified on multiple independent wafer fabrication equipment suppliers’ platforms. Silicon Wafer All-surface Inspection/Characterization . “All-surface” refers to inspection of the wafer frontside, edge, and backside as well as wafer’s locator notch.
Advanced Packaging refers loosely to the multi-layer conductors and chip structures (other than wires) that often interconnect multiple die, feed them with electric power and create signal paths to and from the PC board, dissipate their heat, and protect them from damage.
Advanced Packaging refers loosely to the multi-layer conductors and chip structures (other than wires) that often interconnect multiple die, feed them with electric power and create signal paths to and from the Printed Circuit (“PC”) board, dissipate their heat, and protect them from damage.
This allows customers to define defects based on their existing defect classification system, provides more reliable automated rework decisions and enables more accurate statistical process control data. Reviewing defects off-line enables automated inspection systems to maintain their utilization for high throughput inspection.
This allows customers to define defects based on their existing defect classification system, provides more reliable automated rework decisions and enables more accurate statistical process control data. Reviewing defects using ADC enables automated inspection systems to maintain their utilization for high throughput inspection.
Foreign Corrupt Practices Act (“FCPA”), which prohibits companies and their individual officers from influencing foreign officials with any personal payments or rewards; and • Conflict minerals reporting, which imposes disclosure requirements regarding the use of “conflict” minerals mined from the Democratic Republic of Congo and adjoining countries in products.
Foreign Corrupt Practices Act (“FCPA”), which prohibits companies and their individual officers from influencing foreign officials with any personal payments or rewards; • Conflict minerals reporting, which imposes disclosure requirements regarding the use of “conflict” minerals mined from the Democratic Republic of Congo and adjoining countries in products; and 9 Table of Contents • Export regulations.
It is possible that the information we post on social media could be deemed to be material information. Therefore, we encourage investors, the media, and others interested in the Company to review the information we post on the social media channels listed on our investor relations website.
It is possible that the information we post on social media could be deemed to be material information. Therefore, we encourage investors, the media, and others interested in the Company to review the information we post on the social media channels listed on our investor relations website. 10 Table of Contents
The MetaPULSE systems, used initially for fast and accurate measurements of metal interconnect in front-end wafer fabs, have now been chosen by back-end manufacturers to perform system measurements in new process applications such as RF filters and modules, driven by the need for on-product metrology as feature sizes decrease and pattern densities increase. Probe Card Test and Analysis .
The MetaPULSE and Echo systems, used for fast and accurate measurements of metal interconnect in front-end wafer fabs, have now been chosen by back-end manufacturers to perform system measurements in new process applications such as RF filters and modules, driven by the need for on-product metrology as feature sizes decrease and pattern densities increase.
This technology involves stacking individual chips in one integrated package. Through-silicon vias (“TSVs”) are vertical copper interconnects that are embedded from the bottom surface of a die to the top surface and uses small copper/solder “bumps” to connect one chip to another, which allows power and communication to be shared among the individually stacked components.
This technology involves stacking individual chips in one integrated package. Through-silicon vias (“TSVs”) are vertical copper interconnects that are embedded from the bottom surface of a die to the top surface and use small copper/solder “bumps” to connect one chip to another. TSVs allow power and communication to be shared among the individually stacked components.
Such regulations include, but are not limited to: • The Restriction of Hazardous Substances Directive (“RoHS”), which restricts the use of certain hazardous substances in electrical and electronic equipment; • General Data Protection Regulation (“GDPR”), which provides guidelines for the collection and processing of personal information from individuals who live in the European Union; • The U.S.
Such regulations include, but are not limited to: • The Restriction of Hazardous Substances Directive (“RoHS”), which restricts the use of certain hazardous substances in electrical and electronic equipment; • General Data Protection Regulation (“GDPR”), which provides guidelines for the collection and processing of personal information from individuals who live in the European Union, and similar laws and regulations in other jurisdictions in which we operate; • The U.S.
Heterogeneous packages are another advanced packaging technology using copper pillars/bumps to vertically connect a wide variety of stacked die for 2.5D, and 3D integration techniques as well as horizontally connected chips and are considered the next disruptive technology for several reasons.
Heterogeneous integrated (“HI”) packaging is another advanced packaging technology using copper pillars/bumps to vertically connect a wide variety of stacked die for 2.5D, and 3D integration techniques as well as horizontally connected chips and is considered the next disruptive technology for several reasons.
By responding to market opportunities and addressing the stringent demands of customers’ technical roadmaps, we believe that Onto Innovation is optimally positioned to capitalize on the emerging market of high-volume panel manufacturing.
By responding to market opportunities and addressing the stringent demands of customers’ technical roadmaps, we believe that Onto Innovation is optimally positioned to capitalize on the emerging market of high-volume manufacturing of advanced IC substrates.
Our products are also used for process control in a number of other high technology markets, including manufacturing of light emitting diodes (“LED”), vertical-cavity surface-emitting lasers (“VCSEL”), micro-electromechanical systems (“MEMS”), CMOS image sensors (“CIS”), compound semiconductor (SiC and GaN) power devices, RF filters and modules, data storage, and certain industrial and scientific applications.
Our products are also used for process control in a number of other specialty device manufacturing markets, including light emitting diodes (“LED”), vertical-cavity surface-emitting lasers (“VCSEL”), micro-electromechanical systems (“MEMS”), CMOS image sensors (“CIS”), silicon and compound semiconductor (SiC and GaN) power devices, analog devices, RF filters, data storage, and certain industrial and scientific applications.
The resulting bright and dark field images are compared to those from an “ideal” wafer having no defects. When a difference is detected, its image is broken down into mathematical vectors that allow rapid and accurate comparison with a library of known classified defects stored in the tool’s database.
The resulting bright and dark field images are compared to those from an “ideal” wafer having no defects using our Automated Defect Classification (“ADC”) software. When a difference is detected, its image is broken down into mathematical vectors that allow rapid and accurate comparison with a library of known classified defects stored in the tool’s database.
The 4D business offers a line of interferometry systems for the measurement and inspection of high precision surfaces. End markets include high precision optics surfaces and components, aerospace and defense components, and unique research and scientific instrumentation that requires the unique high-speed results of the 4D systems. Advanced Packaging Lithography .
Industrial, Scientific, and Research Markets ― 4D Technology ® . The 4D business offers a line of interferometry systems for the measurement and inspection of high precision surfaces. End markets include high precision optics surfaces and components, aerospace and defense components, and unique research and scientific instrumentation that requires the unique high-speed results of the 4D systems.
(formerly Nova Measuring Instruments Ltd.) (“Nova”) for thin film and critical dimension OCD metrology. Our principal competitor for advanced packaging inspection is Camtek Ltd. (“Camtek”). While the advanced packaging lithography market is served by various competitors, our primary competitors are Ushio, Inc. (“Ushio”) and Canon, Inc. (“Canon”). The primary competitor for our software products is PDF Solutions, Inc.
(formerly Nova Measuring Instruments Ltd.) (“Nova”) for thin film and critical dimension OCD metrology. Our principal competitors for advanced packaging inspection are KLA and Camtek Ltd. (“Camtek”). While the advanced packaging lithography market is served by various competitors, our primary competitors are Ushio, Inc. (“Ushio”) and Canon, Inc. (“Canon”).
This includes integrated circuits to enable information processing and management (logic integrated circuits), memory storage (NAND, 3D-NAND, and DRAM), analog devices (e.g., Wi-Fi and 5G radio integrated circuits, power devices), MEMS sensor devices (accelerometers, pressure sensors, microphones), CMOS image sensors, and other specialty end markets including components for hard disk drives, LEDs, and power management devices.
This includes ICs to enable information processing and management (logic ICs), memory storage (NAND, 3D-NAND, and DRAM), analog devices (e.g., Wi-Fi and 5G radio ICs, power devices), MEMS sensor devices (accelerometers, pressure sensors, microphones), CMOS image sensors, and other specialty end markets including components for hard disk drives, LEDs, and power management devices. Current Trends Markets Advanced Nodes.
The thin film and OCD technology is supported by our NanoCD™ suite of solutions including our latest introduction AI Diffract™ software, SpectraProbe™ software and NanoGen™ scalable computing engine that enables visualization, modeling, and analysis of complex structures.
The thin film and OCD technology is supported by our suite of solutions including our latest introductions of AI Diffract™ software, SpectraProbe™ software and NanoGen™ scalable computing engine, which enables visualization, modeling, and analysis of complex structures.
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K (and any amendments to those reports) are made available free of charge, on or through our Internet website, as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC.
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K (and any amendments to those reports) are made available free of charge, on or through our Internet website, as soon as reasonably practicable after such material is electronically filed with or furnished to the United States Securities and Exchange Commission (the “SEC”).
Ltd. * * * Samsung Semiconductor * * ^ SK Hynix Inc. ^ ^ * * The customer accounted for more than 10% of total revenue during the period. ^ The customer accounted for less than 10% of total revenue during the period.
Ltd. * * * SK Hynix Inc. ^ * ^ * The customer accounted for 10% or more of total revenue during the period. ^ The customer accounted for less than 10% of total revenue during the period.
For example, the JetStep ® X500 lithography system, having emerged from the flat panel display market, is readily capable of processing RDLs on organic laminate panels in the semiconductor advanced packaging market.
For 3 Table of Contents example, the JetStep ® X500 lithography system, having emerged from the flat panel display market, is readily capable of processing RDLs on very thin advanced organic laminate panels in the semiconductor advanced packaging market.
We encourage you to review our 2020 Corporate Social Responsibility Annual Report (located on our website at https://ontoinnovation.com/company/corporate-social-responsibility) for more detailed information regarding our ESG initiatives. Nothing on our website, including our Corporate Social Responsibility Report or sections thereof, is deemed incorporated by reference into this Form 10-K.
We encourage you to review our 2022 ESG Report (located on our website at https://ontoinnovation.com/company/environmental-social-governance) for more detailed information regarding our ESG initiatives. Nothing on our website, including our ESG Report or sections thereof, is deemed incorporated by reference into this Form 10-K.
We review succession plans and focus on promoting internal talent to help grow our employees, both professionally and personally. We are committed to promoting and cultivating an inclusive and diverse culture that welcomes and celebrates everyone without bias. In addition, we look to actively engage within our communities to foster and attain social equity.
We review succession plans and focus on promoting internal talent to help grow our employees, both professionally and personally. We strive to promote and cultivate an inclusive and diverse culture that welcomes and celebrates everyone without bias. In addition, we look to actively engage within our communities to foster and attain social equity. Compensation Philosophy .
As a result, we have a policy of seeking patents on inventions governing new products or technologies as part of our ongoing research, development, and manufacturing activities. As of January 1, 2022, we have been granted, or hold exclusive licenses to 436 U.S. and foreign patents.
As a result, we have a policy of seeking patents on inventions governing new products or technologies as part of our ongoing research, development, and manufacturing activities. As of December 30, 2023, we have been granted, or hold exclusive licenses to, 398 U.S. and foreign patents.
The patents we own, jointly own or exclusively license have expiration dates ranging from 2022 to 2040. We also have 80 pending patent applications in the United States and other countries. Our patents and patent applications principally cover various aspects of metrology, macro-defect detection and classification, altered material characterization, lithography techniques and automation.
The patents we own, jointly own or exclusively license have expiration dates ranging from 2024 to 2042. We also have 175 pending patent applications in the United States and other countries. Our patents and patent applications principally cover various aspects of metrology, macro-defect detection and classification, altered material characterization, lithography techniques, automation, artificial intelligence, and machine learning.
This compositional analysis is measured using our Element ® system using Fourier Transform Infrared (“FTIR”) algorithms. Advanced Packaging. refers to a variety of technologies that enable the miniaturization of electronic products, such as portable consumer devices, including smartphones, watches, and tablets.
This compositional analysis may be measured using our Element ® system using Fourier Transform Infrared (“FTIR”) algorithms. Advanced Packaging. “Advanced Packaging” refers to a variety of technologies that enable the miniaturization of electronic products, such as smartphones, watches, and tablets.
Technology We believe that our expertise in our core technologies of optics and software and our combined investment in research and development will enable us to rapidly develop new technologies and products as we have demonstrated over the past two years of operation in order to quickly respond to emerging industry trends and competitive challenges.
Technology We believe that our expertise in our core technologies of optics and software and our combined investment in research and development will enable us to rapidly develop new technologies and products in order to quickly respond to emerging industry trends and competitive challenges.
We are committed to providing an environment which is safe and where our employees can be productive. We have rigorous health and safety programs focused on awareness, recognition, risk assessment and management, as well as teamwork.
Safety, Health and Wellness . We strive to provide an environment which is safe and where our employees can be productive. We have rigorous health and safety programs focused on awareness, recognition, risk assessment and management, as well as teamwork. Our benefit plans are competitive and comprehensive.
(“PDF Solutions”) and our primary competitor for integrated metrology systems for the semiconductor industry is Nova. The opto-electronics, discrete device and industrial and scientific markets are addressed primarily by our material characterization and 4D systems, served by numerous competitors, of which no single competitor or group of competitors has established a majority position.
The opto-electronics, discrete device and industrial and scientific markets are addressed primarily by our material characterization and 4D systems, served by numerous competitors, of which no single competitor or group of competitors has established a majority position.
In addition, our advanced process control software portfolio includes powerful solutions for standalone tools, groups of tools, factory-wide, and enterprise-wide suites to enhance productivity and achieve significant cost savings.
In addition, our advanced process control software portfolio includes powerful solutions for standalone tools, groups of tools, and factory-wide and enterprise-wide suites to enhance productivity and achieve significant cost savings. Our systems are backed by worldwide customer service and applications support.
Our primary area of focus are products that provide critical yield-enhancing and actionable information, which is used by microelectronic device manufacturers to drive down scrap costs and to decrease the time to market of their next-generation devices. Our systems feature sophisticated software and production-worthy automation.
Our primary areas of focus include products that provide critical yield-enhancing and actionable information, which is used by microelectronic device manufacturers to improve yield and time to market of their next-generation devices. Our systems feature sophisticated software and production-worthy automation.
First, heterogeneous integrated packages using 3D stacking can significantly reduce the space needed inside an electronic device, such as a smartphone, by combining multiple chips/functions into a single package, often called a System-in-Package (“SIP”).
First, HI packages using 3D stacking can significantly reduce the space needed inside an electronic device, such as a smartphone, by combining multiple chips/functions into a “system in a package” (“SIP”).
Onto Innovation’s Products Automated Metrology Systems . Our automated systems primarily consist of fully automated metrology systems that are employed in semiconductor production environments. The Atlas family of products represents our line of high-performance metrology systems providing OCD and thin film metrology and wafer stress metrology for transistor and interconnect metrology applications.
Onto Innovation’s Products Automated Metrology Systems . The Atlas family of products represents our line of high-performance automated metrology systems providing OCD and thin film metrology and wafer stress metrology for transistor and interconnect metrology applications.
Approximately 62% of our employees are located in the United States, 35% in Asia Pacific and 3% in Europe. None of our employees are represented by a union and we have never experienced a work stoppage because of union actions. We consider our employee relations to be favorable. Purpose and Culture .
None of our employees are represented by a union and we have never experienced a work stoppage because of union actions. We consider our employee relations to be favorable. Purpose and Culture .
Our materials characterization products include systems that are used to monitor the physical, optical, electrical and material characteristics of discrete electronic industry, opto-electronic, HB-LED (high brightness LEDs), solar PV (solar photovoltaics), compound semiconductor, strained silicon and silicon-on-insulator (“SOI”) devices, including composition, crystal structure, layer thickness, dopant concentration, contamination and electron mobility.
Our materials characterization products include systems that are used to monitor the physical, optical, and material characteristics of discrete electronic industry, opto-electronic, HB-LED (high brightness LEDs), solar PV (solar photovoltaics), compound semiconductor, strained silicon and silicon-on-insulator (“SOI”) devices, including composition, crystal structure, layer thickness, dopant concentration, contamination and electron mobility. 4 Table of Contents We have a broad portfolio of products for materials characterization including photoluminescence mapping and Fourier Transform Infrared (“FTIR”) spectroscope in automated and manual systems for substrate quality and epitaxial thickness metrology.
The EUV process is driving significantly higher requirements for the silicon wafers that are entering the EUV chamber. Small, particles on the backside of the wafer measuring a few micrometers (microns) can distort the images being projected onto the top side.
To shrink features, new methods, including multiple patterning lithography and extreme ultra-violet (“EUV”) lithography, have been developed. The EUV process is driving significantly higher requirements for the silicon wafers that are entering the EUV chamber. Small particles on the backside of the wafer measuring a few micrometers (microns) can distort the images being projected onto the top side.
These high-speed tools incorporate features such as wafer-less recipe creation, tool-to-tool correlation and multiple inspection resolutions. Using Discover ® yield management software, the vast amounts of data gathered through automated inspection can be analyzed and classified to determine trends and locate root causes that directly affect yield. Automated Defect Classification and Pattern Analysis .
Using Discover ® yield management software, the vast amounts of data gathered through automated inspection can be analyzed and classified to determine trends and locate root causes that directly affect yield. Automated Defect Classification and Pattern Analysis .
Manufacturing Our manufacturing operations are in Milpitas California, Tucson Arizona, Wilmington Massachusetts, Bloomington Minnesota, and at various contract manufacturers around the world. It is our strategy to outsource the assemblies that do not contain elements that we believe lead to a direct competitive advantage. Most of our automated and integrated products are currently manufactured at our Milpitas and Bloomington facilities.
It is our strategy to outsource the assemblies that do not contain elements that we believe lead to a direct competitive advantage. Most of our automated and integrated products are currently manufactured at our Milpitas and Bloomington facilities. We currently do not expect our manufacturing operations to require additional major investments in capital equipment.
The system repeats the step and exposure process until the entire substrate is patterned. Once the exposure process has been completed, the substrate is developed with an alkali solution to reveal the underlying material. The imaged photoresist serves as a stencil barrier that allows for the processing of the underlying metal or insulating layers.
Once the exposure process has been completed, the substrate is developed with an alkali solution to reveal the underlying material. The 5 Table of Contents imaged photoresist serves as a stencil barrier that allows for the processing of the underlying metal or insulating layers. The substrates then continue through the etching, stripping and deposition processes until multi-layer circuits are completed.
We have a pay-for-performance culture that ties compensation to the performance of the individual and the Company.
Our compensation philosophy creates the framework and building blocks for our rewards and recognition programs. We have a pay-for-performance culture that ties compensation to the performance of the individual and the Company.
Corporate Social Responsibility Our stakeholders are essential to our business – shareholders, customers, suppliers, employees, communities as well as the environment and society. We are working to make our workforce more inclusive, our business more sustainable, and our communities more engaged by maintaining strong environmental, social and governance (“ESG”) practices.
We are working to make our workforce more inclusive, our business more sustainable, and our communities more engaged by maintaining strong environmental, social and governance (“ESG”) practices.
We believe the use of these new materials and manufacturing methods has increased demand for our products such as the Atlas ® product line that is capable of measuring these advanced nodes as certain features shrink to 7nm, 5nm and 3nm. To shrink features, new methods, including multiple patterning lithography and extreme ultra-violet (“EUV”) lithography, have been developed.
We believe the use of these new materials and manufacturing methods has increased demand for our products such as the Atlas ® product line, which is capable of measuring advanced nodes as certain features shrink beyond 7nm, to 5nm, 3nm and in the most advanced of cases, 2 nm or less.
To protect our intellectual property, we also rely on a combination of patents, copyrights, trademarks, trade secret laws, contractual provisions and licenses and non-disclosure agreements.
To protect our intellectual property, we rely on a combination of patents, copyrights, trademarks, trade secret laws, contractual provisions and licenses and non-disclosure agreements. There can be no assurance that our intellectual property will provide us competitive advantage or that we will be able to fully protect our intellectual property.
The substrates then continue through the etching, stripping and deposition processes until multi-layer circuits are completed. In order to deal with increased input/output (“I/O”) resulting from devices with enhanced functionality, power distribution efficiency, and higher frequency, integrated device manufacturers (“IDMs”) and outsourced semiconductor assembly and test (“OSATs”) facilities must incorporate lithography capabilities to create RDLs for their advanced packaging technologies.
In order to deal with increased input/output (“I/O”) resulting from devices with enhanced functionality, increased power distribution efficiency, and higher frequency, IDMs and outsourced semiconductor assembly and test (“OSATs”) facilities must incorporate lithography capabilities to create RDLs for their advanced packaging technologies. However, the associated substrates and processes are significantly different than those used in front-end wafer processing.
Many of our employees have specialized skills and experience that are of value to our business, products and services. Our future success will depend, in large part, upon our ability to attract, motivate and retain our highly skilled, technical, operational and managerial team members, who are in great demand in our industry and business communities.
Our future success will depend, in large part, upon our ability to attract, motivate and retain our highly skilled, technical, operational and managerial team members, who are in great demand in our industry and business communities. Approximately 59% of our employees are located in the United States, 37% in Asia Pacific and 4% in Europe.
Competitive selections are based on many factors 8 Table of Contents involving technological innovation, productivity, total cost of ownership of the system, including impact on end of line yield, price, product performance and throughput capability, quality, reliability and customer support.
Competitive selections are based on many factors involving technological innovation, productivity, total cost of ownership of the system, including impact on end of line yield, price, product performance and throughput capability, quality, reliability and customer support. Manufacturing Our manufacturing operations are in Milpitas, California; Tucson, Arizona; Wilmington, Massachusetts; Bloomington, Minnesota; and at various contract manufacturers around the world.
Item 1. Business. General Onto Innovation is a worldwide leader in the design, development, manufacture and support of process control tools that perform macro-defect inspection and 2D/3D optical metrology, lithography systems, and process control analytical software used by bare silicon wafer manufacturers, semiconductor wafer fabricators, and advanced packaging manufacturers.
General Onto Innovation is a worldwide leader in the design, development, manufacture and support of metrology and inspection tools for the semiconductor industry, including process control tools that perform optical metrology on patterned and unpatterned wafers, wafer macro-defect inspection, including macro-inspection of both 2D and 3D wafer features, wafer substrate and panel substrate lithography systems, and process control analytical software.
In order to meet the growing demand at reduced average selling prices, manufacturers are looking to scalable technology. Advanced packaging facilities looking to improve Cost of Ownership (“CoO”) and increase productivity are transitioning from 300mm wafers to large rectangular panels, which can be as large as 600mm x 600mm.
Advanced packaging facilities looking to improve Cost of Ownership and increase productivity are transitioning from 300mm wafers to large rectangular panels, which can be as large as 650mm x 650mm.
Documents that are not available through the SEC’s website may also be obtained by submitting an online request to the SEC at http://www.sec.gov. 11 Table of Contents We also make available, free of charge, through our investor relations website, our corporate governance summary, Code of Business Conduct and Ethics, charters of the committees of our Board of Directors, and other information and materials, including information about how to contact our Board of Directors.
We also make available, free of charge, through our investor relations website, our corporate governance guidelines, Code of Business Conduct and Ethics, charters of the committees of our Board of Directors, and other information and materials, including information about how to contact our Board of Directors.
Substrates are aligned on the system and the mask is imaged through a projection lens onto photoresist material coated on the substrate. The substrate is then moved, or “stepped,” to a second position to expose an adjacent area. Images can be “stitched” together precisely to form larger circuit patterns without any noticeable change in circuit performance.
Substrates are aligned on the system and the mask is imaged through a projection lens onto photoresist material coated on the substrate. The substrate is then moved, or “stepped,” to a second position to expose an adjacent area. The system repeats the step and exposure process until the entire substrate is patterned.
Using thin redistribution layers (“RDLs”) to connect chips that are side-by-side or “fan out” power and signal connections to the larger contacts on the PC board, which accounts for 35 percent of the packaging cost. Lastly, the technology is currently considered the preferred vehicle for next generation uses, such as SIP, and package on package formats.
Next, HI packages also improve a system’s performance by reducing power and signal conductor lengths, which previously were routed from package to package through a PC board using thin redistribution layers (“RDLs”) to connect chips that are side-by-side. Lastly, the technology is currently considered the preferred vehicle for next generation uses, such as SIP, and package on package formats.
Our customers are located in over 20 countries. The following chart identifies our customers that represented 10% or more of total revenue for each of the last three years: 2021 2020 2019 Taiwan Semiconductor Manufacturing Co.
We support a diverse customer base in terms of both geographic location and type of device manufactured. Our customers are located in over 28 countries. The following chart identifies our customers that represented 10% or more of total revenue for each of the last three fiscal years: 2023 2022 2021 Samsung Semiconductor * * * Taiwan Semiconductor Manufacturing Co.
One current process to manufacture advanced packaging involves attaching known good die to a 300mm wafer, used as a temporary carrier when adding components such as RDLs and copper pillars. SIP packages can often contain side-by-side die, meaning the package can be large and limit the number of packages being placed on a reconstituted wafer.
One current process to manufacture advanced packaging involves attaching known good die to a 300mm wafer. SIP packages can often contain side-by-side die, meaning the package can be large and limit the number of packages being placed on a wafer. In order to meet the growing demand at reduced average selling prices, manufacturers are looking to scalable technology.
On-the-fly auto focus and an innovative reticle management system improve yield and utilization. These features result in a revolutionary lithography system specifically designed to meet advanced packaging challenges. Process Control Software . We provide a wide range of advanced process control solutions, which are designed to improve factory profitability, including run-to-run control, fault detection, classification and tool automation.
Process Control Software . We provide a wide range of advanced process control solutions, which are designed to improve factory profitability, including run-to-run control, fault detection, classification and tool automation. We are a leading provider of process control software in the semiconductor industry.
When combined with inspection data from inspection points -placed strategically, this analysis may pinpoint the source of the defects so corrective action can be taken. Opaque Film Metrology . The MetaPULSE ® systems allow customers to simultaneously measure the thickness and other properties of up to six metal or non-metallic opaque film layers without physically contacting product wafers.
When combined with inspection data from inspection points placed strategically, this analysis may pinpoint the source of the defects so corrective action can be taken. Opaque Film Metrology .
Demand for our products continues to be driven by our customers' desire for higher overall chip performance without increasing the chip size, while improving power efficiency, logic processing capability, data storage volume and manufacturing yield. To achieve these goals, our customers have increased their use of more complex materials and processing methods in their manufacturing flow.
Demand for our products continues to be driven by our customers’ desire for higher overall chip performance enabled by a greater number of transistors per square millimeter, while improving power efficiency, logic processing capability, data storage volume and manufacturing yield.
We currently do not expect our manufacturing operations to require additional major investments in capital equipment. We manufacture key modular assemblies and integrated tools and make reasonable efforts to ensure that externally purchased parts or raw materials are available from multiple suppliers, if possible.
We manufacture key modular assemblies and integrated tools and make reasonable efforts to ensure that externally purchased parts or raw materials are available from multiple suppliers, if possible. Certain components, subassemblies and services necessary for the manufacture of our systems are obtained either from a sole supplier or limited group of suppliers.
Unlike the cyclical nature of our metrology equipment associated with node shrinks, our sales revenue for advanced packaging is generally driven by assembly volumes.
Inspection rates for advanced packages are high throughout the assembly process to avoid a single defective chip from being assembled into a relatively expensive package. Thus, unlike the cyclical nature of our metrology equipment associated with node shrinks, our sales revenue for advanced packaging is generally driven by assembly volumes. ​ Panel Substrate Manufacturing .
However, the associated substrates and processes are significantly different than those used in front-end wafer processing. For advanced packaging, the lithography system must perform in a completely different application, with significantly different operating parameters.
For advanced packaging, the lithography system must perform in a completely different application, with significantly different operating parameters. For example, most packaging is an additive process, while wafer processing is subtractive, and thick films, rather than thin films, are used to enable the creation of features.
To scale NAND memory, a 3D stacking architecture has been implemented at several customers with more than 150 storage cell layers for devices in production. Additional innovation continues in Data Storage, Power Devices, MEMS, and Image Sensors.
In some cases, our customers are implementing new materials and methods in high volume manufacturing, including materials and device architectures to reduce power consumption. To scale NAND memory, for example, a 3D layered architecture has been implemented for several customers with more than 150 storage cell layers for devices in production.
Markets Advanced Nodes. refers to leading-edge integrated circuits where the feature sizes of transistors and other features continue to shrink in specified steps, or nodes measured in nanometers (nm).
“Advanced Nodes” refers to leading-edge ICs where the sizes of transistors and other features continue to shrink. Advanced nodes are associated with transistor dimensions less than 16 nanometers (nm).
Our fully integrated YMS is designed to analyze data from disparate sources and multiple sites to maximize productivity across the entire value chain. 7 Table of Contents Customers Over 200 microelectronic device manufacturers purchased Onto Innovation tools or software in 2021. We support a diverse customer base in terms of both geographic location and type of device manufactured.
As a result, customers are demanding robust yield management systems that can analyze large, complex data sets quickly and effectively. Our fully integrated YMS is designed to analyze data from disparate sources and multiple sites to maximize productivity across the entire value chain. Customers Over 220 customers purchased Onto Innovation tools or software in 2023.
Certain components, subassemblies and services necessary for the manufacture of our systems are obtained either from a sole supplier or limited group of suppliers. We also have long-term supply agreements with strategic suppliers for the supply of key assemblies for use in our products. We rely on limited source suppliers for certain parts and subassemblies.
We also have long-term supply agreements with strategic suppliers for the supply of key assemblies for use in our products.
Chip manufacturers deploy advanced macro defect inspection throughout the production line to monitor key process steps, gather process-enhancing information and ultimately, lower manufacturing costs. Field-established tools such as the F30™, NSX ® , and the latest Dragonfly ® G3 inspection systems are found in the wafer fab (front-end) and packaging (back-end) facilities around the world.
Field-established tools such as the F30™, NSX ® , Firefly ® , and the latest Dragonfly ® G3 inspection systems are found in the wafer fab (front-end) and packaging (back-end) facilities around the world. These high-speed tools incorporate features such as wafer-less recipe creation, tool-to-tool correlation and multiple inspection resolutions.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeRisks Related to Our International Operations • We are subject to compliance with foreign laws and regulations, and the burden of complying with such laws and regulations, or any failure to comply, may adversely affect our business, financial condition and results of operations. • Tariffs and other market barriers have impacted and may continue to impact our competitiveness with non-U.S. customers, which may adversely affect our results of operations. • Political and economic instability may result in reduced demand for our products. • Natural disasters, changes in climate and geo-political events could materially adversely affect our worldwide operations (or those of our business partners). • We may face difficulties in staffing and managing foreign branch operations due to political tensions or cultural differences. • Currency fluctuations may impact our international sales or expose us to exchange rate risk. • Our internal controls with respect to anti-corruption laws may not be effective, and any failure to comply with such laws may result in severe sanctions and liabilities, which may negatively affect our business, operating results and financial condition.
Biggest changeRisks Related to Our International Operations • Tariffs, export regulations, and other market barriers have impacted and may continue to impact our ability to compete for the business of domestic customers in China and other jurisdictions, which has adversely affected and may continue to adversely affect our, business, financial condition and results of operations. • We are subject to compliance with domestic and foreign laws and regulations, and the burden of complying with such laws and regulations, or any failure to comply, has adversely affected and may continue to adversely affect our business, financial condition and results of operations. • Political and economic instability may result in reduced demand for our products. • Natural disasters, changes in climate, public health crises, and geo-political conflicts could materially adversely affect our worldwide operations (or those of our business partners). • We may face difficulties in staffing and managing foreign branch operations due to political tensions or cultural differences. • Currency fluctuations may impact our international sales or expose us to exchange rate risk. • Our internal controls with respect to anti-corruption laws may not be effective, and any failure to comply with such laws may result in severe sanctions and liabilities, which may negatively affect our business, operating results and financial condition.
Our success depends, to a significant degree, upon the continued contributions of our key executive management, engineering, sales and marketing, customer support, finance and manufacturing personnel. The loss of any of these key personnel through resignations, retirement or other circumstances, each of whom would be extremely difficult to replace, could harm our business and operating results.
Our success depends, to a significant degree, upon the continued contributions of our key executive management, engineering, sales and marketing, customer support, finance and manufacturing personnel. The loss of any of these key personnel, each of whom would be extremely difficult to replace, through resignations, retirement or other circumstances, could harm our business and operating results.
Risks Related to Our Customers Our largest customers account for a substantial portion of our revenue, and our revenue and cash flows could decline considerably if one or more of these customers were to purchase significantly fewer of our systems or delay or cancel a large order.
Risks Related to Our Customers Our largest customers account for a substantial portion of our revenue, and our revenue and cash flows could decline considerably if one or more of these customers were to purchase significantly fewer of our systems or delay or cancel a large order.
For example, litigation discovery practice in China, Japan, South Korea, continental Europe and Taiwan is not as robust as the United States, so it can be more difficult to determine if a company is infringing on our patents and more challenging to bring a lawsuit.
For example, litigation discovery practice in China, Japan, South Korea, continental Europe and Taiwan is not as robust as in the United States, so it can be more difficult to determine if a company is infringing on our patents and more challenging to bring a lawsuit.
In the event that we fail to comply with or violate U.S. or foreign laws or regulations or customer policies, we could be subject to civil or criminal claims or proceedings that may result in monetary fines, penalties or other costs against us or our employees, which may adversely affect our operating results, financial condition, customer relations and ability to conduct our business.
In addition, in the event that we fail to comply with or violate U.S. or foreign laws or regulations or customer policies, we could be subject to civil or criminal claims or proceedings that may result in monetary fines, penalties or other costs against us or our employees, which may adversely affect our operating results, financial condition, customer relations and ability to conduct our business.
Violations by others of our confidentiality agreements and the loss of employees who have specialized knowledge and expertise could harm our competitive position and cause our sales and operating results to decline as a result of increased competition. It also possible that third parties will misappropriate our trade secrets or other confidential information.
Violations by others of our confidentiality agreements and the loss of employees who have specialized knowledge and expertise could harm our competitive position and cause our sales and operating results to decline as a result of increased competition. It is also possible that third parties will misappropriate our trade secrets or other confidential information.
We may outsource product manufacturing to third-party service providers. Outsourcing reduces our control over the performance of the outsourced functions. Dependence on outsourcing may also adversely affect our ability to bring new products to market.
We outsource select product manufacturing to third-party service providers. Outsourcing reduces our control over the performance of the outsourced functions. Dependence on outsourcing may also adversely affect our ability to bring new products to market.
Further, there are numerous risks associated with acquisitions and potential acquisitions, including, but not limited to: • diversion of management’s attention from day-to-day operational matters and current products and customers; • lack of synergy or the inability to successfully integrate the new business or to realize expected synergies; • integration of acquired businesses and their operations, including enterprise resource planning systems, may be costly and time-consuming and divert resources away from other projects; • failure to commercialize the new technology or business; • failure to meet the expected performance of the new technology or business; • failure to retain key employees and customer or supplier relationships; • lower-than-expected market opportunities or market acceptance of any new products; and • unexpected reduction of sales of existing products as a result of the introduction of new products.
Further, there are numerous risks associated with acquisitions and potential acquisitions, including, but not limited to: • diversion of management’s attention from day-to-day operational matters and current products and customers; • lack of synergy or the inability to successfully integrate the new business or to realize expected synergies; 25 Table of Contents • integration of acquired businesses and their operations, including enterprise resource planning systems, may be costly and time-consuming and divert resources away from other projects; • failure to commercialize the new technology or business; • failure to meet the expected performance of the new technology or business; • failure to retain key employees and customer or supplier relationships; • lower-than-expected market opportunities or market acceptance of any new products; and • unexpected reduction of sales of existing products as a result of the introduction of new products.
A substantial portion of our international sales are denominated in U.S. dollars. As a result, if the dollar rises in value in relation to foreign currencies, our systems will become more expensive to customers outside the United States and less competitive with systems produced by competitors outside the United States. These conditions could negatively impact our international sales.
A substantial portion of our international sales are denominated in U.S. dollars. As a result, if the dollar rises in value in relation to foreign currencies, our systems will become more expensive to customers outside the United States and may be less competitive with systems produced by competitors outside the United States. These conditions could negatively impact our international sales.
Risks Related to the Global Economy and the Semiconductor Industry • Cyclicality in the semiconductor device industry has led to substantial decreases in demand for our systems in the past and may, from time to time, continue to do so. 13 Table of Contents • Our future rate of growth is highly dependent on the development and growth of the market for microelectronic device inspection, lithography and metrology equipment.
Risks Related to the Global Economy and the Semiconductor Industry • Cyclicality in the semiconductor device industry has led to substantial decreases in demand for our systems in the past and may, from time to time, continue to do so. 12 Table of Contents • Our future rate of growth is highly dependent on the development and growth of the market for microelectronic device inspection, lithography and metrology equipment.
Any such occurrence may have a material adverse impact on our gross margins and business, financial position, results of operations and cash flows. 15 Table of Contents Variations in the amount of time it takes for us to sell our systems may cause fluctuations in our operating results, which could cause our stock price to decline.
Any such occurrence may have a material adverse impact on our gross margins and business, financial position, results of operations and cash flows. 13 Table of Contents Variations in the amount of time it takes for us to sell our systems may cause fluctuations in our operating results, which could cause our stock price to decline.
Our profitability will decline if we fail to accurately forecast customer demand when managing inventory. • If we deliver systems with defects, our credibility will be harmed, and the sales and market acceptance of our systems will decrease. • Our integrated metrology systems are integrated with systems sold independently by wafer fabrication equipment suppliers, and a decrease in sales by these suppliers, or the development of competing systems by these suppliers, could harm our business. • We must attract and retain experienced senior executives and other key personnel with knowledge of semiconductor device manufacturing and inspection, metrology or lithography equipment and related software to help support our future growth, and competition for such personnel in our industry is high. • Any prolonged disruption in the operations of our manufacturing facilities could have a material adverse effect on our revenue. • We may outsource select manufacturing activities to third-party service providers, which decreases our control over the performance of these functions and may result in lower quality and functionality of our products. • Our ability to fulfill our backlog may have an effect on our long-term ability to procure contracts and fulfill current contracts.
Our profitability will decline if we fail to accurately forecast customer demand when managing inventory. • If we deliver systems with defects, our credibility will be harmed, and the sales and market acceptance of our systems will decrease. • Our integrated metrology systems are integrated with systems sold independently by wafer fabrication equipment suppliers, and a decrease in sales by these suppliers, or the development of competing systems by these suppliers, could harm our business. • We must attract and retain experienced senior executives and other key personnel with knowledge of semiconductor device manufacturing and inspection, metrology or lithography equipment and related software to help support our future growth, and competition for such personnel in our industry is high. • Any prolonged disruption in the operations of our manufacturing facilities could have a material adverse effect on our revenue. • We outsource select manufacturing activities to third-party service providers, which decreases our control over the performance of these functions, may result in lower quality and functionality of our products, and exposes us to additional supply chain risks. • Our ability to fulfill our backlog may have an effect on our long-term ability to procure contracts and fulfill current contracts.
Risks Related to Tax Laws, Financial Markets and the Environment Changes in tax rates or tax liabilities could affect results. As a global company, we are subject to taxation in the United States and various other countries. Significant judgment is required to determine and estimate worldwide tax liabilities.
Risks Related to Laws, Legal Proceedings, Financial Markets and the Environment Changes in tax rates or tax liabilities could affect results. As a global company, we are subject to taxation in the United States and various other countries. Significant judgment is required to determine and estimate worldwide tax liabilities.
A failure by us, our suppliers, or other parties with whom we do business to comply with posted privacy policies or with other federal, state, or international privacy-related or data protection laws and regulations, including GDPR, CCPA, CPRA and other new or changing privacy laws and regulations, could result in proceedings against us by governmental entities or others, which could have a material adverse effect on our business, results of operations, and financial condition.
A failure by us, our suppliers, or other parties with whom we do business to comply with posted privacy policies or with other federal, state, or international privacy-related or data protection laws and regulations, including GDPR, CCPA, CPRA and other new or changing privacy laws and regulations, could result in proceedings against 19 Table of Contents us by governmental entities or others, which could have a material adverse effect on our business, results of operations, and financial condition.
Our profitability will decline if we fail to accurately forecast customer demand when managing inventory. We typically plan production and inventory levels based on internal forecasts of customer demand, which can be highly unpredictable and can fluctuate substantially, which could lead to excess inventory write-downs and resulting negative impacts on gross margin and net income.
Our profitability will decline if we fail to accurately forecast customer demand when managing inventory. We typically plan production and inventory levels based on internal forecasts of customer demand, which can be highly unpredictable and can fluctuate substantially, which could lead to excess inventory write-downs and result in negative impacts on gross margin and net income.
If we do not achieve market acceptance of new products, we may be unable to generate sufficient revenue and cash flow to recover our research and development costs and may result in a write down of our investments in inventory. As a result, our market share, revenue, operating results or stock price would be negatively impacted.
If we do not achieve market acceptance of new products, we may be unable to generate sufficient revenue and cash flow to recover our research and development costs and may experience a write down of our investments in inventory. As a result, our market share, revenue, operating results or stock price could be negatively impacted.
In addition, an outbreak of hostilities or other political upheaval in China, Taiwan, Japan, or South Korea, or an economic downturn in Asia or globally, would likely harm the operations of our customers in these countries.
Furthermore, an outbreak of hostilities or other political upheaval in China, Taiwan, Japan, or South Korea, or an economic downturn in Asia or globally, would likely harm the operations of our customers in these countries.
Further, there may be significant merger and acquisition activity among our 21 Table of Contents competitors and potential competitors, which, in turn, may provide them with a competitive advantage over us by enabling them to rapidly expand their product offerings and service capabilities to meet a broader range of customer needs.
Further, there may be significant merger and acquisition activity among our competitors and potential competitors, which, in turn, may provide them with a competitive advantage over us by enabling them to rapidly expand their product offerings and service capabilities to meet a broader range of customer needs.
Any or all of these issues could negatively affect our ability to attract new customers, cause existing customers to choose to purchase from our competitors, result in reputational damage or subject us to third-party lawsuits, regulatory fines or other action or liability, which could adversely affect our operating results.
Any or all of the above issues could negatively affect our ability to attract new customers, cause existing customers to choose to purchase from our competitors, result in reputational damage or subject us to third-party lawsuits, regulatory fines or other action or liability, which could adversely affect our operating results.
Our future annual and quarterly tax rates could be affected by numerous factors, including changes in the (1) applicable tax laws; (2) composition of earnings in countries with differing tax rates; or (3) recoverability of our deferred tax assets and liabilities. Beginning in 2022, the U.S.
Our future annual and quarterly tax rates could be affected by 23 Table of Contents numerous factors, including changes in the (1) applicable tax laws; (2) composition of earnings in countries with differing tax rates; or (3) recoverability of our deferred tax assets and liabilities. Beginning in 2022, the U.S.
We may be required to initiate litigation in order to enforce our intellectual property rights or to determine the noninfringement, scope or validity of a third party’s intellectual property rights.
From time to time, we may be required to initiate litigation in order to enforce our intellectual property rights or to determine the noninfringement, scope or validity of a third party’s intellectual property rights.
Tax Cuts and Jobs Act of 2017 (“TCJA”) eliminates the option to deduct research and development expenditures currently and requires taxpayers to amortize them over five years pursuant to IRC Section 174. Although Congress is considering legislation that would defer the amortization requirement to later years, we have no assurance that the provision will be repealed or otherwise modified.
Tax Cuts and Jobs Act of 2017 (“TCJA”) eliminated the existing option to deduct research and development expenditures and requires taxpayers to amortize them over five years pursuant to IRC Section 174. Although Congress is considering legislation that would defer the amortization requirement to later years, we have no assurance that the provision will be repealed or otherwise modified.
Any prolonged disruption in the operations of our manufacturing facilities could have a material adverse effect on our revenue. We produce the majority of our systems in our manufacturing facilities located in Milpitas, California and Bloomington, Minnesota. We use contract manufacturers in China, Japan and the United States.
Any prolonged disruption in the operations of our manufacturing facilities could have a material adverse effect on our revenue. We produce the majority of our systems in our manufacturing facilities located in Wilmington, Massachusetts, Milpitas, California and Bloomington, Minnesota. We also use contract manufacturers in China, Japan and the United States.
We may also experience supplier or customer issues as a result of adverse macroeconomic conditions. If our customers have difficulties in obtaining capital or financing, this could result in lower sales. Customers with liquidity issues could also result in an increase in bad debt expense.
We may also experience supplier or customer issues as a result of adverse macroeconomic conditions. If our customers have difficulties in obtaining capital or financing, this could result in lower sales. Customers with liquidity issues could also 26 Table of Contents result in an increase in bad debt expense.
The administrative processing, attendant delays and risk of ultimately not obtaining required export approvals put us at a disadvantage relative to our non-U.S. competitors who are not required to comply with U.S. export controls. This difficulty and uncertainty has adversely affected our ability to compete for and win business from domestic customers in China.
The administrative processing, attendant delays and risk of ultimately not obtaining required export approvals also put us at a disadvantage relative to our non-U.S. competitors who may not be required to comply with U.S. export controls. This difficulty and uncertainty has adversely affected our ability to compete for and win business from domestic customers in China.
Many countries and organizations such as the Organization for Economic Cooperation and Development are also actively considering changes to existing tax laws or have proposed or enacted new laws that could increase our tax obligations in countries where we do 24 Table of Contents business or cause us to change the way we operate our business.
Many countries and organizations such as the Organization for Economic Cooperation and Development are also actively considering changes to existing tax laws or have proposed or enacted new laws that could increase our tax obligations in countries where we do business or cause us to change the way we operate our business.
We may experience difficulties or delays in our development efforts with respect to new systems, and we may not ultimately be successful in our product enhancement efforts to improve and advance products or in responding effectively to technological change, as not all research and development activities result in viable commercial products.
We may experience difficulties or delays in our development efforts with respect to new systems, and we may not ultimately be successful in our product enhancement efforts to improve and advance products or in responding effectively to technological change, as not all research and development activities result in viable commercial 16 Table of Contents products.
Over the last several years, the U.S. government has significantly expanded export controls on certain technologies and commodities to certain markets, particularly with respect to semiconductor and other high technology exports to China. For example, effective June 29, 2020, the U.S.
Over the last several years, the U.S. government has significantly expanded export controls on certain technologies and commodities to certain markets, particularly with respect to semiconductor and other high technology exports to China. For example, the U.S.
If there is a breach as a result of third-party action, employee error, malfeasance, break-ins or otherwise, of our security measures designed to protect this information and prevent data loss and other security breaches, and someone obtains unauthorized access to our customers’, vendors’ or employees’ data, we could face loss of business, regulatory 20 Table of Contents investigations or court orders, our reputation could be severely damaged, we could be required to expend significant capital and other resources to alleviate the problem, as well as incur significant costs and liabilities, including due to litigation, indemnity obligations, damages for contract breach, penalties for violation of applicable laws or regulations, and costs for remediation and other incentives offered to customers.
If there is a breach as a result of third-party action, including through the use of artificial intelligence, employee error, malfeasance, break-ins or otherwise, of our security measures designed to protect this information and prevent data loss and other security breaches, and someone obtains unauthorized access to our customers’, vendors’ or employees’ data or disrupts our access to our own data and systems, we could face loss of business, regulatory investigations or court orders or damage to our reputation, and we could be required to expend significant capital and other resources to alleviate the problem, as well as incur significant costs and liabilities, including due to litigation, indemnity obligations, damages for contract breach, penalties for violation of applicable laws or regulations, and costs for remediation and other incentives offered to customers.
If we cannot timely deliver our systems, our results from operations and cash flows could be materially and adversely affected. 17 Table of Contents We may outsource select manufacturing activities to third-party service providers, which decreases our control over the performance of these functions and may result in lower quality and functionality of our products.
If we cannot timely deliver our systems, our results from operations and cash flows could be materially and adversely affected. 15 Table of Contents We outsource select manufacturing activities to third-party service providers, which decreases our control over the performance of these functions, may result in lower quality and functionality of our products, and exposes us to additional supply chain risks.
Our ability to fulfill our backlog may have an effect on our long-term ability to procure contracts and fulfill current contracts. Our ability to fulfill our backlog may be limited by our ability to devote sufficient financial and human capital resources and may be limited by available material supplies.
Our ability to fulfill our backlog may have an effect on our long-term ability to procure contracts and fulfill current contracts. Our ability to fulfill our backlog may be limited by our ability to devote sufficient financial and human capital resources and may be limited by available material supplies and our suppliers’ own supply chain issues.
Factors affecting our stock price may include: • variations in operating results from quarter to quarter; • changes in earnings estimates by analysts or our failure to meet analysts’ expectations; • changes in the market price per share of our public company customers; • market conditions in the semiconductor and other industries into which we sell products; • general economic conditions; • political changes, hostilities or natural disasters such as hurricanes and floods; • the impact of the COVID-19 pandemic, or other future infectious disease pandemics, on the global economy and on our customers, suppliers, employees, and business; • low trading volume of our common stock; and • the number of firms making a market in our common stock.
Factors affecting our stock price may include: • variations in operating results from quarter to quarter; • changes in earnings estimates by analysts or our failure to meet analysts’ expectations; • changes in the market price per share of our public company customers; • market conditions in the semiconductor and other industries into which we sell products; • general economic conditions; • political changes, hostilities or natural disasters such as hurricanes and floods; • the impact of infectious disease pandemics, on the global economy and on our customers, suppliers, employees, and business; • low trading volume of our common stock; and • the number of firms making a market in our common stock. 27 Table of Contents In addition, the stock market has experienced periods of significant price and volume fluctuations.
Our stock price is volatile. The market price of our common stock has fluctuated widely. Consequently, the current market price of our common stock may not be indicative of future market prices, and we may be unable to sustain or increase the value of an investment in our common stock.
Consequently, the current market price of our common stock may not be indicative of future market prices, and we may be unable to sustain or increase the value of an investment in our common stock.
Conversely, if we underestimate our customers’ requirements, or if we experience sustained disruptions to our supply chain or shipping delays, including those we are currently experiencing due to the COVID-19 pandemic, we may have inadequate inventory, which could lead to foregone revenue opportunities, loss of potential market share and damage to customer relationships as product deliveries may not be made on a timely basis, disrupting our customers’ production schedules.
Conversely, if we underestimate our customers’ requirements, or if we experience sustained disruptions to our supply chain or shipping delays, we may have inadequate inventory, which could lead to foregone revenue opportunities, loss of potential market share and damage to customer relationships as product deliveries may not be made on a timely basis, disrupting our customers’ production schedules.
Risks Related to Product Development • If we are not successful in developing new and enhanced products for the semiconductor device manufacturing industry, we will lose sales and market share to our competitors. • If new products developed by us do not gain general market acceptance, we will be unable to generate revenue and recover our research and development costs. 12 Table of Contents • Even if we are able to develop new products that gain market acceptance, sales of these new products could impair our ability to sell existing products. • If our relationships with our large customers deteriorate, our product development activities could be adversely affected.
Risks Related to Product Development • If we are not successful in developing new and enhanced products for the semiconductor device manufacturing industry, we will lose sales and market share to our competitors. • If new products developed by us do not gain general market acceptance, we will be unable to generate revenue and recover our investments, which may result in a write down of inventory. • Even if we are able to develop new products that gain market acceptance, sales of these new products could impair our ability to sell existing products. • If our relationships with our large customers deteriorate, our product development activities could be adversely affected.
If we deliver systems with defects, our credibility will be harmed, and the sales and market acceptance of our systems will decrease. Our systems are complex and have occasionally contained errors, defects and bugs when introduced. Defects may be created during probing, bumping, dicing or general handling, and can have a major impact on device and process quality.
Our systems are complex and have occasionally contained errors, defects and bugs when introduced. Defects may be created during probing, bumping, dicing or general handling, and can have a major impact on device and process quality. When this occurs, our credibility and the market acceptance and sales of our systems could be harmed.
In particular, these restrictive measures may reduce overall global demand for our customers’ products or for other products produced or manufactured in the United States or based on U.S. technology, in turn reducing demand for our products, which could have a material adverse effect on our business, financial condition and results of operations.
In addition, these export controls may also reduce overall global demand for our customers’ products or for other products produced or manufactured in the U.S. or based on U.S. technology, in turn reducing demand for our products, which could have a material adverse effect on our business, financial condition and results of operations.
The General Data Protection Regulation (“GDPR”) is a regulation in European Union (“EU”) law on data protection and privacy for the individuals within the EU and the European Economic Area (“EEA”). It also addresses the export of personal data outside the EU and EEA areas. We are also subject to the California Consumer Privacy Act (“CCPA”).
The General Data Protection Regulation (“GDPR”) is a regulation in European Union (“EU”) law on data protection and privacy for the individuals within the EU and the European Economic Area (“EEA”). It also addresses the export of personal data outside the EU and EEA areas.
Risks Related to Our International Operations We are subject to compliance with foreign laws and regulations, and the burden of complying with such laws and regulations, or any failure to comply, may adversely affect our business, financial condition and results of operations .
We are subject to compliance with domestic and foreign laws and regulations, and the burden of complying with such laws and regulations, or any failure to comply, has adversely affected and may continue to adversely affect our business, financial condition and results of operations .
Natural disasters, changes in climate and geo-political events could materially adversely affect our worldwide operations (or those of our business partners).
Natural disasters, changes in climate, public health crises, and geo-political conflicts could materially adversely affect our worldwide operations (or those of our business partners).
In addition, the stock market has experienced periods of significant price and volume fluctuations. These fluctuations have particularly affected the market prices of the securities of high technology companies like ours. Any such market fluctuations in the future could adversely affect the market price of our common stock.
These fluctuations have particularly affected the market prices of the securities of high technology companies like ours. Any such market fluctuations in the future could adversely affect the market price of our common stock.
The Organization for Economic Co-operation and Development (“OECD”), released guidance covering various topics, including country-by-country reporting, definitional changes to permanent establishment and Base Erosion and Profit Shifting (“BEPS”), an initiative that aims to standardize and modernize global tax policy.
In December 2021, the Organization for Economic Co-operation and Development (“OECD”), released guidance covering various topics, including country-by-country reporting, definitional changes to permanent establishment and Base Erosion and Profit Shifting (“BEPS”), an initiative that aims to standardize and modernize global tax policy. The proposed guidance also established a global minimum tax of 15%.
Costly and time-consuming litigation might be necessary to enforce and determine the scope of our intellectual property rights, and failure to obtain or maintain trade secret protection might adversely affect our ability to continue our research or bring products to market.
Costly and time-consuming litigation might be necessary to enforce and determine the scope of our intellectual property rights, and failure to obtain or maintain trade secret protection might adversely affect our ability to continue our research or bring products to market. Any of these circumstances could result in harm to our competitive position in the market.
As part of our business, we store our data and certain data about our customers, vendors and employees in our information technology system.
As part of our business, we store our data and certain data about our customers, vendors and employees in our information technology system. We also rely on our information technology system for business operations.
Our future success and competitive position depend in part upon our ability to obtain and maintain proprietary technology for our principal product families, and we rely, in part, on patent, copyright and trade secret law and confidentiality agreements to protect that technology. If we fail to adequately protect our intellectual property, it will give our competitors a significant advantage.
Our future success and competitive position depend in part upon our ability to obtain and maintain proprietary technology for our principal product families. If we fail to adequately protect our intellectual property, it will give our competitors a significant advantage.
Our dependence on limited source suppliers of components and our lack of long-term contracts with many of our suppliers expose us to several risks, including a potential inability to obtain an adequate supply of components, price increases, late deliveries and poor component quality.
Our dependence on limited-source suppliers of components and our lack of long-term contracts with certain of our suppliers expose us to several risks, including a potential inability to obtain an adequate supply of components, price increases, late deliveries and poor component quality. A significant number of our suppliers are the sole source or single source for certain components or subassemblies.
In addition, the patents that we do own or that have been issued or licensed to us may not provide us with competitive advantages and may be challenged by third parties. Further, third parties may also design around these patents.
In addition, the patents that we do own or that have been issued or licensed to us may not provide us with competitive advantages and/or may be invalidated, enforceable and/or challenged by third parties. Third parties may also design around our patents or copy our patented inventions without our knowledge.
If the requirement is not modified, it will reduce our cash flows beginning in 2022. In addition, recent proposals to increase the U.S. corporate income tax rate, increase U.S. taxation of international business operations and impose a global minimum tax could have a negative impact on our tax position depending upon the terms of the final enacted legislation.
In addition, recent proposals to increase the U.S. corporate income tax rate, increase U.S. taxation of international business operations and impose a global minimum tax could have a negative impact on our tax position depending upon the terms of the final enacted legislation.
To effectively manage growth, we must, among other things: • engage, train and manage a larger sales force and additional service personnel; • expand the geographic coverage of our sales force; • expand our information systems; • identify and successfully integrate acquired businesses into our operations; and • administer appropriate financial and administrative control procedures. 26 Table of Contents Growth of our business will likely place a significant strain on our management, financial, operational, technical, sales and administrative resources.
To effectively manage growth, we must, among other things: • engage, train and manage a larger sales force and additional service personnel; • expand the geographic coverage of our sales force; • expand our information systems; • identify and successfully integrate acquired businesses into our operations; and • administer appropriate financial and administrative control procedures.
In addition, to support our future growth, we will need to attract and retain additional qualified employees. Competition for such personnel in our industry is intense, and we may not be successful in attracting and retaining qualified employees.
In addition, to support our future growth, we will need to attract and retain additional qualified employees. Competition for such personnel in our industry is intense, and we may not be successful in attracting and retaining qualified employees. The expansion of high technology companies worldwide and growth in the demand for semiconductors have increased demand and competition for qualified personnel.
Risks Related to Intellectual Property and Data Security • We may fail to adequately protect our intellectual property and, therefore, lose our competitive advantage. • Protection of our intellectual property rights, or the efforts of third parties to enforce their own intellectual property rights against us, may result in costly and time-consuming litigation, substantial damages, lost product sales and/or the loss of important intellectual property rights. • If our network security measures are breached and unauthorized access is obtained to a customer’s data, to our data, or to our information technology systems, we may incur significant legal and financial exposure and liabilities and may experience disruptions in our operations.
Risks Related to Intellectual Property and Data Security • We may fail to adequately protect our intellectual property and, therefore, lose our competitive advantage. • Protection of our intellectual property rights, or the efforts of third parties to enforce their own intellectual property rights against us, may result in costly and time-consuming litigation, substantial damages, lost product sales and/or the loss of important intellectual property rights. 11 Table of Contents • If our network security measures are breached and unauthorized access is obtained to a customer’s data, to our data, or to our information technology systems, we may incur significant legal and financial exposure and liabilities and may experience disruptions in our operations. • Compliance with data protection laws may be costly and may impede development of new products, and any failure to comply with, or inquiries under, these laws could have a material adverse effect on our business, results of operations and financial condition.
If these suppliers, such as Applied Materials, Inc., Ebara Corporation, Lam Research Corporation and Tokyo Electron, are unable to sell such products, if they choose to focus their attention on products that do not integrate with our systems, or if they choose to develop competing systems, our business could suffer.
If these suppliers are unable to sell such products, if they choose to focus their attention on products that do not integrate with our systems, or if they choose to develop competing systems, our business could suffer.
Any failure to effectively manage our growth may cause our business to suffer and our stock price to decline. Risks Related to the Global Economy and the Semiconductor Industry Cyclicality in the semiconductor device industry has led to substantial decreases in demand for our systems in the past and may, from time to time, continue to do so.
Risks Related to the Global Economy and the Semiconductor Industry Cyclicality in the semiconductor device industry has led to substantial decreases in demand for our systems in the past and may, from time to time, continue to do so.
Further, our products are leading edge and complex, and often the applications to our customers’ businesses are unique. Any new systems we introduce may not achieve or sustain a significant degree of market acceptance and sales. We expect to spend a significant amount of time and resources developing new systems and refining our existing systems.
Any new systems we introduce may not achieve or sustain a significant degree of market acceptance and sales. We expect to spend a significant amount of time and resources developing new systems and refining our existing systems.
These provisions provide for: • a prohibition on stockholder actions through written consent; • a requirement that special meetings of stockholders be called only by the chairperson of our Board of Directors or majority of our directors; • advance notice requirements for stockholder proposals and director nominations by stockholders; • the authority of our Board of Directors to issue, without stockholder approval, preferred stock with such terms as the Board may determine; and • the authority of our board, without stockholder approval, to adopt a stockholder rights plan. 27 Table of Contents We are also entitled to avail ourselves of the protections of Section 203 of the Delaware General Corporation Law, which could inhibit changes in control of the Company.
These provisions provide for: • a prohibition on stockholder actions through written consent; • a requirement that special meetings of stockholders be called only by the chairperson of our Board of Directors or majority of our directors; • advance notice requirements for stockholder proposals and director nominations by stockholders; • the authority of our Board of Directors to issue, without stockholder approval, preferred stock with such terms as the Board may determine; and • the authority of our board, without stockholder approval, to adopt a stockholder rights plan.
If the sale of these products is delayed or we are unable to return or dispose of our inventory on favorable economic terms, we may incur additional carrying costs for the inventory or otherwise record charges associated with this inventory.
Further, we hold inventory of products that may be affected by these recent U.S. government actions, including potential order cancellations. If the sale of these products is delayed or we are unable to return or dispose of our inventory on favorable economic terms, we may incur additional carrying costs for the inventory or otherwise record charges associated with this inventory.
We cannot provide any assurance that alternate means of conducting our operations (whether through alternate production capacity or service providers or otherwise) would be available if a major disruption were to occur or that, if such alternate means were available, they could be obtained on favorable terms. 23 Table of Contents We may face difficulties in staffing and managing foreign branch operations due to political tensions or cultural differences .
We cannot provide any assurance that alternate means of conducting our operations (whether through alternate production capacity or service providers or otherwise) would be available if a major disruption were to occur or that, if such alternate means were available, they could be obtained on favorable terms.
In addition, cybersecurity incidents affecting our customers could result in substantial delays in our ability to ship to those customers or install our products, which could result in delays in revenue recognition or the cancellation of orders, and cybersecurity incidents affecting our suppliers could result in substantial delays in our ability to obtain necessary components for our products from those suppliers, which could hamper our ability to ship our products to our customers, harming our results of operations and our customer relationships.
Likewise, cybersecurity events impacting our suppliers could result in substantial delays in our ability to obtain necessary components for our products from those suppliers, which could hamper our ability to ship our products to our customers, harming our results of operations and our customer relationships.
It is possible that the U.S. government will impose additional export controls on our products or systems, which could lead to further revenue losses.
It is possible that the U.S. government will impose additional export controls on our products or systems, which could lead to further revenue losses. Such changes could result in additional restrictions on our ability to sell products to customers in China and other jurisdictions.
During periods of tension between the governments of the United States and certain other countries, it is often difficult for U.S. companies such as ours to staff and manage operations in such countries.
We may face difficulties in staffing and managing foreign branch operations due to political tensions or cultural differences . During periods of tension between the governments of the United States and certain other countries, it is often difficult for U.S. companies such as ours to staff and manage operations in such countries.
Compliance with current or future environmental laws and regulations could restrict our ability to expand our facilities or require us to acquire additional expensive equipment, modify our manufacturing processes, or incur other significant expenses. We may unintentionally violate environmental laws or regulations in the future as a result of human error, equipment failure or other causes.
Compliance with current or future environmental laws and regulations could restrict our ability to expand our facilities or require us to acquire additional expensive equipment, modify our manufacturing processes, or incur other significant expenses.
Operating costs have increased and may continue to increase further as a result of supply chain disruptions in connection with the sourcing of components, materials, equipment, engineering support, and services, labor shortages and other cost increases due to the COVID-19 pandemic and related government restrictions on travel and business operations.
Operating costs have increased and may continue to increase further as a result of supply chain disruptions in connection with the sourcing of components, materials, equipment, engineering support, and services, labor shortages, high inflation rates, and cost increases attributable to the COVID-19 pandemic and the effects of the Russia-Ukraine conflict.
In many cases, these laws apply not only to third-party transactions, but also to transfers of information between us and our subsidiaries, and among the subsidiaries and other parties with which we have commercial relations. The introduction of new products or expansion of our activities in certain jurisdictions may subject us to additional laws and regulations.
We may also be subject to other data privacy laws in the United States and the other countries in which we operate. In many cases, these laws apply not only to third-party transactions, but also to transfers of information between us and our subsidiaries, and among the subsidiaries and other parties with which we have commercial relations.
These U.S. federal and state and foreign laws and regulations, including GDPR which can be enforced by private parties or government entities, are constantly evolving and can be subject to significant change.
The introduction of new products or expansion of our activities in certain jurisdictions may subject us to additional laws and regulations. These U.S. federal and state and foreign laws and regulations, including GDPR which can be enforced by private parties or government entities, are constantly evolving and can be subject to significant change.
Monitoring and preventing unauthorized use are also difficult and the measures we take to protect our intellectual property rights may not be adequate. Accordingly, infringement of our intellectual property rights poses a serious risk of doing business. There is a risk that we may be unable to adequately protect our intellectual property rights in certain foreign countries.
Monitoring and preventing unauthorized use are also difficult and the measures we take to protect our intellectual property rights may not be adequate. There is a risk that we may be unable to adequately protect our intellectual property rights in certain foreign countries. For example, our competitors may independently develop similar technology or duplicate our products.
Our product liability insurance policy currently provides both aggregate coverage as well as an overall umbrella coverage. In the event of a successful product liability claim, we could be obligated to pay damages significantly in excess of our product liability insurance limits.
In the event of a successful product liability claim, we could be obligated to pay damages significantly in excess of our product liability insurance limits.
These laws, regulations, rules and policies could relate to any of an array of issues including, but not limited to, environmental, tax, intellectual property, trade secrets, product liability, contracts, antitrust, employment, securities, import/export and unfair competition. The cost of maintaining compliance under multiple and changing regulatory regimes may adversely affect our business, financial condition and results of operations.
These laws, regulations, rules and policies could relate to any of an array of issues including, but not limited to, environmental, tax, intellectual property, trade secrets, product liability, contracts, antitrust, employment, securities, import/export and unfair competition.
Risks Related to Tax Laws, Financial Markets and the Environment • Changes in tax rates or tax liabilities could affect results. • Turmoil or fluctuations in the credit markets and the financial services industry may negatively impact our business, results of operations, financial condition or liquidity, and our factoring arrangements may expose us to additional risks. • We are subject to various environmental laws and regulations that could impose substantial costs upon us, and failure to comply with such laws and regulations may harm our business, operating results and financial condition. • Customer and investor focus on our environmental, social and governance responsibility practices and policies, and related regulatory requirements, may make our supply chain more complex, and any failure to comply with customer or investor guidelines or applicable laws and regulations may adversely affect our relationship with customers and investors or our reputation and results of operations.
Risks Related to Laws, Legal Proceedings, Financial Markets and the Environment • Changes in tax rates or tax liabilities could affect results. • Turmoil or fluctuations in the credit markets and the financial services industry may negatively impact our business, results of operations, financial condition or liquidity, and our factoring arrangements may expose us to additional risks. • We are subject to various environmental laws and regulations that could impose substantial costs upon us, and failure to comply with such laws and regulations may harm our business, operating results and financial condition. • Legal proceedings, claims and investigations may expose us to increased costs and may negatively affect our business and results of operations.
Disruption or termination of the supply of components has delayed and could continue to delay shipments of some of our systems. Such delays may damage our customer relationships and reduce our sales.
Disruption or termination of the supply of components has delayed and could in the future delay shipments of some of our systems. Such delays may damage our customer relationships and reduce our sales. The lead time required for shipments of some of our components can be greater than six months.
When 16 Table of Contents this occurs, our credibility and the market acceptance and sales of our systems could be harmed. Further, if our systems contain errors, defects or bugs, computer viruses or malicious code as a result of cyber-attacks to our computer networks, we may be required to expend significant capital and resources to alleviate these problems.
Further, if our systems contain errors, defects or bugs, computer viruses or malicious code as a result of cyber-attacks to our computer networks, we may be required to expend significant capital and resources to alleviate these problems. Defects could also lead to product liability as a result of product liability lawsuits against us or against our customers.
The lead-time required for shipments of some of our components can be greater than six months. In addition, the lead time required to qualify new suppliers for lasers and certain optics could be as long as a year, and the lead time required to qualify new suppliers of other components could be as long as nine months.
In addition, the lead time required to qualify new suppliers for lasers and certain optics could be as long as a year, and the lead time required to qualify new suppliers of other components could be as long as nine months. In some cases, we may need to purchase components in advance of receiving customer orders for product.
Defects could also lead to product liability as a result of product liability lawsuits against us or against our customers. We have agreed to indemnify our customers under certain circumstances against liability arising from defects in our systems provided that we also include a cap on our liability in the related sales agreements.
We have agreed to indemnify our customers under certain circumstances against liability arising from defects in our systems provided that we also include a cap on our liability in the related sales agreements. Our product liability insurance policy currently provides both aggregate coverage as well as an overall umbrella coverage.
Even though 19 Table of Contents these agreements are in place, there can be no assurances that trade secrets and proprietary information will not be disclosed, that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets, or that we can fully protect our trade secrets and proprietary information.
There can be no assurances that our confidentiality agreements with employees and other third parties will be sufficient to protect our trade secrets and proprietary information or that such information will not be disclosed, that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets, or that we can fully protect our trade secrets and proprietary information.
Based on the complex relationships among China, Hong Kong, Taiwan, and the United States, there is risk that political, diplomatic, and national security influences might lead to trade, technology, or capital disputes, or disruptions, in particular those affecting the semiconductor industry. This may adversely affect our business in Asia or have a negative impact on the regional or global economy.
In addition, due to the complex relationships among China, Hong Kong, Taiwan, and the United States, there is risk that political, diplomatic, and national security influences might lead to trade, technology, or capital disputes, or disruptions affecting the semiconductor industry.
In addition, a worsening economy or an economic crisis could also adversely impact our customers’ ability to finance the purchase of systems from us or our suppliers’ ability to provide us with product, either of which may negatively impact our business and results of operations.
In addition, a worsening economy or an economic crisis could also adversely impact our customers’ ability to finance the purchase of systems from us or our suppliers’ ability to provide us with product, either of which may negatively impact our business and results of operations. 24 Table of Contents We are subject to various environmental laws and regulations that could impose substantial costs upon us, and failure to comply with such laws and regulations may harm our business, operating results and financial condition.
Any material increase in our inventories could result in an adverse effect on our financial position, while any material decrease in our ability to procure needed inventories could result in an inability to supply customer demand for our products, thus adversely affecting our revenue.
Any material increase in our inventories could result in an adverse effect on our financial position, while any material decrease in our ability to procure needed inventories could result in an inability to supply customer demand for our products, thus adversely affecting our revenue. 14 Table of Contents If we deliver systems with defects, our credibility will be harmed, and the sales and market acceptance of our systems will decrease.
International trade disputes could result in increases in tariffs and other trade restrictions and protectionist measures that could adversely impact our operations and reduce the competitiveness of our products relative to local and global competitors. Political and economic instability may result in reduced demand for our products .
Increased restrictions on China exports may also lead to regulatory retaliation by the Chinese government, which may adversely impact our business. International trade disputes could result in increases in tariffs and other trade restrictions and protectionist measures that could adversely impact our operations and reduce the competitiveness of our products relative to local and global competitors.
Failure to protect our trademarks can lead to other companies selling products using confusing similar names, thereby damaging our brand. In some countries, it can be difficult to register trademarks because of the strict examination process or blocking trademarks for other goods.
In some countries, it can be difficult to register trademarks because of the strict examination process or blocking trademarks for other goods.
We are subject to various global risks related to political and economic instabilities in countries in which we derive sales. If terrorist activities, armed conflict, civil or military unrest or political instability occurs outside of the United States, these events may result in reduced demand for our products.
Political and economic instability may result in reduced demand for our products . We are subject to various global risks related to political and economic instabilities in countries in which we derive sales.
We have, from time to time, selectively reduced prices on our systems in order to protect our market share, and competitive pressures may necessitate further price reductions. We expect our competitors in each product area to continue to improve the design and performance of their products and to introduce new products with competitive prices and performance characteristics.
Many of our competitors are investing heavily in the development of new systems that will compete directly with our systems. We have, from time to time, selectively reduced prices on our systems in order to protect our market share, and competitive pressures may necessitate further price reductions.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeLocation Facility Purpose Approximate Square Footage Wilmington, Massachusetts Corporate Headquarters, Engineering, Manufacturing and Service 50,200 Milpitas, California Engineering, Manufacturing, Service and Administration 134,000 Budd Lake, New Jersey Engineering, Service and Administration 49,000 Bloomington, Minnesota Engineering, Manufacturing, Service and Administration 98,600 Bend, Oregon Engineering and Service 12,700 Hillsboro, Oregon Engineering and Service 10,000 Richardson, Texas Engineering 21,000 Snoqualmie, Washington Engineering and Service 20,300 Tucson, Arizona Engineering, Manufacturing and Service 18,900 Sudbury, Massachusetts Engineering, Manufacturing and Service 10,000 Taiwan Sales and Service 30,200 China Sales, Service and Engineering 22,800 South Korea Sales and Service 18,900 Japan Sales and Service 7,200 Singapore Sales and Service 9,800 We also lease office space for other smaller sales and service offices in several locations throughout the world.
Biggest changeLocation Facility Purpose Approximate Square Footage Wilmington, Massachusetts Corporate Headquarters, Engineering, Manufacturing and Service 77,500 Milpitas, California Engineering, Manufacturing, Service and Administration 134,600 Budd Lake, New Jersey Engineering, Service and Administration 49,000 Bloomington, Minnesota Engineering, Manufacturing, Service and Administration 98,700 Bend, Oregon Engineering and Service 12,700 Hillsboro, Oregon Engineering and Service 10,000 Snoqualmie, Washington Engineering and Service 20,300 Tucson, Arizona Engineering, Manufacturing and Service 18,900 Taiwan Sales and Service 37,600 China Sales, Service and Engineering 26,200 South Korea Sales and Service 29,200 Japan Sales and Service 14,000 Singapore Sales and Service 9,800 We also lease office space for other smaller sales and service offices in several locations throughout the world.
Item 2. Properties. Our principal executive office building is located at 16 Jonspin Road in Wilmington, Massachusetts. We own our Milpitas and Richardson facilities and lease facilities for corporate, engineering, manufacturing, sales and service-related purposes in the United States and seven other countries - China, Japan, South Korea, Singapore, Taiwan, Germany and France.
Item 2. Properties. Our principal executive office building is located at 16 Jonspin Road in Wilmington, Massachusetts. We own our Milpitas facility and lease facilities for corporate, engineering, manufacturing, sales and service-related purposes in the United States and seven other countries - China, Japan, South Korea, Singapore, Taiwan, Malaysia and Vietnam.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe following table provides details of common stock purchased during the three month period ended January 1, 2022 (in thousands, except per share data): Period Total Number of Shares Purchased (1) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Program Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program September 26, 2021 - November 1, 2021 1 $ 75.08 — $ 100,000 November 2, 2021 - December 1, 2021 6 $ 93.54 — $ 100,000 December 2, 2021 - January 1, 2022 — $ — — $ 100,000 Three Months Ended January 1, 2022 7 $ 91.86 — 1 Includes shares withheld through net share settlements.
Biggest changeThe following table provides details of common stock purchased during the three-month period ended December 30, 2023 (in thousands, except per share data): Period Total Number of Shares Purchased (1) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Program Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program October 1, 2023 - October 30, 2023 2 $ 121.77 — $ 31,577 October 31, 2023 - November 30, 2023 1 $ 133.33 — $ 31,577 December 1, 2023 - December 30, 2023 — $ — — $ 31,577 Three Months Ended December 30, 2023 3 — 1 Includes shares withheld through net share settlements.
Historical data for Onto Innovation in the line graph for the period commencing on December 31, 2016 and ending on October 25, 2019 reflects the cumulative return to the stockholders of Nanometrics.
Historical data for Onto Innovation in the line graph for the period commencing on December 31, 2018 and ending on October 25, 2019 reflects the cumulative return to the stockholders of Nanometrics.
Prior to the 2019 Merger, Nanometrics’ common stock was quoted on the Nasdaq Global Select Market under the symbol “NANO” and Rudolph’s common stock was quoted on the NYSE under the symbol “RTEC.” Set forth below is a line graph comparing the annual percentage change in the cumulative return to the stockholders of the Company’s common stock with the cumulative return of the NYSE Composite Index and the industry specific index, PHLX Semiconductor Index, for the period commencing on December 31, 2016 and ending on December 31, 2021.
Prior to the 2019 Merger, Nanometrics’ common stock was quoted on the Nasdaq Global Select Market under the symbol “NANO” and Rudolph’s common stock was quoted on the NYSE under the symbol “RTEC.” Set forth below is a line graph comparing the annual percentage change in the cumulative return to the stockholders of the Company’s common stock with the cumulative return of the NYSE Composite Index and an industry specific index, the PHLX Semiconductor Index, for the period commencing on December 31, 2018 and ending on December 31, 2023.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Our common stock, $0.01 par value per share, is quoted on the New York Stock Exchange (“NYSE”) under the symbol “ONTO.” As of February 8, 2022, there were approximately 117 stockholders of record.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Our common stock, $0.01 par value per share, is quoted on the New York Stock Exchange (“NYSE”) under the symbol “ONTO.” As of February 5, 2024, there were approximately 106 stockholders of record.
In November 2020, the Onto Innovation Board of Directors approved a new share repurchase authorization, which allows us to repurchase up to $100 million worth of shares of our common stock. Repurchases may be made through both public 30 Table of Contents market and private transactions from time to time.
In November 2020, the Onto Innovation Board of Directors approved a share repurchase authorization, which allows us to repurchase up to $100 million worth of shares of our common stock. Repurchases may be made through both public market 31 Table of Contents and private transactions from time to time with shares purchased being subsequently retired.
The graph assumes that $100 was invested on December 31, 2016 in the Company’s common stock and in each index. No cash dividends have been declared or paid on the Company’s common stock. Stockholder returns over the indicated period should not be considered indicative of future stockholder returns. Prepared by Zacks Investment Research, Inc. Used with permission. All rights reserved.
The graph assumes that $100 was invested on December 31, 2018 in the Company’s common stock and in each index. Stockholder returns over the indicated period should not be considered indicative of future stockholder returns. Prepared by Zacks Investment Research, Inc. Used with permission. All rights reserved.
In addition to our share repurchase program, we withhold common stock shares associated with net share settlements to cover tax withholding obligations upon the vesting of restricted stock unit awards and stock option exercises under the Company’s equity incentive program.
In addition to our share repurchase program, we withhold common stock shares associated with net share settlements to cover tax withholding obligations upon the vesting of restricted stock unit awards under the Company’s equity incentive program. During the three and twelve months ended December 30, 2023, we withheld 3 thousand and 125 thousand shares through net share settlements, respectively.
At January 1, 2022, there was $100 million available for future share repurchases. For further information, see Note 17 in the accompanying Notes to the Consolidated Financial Statements included in this Form 10-K.
At December 30, 2023, there was $31.6 million available for future share repurchases under the share repurchase authorization. For further information, see Note 16 in the accompanying Notes to the Consolidated Financial Statements included in this Form 10-K.
Please refer to Note 11 of the Notes to the Consolidated Financial Statements included in this Form 10-K for further discussion regarding our equity incentive plan.
For the three and twelve month periods ended December 30, 2023, net share settlements cost $0.4 million and $10.8 million, respectively. Please refer to Note 10 of the Notes to the Consolidated Financial Statements included in this Form 10-K for further discussion regarding our equity incentive plan.
Copyright 1980-2022. 12/16 12/17 12/18 12/19 12/20 12/21 Onto Innovation Inc. 100.0 99.4 109.1 145.8 189.7 404.0 NYSE Composite 100.0 118.7 108.1 135.7 145.2 175.2 PHLX Semiconductor 100.0 140.5 132.1 215.6 331.3 473.2 We have never declared or paid a cash dividend on our common stock and we currently do not intend to.
Copyright 1980-2024. 12/18 12/19 12/20 12/21 12/22 12/23 Onto Innovation Inc. 100.0 133.7 173.9 370.3 249.0 559.1 NYSE Composite 100.0 125.5 134.3 162.0 146.9 167.1 PHLX Semiconductor 100.0 163.3 250.9 358.4 233.4 389.7 We have never declared or paid a cash dividend on our common stock and we currently do not intend to do so.
Removed
During the three and twelve months ended January 1, 2022, we withheld 7 thousand and 108 thousand shares through net share settlements, respectively. For the three and twelve month periods ended January 1, 2022, net share settlements cost $0.6 million and $7.4 million, respectively.
Added
On October 25, 2019, we became Onto Innovation Inc. upon the effectiveness of the merger (the “2019 Merger”) between Nanometrics Incorporated (“Nanometrics”) and Rudolph Technologies, Inc. (“Rudolph”).
Added
During the twelve months ended December 30, 2023, we repurchased 46 thousand shares of our common stock. The amount paid to repurchase the shares in excess of par value, including transaction costs, is recorded directly as a decrease to additional paid-in capital and accumulated earnings.

Item 7. Management's Discussion & Analysis

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

51 edited+20 added−72 removed23 unchanged
Biggest changeThe following table lists, for the periods indicated, the different sources of our revenue in dollars (thousands) and as percentages of our total revenue: Year Ended January 1, 2022 December 26, 2020 December 31, 2019 Systems and software $ 669,114 85 % $ 450,459 80 % $ 255,723 84 % Parts 72,753 9 % 65,444 12 % 34,892 11 % Services 47,032 6 % 40,593 8 % 15,281 5 % Total revenue $ 788,899 100 % $ 556,496 100 % $ 305,896 100 % Total systems and software revenue increased $218.7 million for the year ended January 1, 2022, as compared to the year ended December 26, 2020, primarily due to an increase in overall demand for our products from semiconductor industry customers, particularly in specialty devices and advanced packaging and advanced nodes applications, and the inclusion of $22.3 million of revenue from the Inspectrology acquisition.
Biggest changeThe following table lists, for the periods indicated, the different sources of our revenue in dollars (thousands) and as percentages of our total revenue: Year Ended December 30, 2023 December 31, 2022 January 1, 2022 Systems and software $ 683,316 84 % $ 865,707 86 % $ 669,114 85 % Parts 74,604 9 % 84,266 8 % 72,753 9 % Services 57,948 7 % 55,210 6 % 47,032 6 % Total revenue $ 815,868 100 % $ 1,005,183 100 % $ 788,899 100 % Total systems and software revenue decreased $182.4 million for the year ended December 30, 2023, as compared to the year ended December 31, 2022, primarily due to a decrease in units shipped of our metrology product lines to customers in advanced nodes applications.
From time to time, we evaluate whether to acquire new or complementary businesses, products and/or technologies. We may fund all of or a portion of the price of these investments or acquisitions in cash, stock, or a combination of cash and stock.
From time to time, we evaluate whether to acquire new or complementary businesses, products or technologies. We may fund all of or a portion of the price of these investments or acquisitions in cash, stock, or a combination of cash and stock.
Revenue from services primarily consists of service contracts, which provide additional maintenance coverage beyond our assurance warranty on our products, service labor, consulting and training. Revenue from service contracts is recognized ratably over the term of the service contract. Revenue from service labor, consulting and training is recognized as services are performed.
Revenue from services primarily consists of service contracts, which provide additional maintenance coverage beyond our assurance warranty on our products, service labor, consulting and training. Revenue from service contracts is recognized ratably over the term of the service contract. Revenue from service labor and consulting is recognized as services are performed.
We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we must establish a valuation allowance. Management judgment is required in determining our provision for income taxes and any valuation allowance recorded against our deferred tax assets.
We must assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we must establish a valuation allowance. Management judgment is required in determining our provision for income taxes and any valuation allowance recorded against our deferred tax assets.
Our principal market is semiconductor capital equipment. Semiconductors packaged as integrated circuits, or “chips”, are used in consumer electronics, server and enterprise systems, mobile computing (including smart phones and tablets), data storage devices, and embedded automotive and control systems.
Our principal market is semiconductor capital equipment. Semiconductors packaged as integrated circuits (“ICs”), or “chips”, are used in consumer electronics, server and enterprise systems, mobile computing (including smart phones and tablets), data storage devices, and embedded automotive and control systems.
Assumptions and estimates used in the determination of impairment losses, such as future cash flows and disposition costs, may affect the carrying value of long-lived assets and the impairment of such long-lived assets, if any, could have a material effect on our consolidated financial statements.
Assumptions and estimates used in the determination of impairment losses, such as future cash flows and disposition costs, may affect the carrying value of long-lived assets and the impairment of such long-lived assets, if any, could have a material effect on our consolidated financial statements. Income Taxes.
Our core focus is the measurement and control of the structure, composition, and geometry of semiconductor devices as they are fabricated on silicon wafers to improve device performance and manufacturing yields. Our products and services are used by our customers who manufacture many types of integrated circuits for a multitude of applications, each having unique manufacturing challenges.
Our core focus is the measurement and control of the structure, composition, and geometry of semiconductor devices as they are fabricated on silicon wafers to improve device performance and manufacturing yields. Our products and services are used by our customers who manufacture many types of ICs for a multitude of applications, each having unique manufacturing challenges.
During fiscal 2021, the increase in parts and services revenue was primarily due to increased spending by our customers on system upgrades and repairs of existing systems.
During fiscal 2022, the increase in parts and services revenue was primarily due to increased spending by our customers on system upgrades and repairs of existing systems.
This includes integrated circuits to enable information processing and management (logic integrated circuits), memory storage (NAND, 3D-NAND, NOR, and DRAM), analog devices (e.g., Wi-Fi and 5G radio integrated circuits, power devices), MEMS sensor devices (accelerometers, pressure sensors, microphones), image sensors, and other end markets including components for hard disk drives, LEDs, and power management.
This includes ICs to enable information processing and management (logic ICs), memory storage (NAND, 3D-NAND, NOR, and DRAM), analog devices (e.g., Wi-Fi and 5G radio ICs, power devices), MEMS sensor devices (accelerometers, pressure sensors, microphones), image sensors, and other end markets including components for artificial intelligence, hard disk drives, LEDs, and power management.
We expect that our existing cash, cash equivalents, marketable securities and availability under our line of credit will be sufficient to meet our anticipated cash requirements for working capital, capital expenditures and other cash needs for the next 12 months following the filing of this Form 10-K.
We expect that our existing cash, cash 37 Table of Contents equivalents, marketable securities and availability under our line of credit will be sufficient to meet our anticipated cash requirements for working capital, capital expenditures and other cash needs for the next 12 months following the filing of this Form 10-Q.
Contractual Obligations The following table summarizes our significant contractual obligations at January 1, 2022, and the effect such obligations are expected to have on our liquidity and cash flows in future periods. We are currently unable to provide a reasonably reliable estimate of the amount or periods when cash settlement of this liability may occur (dollars in thousands).
Contractual Obligations The following table summarizes our significant contractual obligations at December 30, 2023, and the effect such obligations are expected to have on our liquidity and cash flows in future periods. We are currently unable to provide a reasonably reliable estimate of the amount or periods when cash settlement of this liability may occur (dollars in thousands).
Such a change in recognition or measurement could result in the recognition of a tax benefit or an additional charge to the tax provision in the period.
Such a change in 39 Table of Contents recognition or measurement could result in the recognition of a tax benefit or an additional charge to the tax provision in the period.
Goodwill and Indefinite Lived Intangible Assets. Goodwill is tested for impairment during the fourth quarter, or whenever events or circumstances indicate that its carrying value may not be recoverable. Goodwill impairment is tested at the reporting unit level, which is defined as an operating segment or one level below the operating segment. The Company has one operating segment.
Long-Lived Assets. Goodwill is tested for impairment during the fourth quarter, or whenever events or circumstances indicate that its carrying value may not be recoverable. Goodwill impairment is tested at the reporting unit level, which is defined as an operating segment or one level below the operating segment.
Results may differ from these estimates due to actual outcomes being different from those on which we based our assumptions. These estimates and judgments are regularly reviewed by management on an ongoing basis at the end of each quarter prior to the public release of our financial results.
Results may differ from these estimates due to actual outcomes being different from those on which we based our assumptions. These estimates and judgments are regularly reviewed by management on an ongoing basis at the end of each quarter prior to the public release of our financial results. Management believes that the following are critical accounting estimates: Revenue Recognition.
Critical Accounting Policies and Estimates Management’s discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements included in this Form 10-K, which have been prepared in accordance with accounting principles generally accepted in the United States. We review the accounting policies we use in reporting our financial results on a regular basis.
Critical Accounting Policies and Estimates Management’s discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements included in this Form 10-K, which have been prepared in accordance with accounting principles generally accepted in the United States.
Revenue from licensing support and maintenance is recognized as the support and maintenance are provided, which is over the contract period. Revenue from parts is recognized when we transfer control of the product, which typically occurs when we ship the product from our facilities to the customer.
Software licenses provide the customer with limited rights to use the software. Revenue from licensing support and maintenance is recognized as the support and maintenance are provided, which is over the contract period. Revenue from parts is recognized when we transfer control of the product, which typically occurs when we ship the product from our facilities to the customer.
Research and development expenditures consist primarily of salaries and related expenses of employees engaged in research, design and development activities. They also include consulting fees, the cost of related supplies and legal costs to defend our intellectual property. Our research and development expenses were $96.1 million, $84.6 million and $48.4 million in fiscal years 2021, 2020 and 2019, respectively.
Research and development expenditures consist primarily of salaries and related expenses of employees engaged in research, design and development activities. They also include consulting fees, the cost of related supplies and legal costs to defend our intellectual property. Our research and development expenses were $104.4 million, $112.0 million and $96.1 million in fiscal years 2023, 2022 and 2021, respectively.
Excess and Obsolete Inventory. Inventories are stated at the lower of cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less predictable costs of completion, disposal and transportation. Cost is generally determined on a first-in, first-out basis, and includes material, labor and manufacturing overhead costs.
Net realizable value is the estimated selling prices in the ordinary course of business, less predictable costs of completion, disposal and transportation. Cost is generally determined on a first-in, first-out basis, and includes material, labor and manufacturing overhead costs.
We use an observable price to determine the standalone selling price for separate performance obligations or a cost-plus margin approach when one is not available. Revenue from software licenses is recognized upfront at the point in time when the software is made available to the customer. Software licenses provide the customer with limited rights to use the software.
We use an 38 Table of Contents observable price to determine the standalone selling price for separate performance obligations or a cost-plus margin approach when one is not available. Revenue from software licenses, which is primarily sold without systems, is recognized upfront at the point in time when the software is made available to the customer.
There was no impairment of goodwill or IPR&D for the years presented. Long-Lived Assets and Finite-Lived Acquired Intangible Assets. We periodically review long-lived assets, other than goodwill, for impairment whenever changes in events or circumstances indicate that the carrying amount of an asset may not be recoverable.
For other long-lived assets, we periodically review long-lived assets, other than goodwill, for impairment whenever changes in events or circumstances indicate that the carrying amount of an asset may not be recoverable.
In the event that actual results differ from these estimates or we adjust these estimates in future periods, we may need to adjust the valuation allowance, which could materially impact our financial position and results of operations.
In the event that actual results differ from these estimates or we adjust these estimates in future periods, we may need to adjust the valuation allowance, which could materially impact our financial position and results of operations. We recognize liabilities for uncertain tax positions based on a two-step process.
We generally transfer control for system sales when the customer or the customer’s agent picks up the system at our facility. We provide an assurance warranty on our systems for a period of twelve to fourteen months against defects in material and workmanship. We provide for the estimated cost of product warranties at the time revenue is recognized.
We provide an assurance warranty on our systems for a period of twelve to fourteen months against defects in material and workmanship. We provide for the estimated cost of product warranties at the time revenue is recognized.
General and administrative expenses are primarily comprised of salaries and related costs for general administrative personnel, as well as other non-personnel related expenses. Our general and administrative expenses were $68.0 million, $65.3 million and $53.0 million in fiscal years 2021, 2020 and 2019, respectively.
General and administrative expenses are primarily comprised of salaries and related costs for general administrative personnel, as well as other non-personnel related expenses. Our general and administrative expenses were $83.1 million, $69.6 million and $68.0 million in fiscal years 2023, 2022 and 2021, respectively.
The following table provides details of income tax (dollars in millions): Year Ended January 1, 2022 December 26, 2020 December 31, 2019 Income (loss) before provision (benefit) for income taxes $ 155.7 $ 26.9 $ (0.6 ) Provision (benefit) for income taxes $ 13.3 $ (4.2 ) $ (2.5 ) Effective tax rate 8.6 % (15.5 )% (419.9 )% The income tax provision differs from the federal statutory income tax rate of 21% for 2021 primarily due to a benefit related to the Foreign Derived Intangible Income Deduction (“FDII”) of $11.1 million, excess benefits related to stock compensation of $3.8 million, tax benefits for research and development credits of $3.6 million, tax benefit from foreign income being taxed at lower rates of $3.8 million, and a one-time benefit of $2.0 million from a reduction to recorded tax reserve related to a lapse of statute of limitations.
The following table provides details of income tax (dollars in millions): Year Ended December 30, 2023 December 31, 2022 January 1, 2022 Income before provision for income taxes $ 132.6 $ 241.6 $ 155.7 Provision for income taxes $ 11.4 $ 18.3 $ 13.3 Effective tax rate 8.6 % 7.6 % 8.6 % The income tax provision differs from the federal statutory income tax rate of 21% for 2023 primarily due to a benefit related to the Foreign Derived Intangible Income Deduction (“FDII”) of $13.0 million, excess benefits related to stock compensation of $3.4 million, tax benefits for research and development credits of $6.4 million, and a one-time benefit of $1.6 million related to the recognition of a tax benefit associated with the lapse of a statute of limitations.
Year Ended January 1, 2022 December 26, 2020 December 31, 2019 Revenue 100.0 % 100.0 % 100.0 % Cost of revenue 45.6 % 50.0 % 55.9 % Gross profit 54.4 % 50.0 % 44.1 % Operating expenses: Research and development 12.2 % 15.2 % 15.8 % Sales and marketing 7.3 % 8.6 % 9.2 % General and administrative 8.6 % 11.7 % 17.4 % Amortization 6.5 % 9.7 % 3.4 % Total operating expenses 34.6 % 45.2 % 45.8 % Operating income (loss) 19.8 % 4.8 % (1.7 )% Interest income, net 0.1 % 0.5 % 1.2 % Other income (expense), net (0.2 )% (0.5 )% 0.3 % Income (loss) before provision (benefit) for income taxes 19.7 % 4.8 % (0.2 )% Provision (benefit) for income taxes 1.7 % (0.7 )% (0.8 )% Net income 18.0 % 5.5 % 0.6 % Results of Operations for 2021, 2020 and 2019 Revenue .
Year Ended December 30, 2023 December 31, 2022 January 1, 2022 Revenue 100.0 % 100.0 % 100.0 % Cost of revenue 48.5 % 46.4 % 45.6 % Gross profit 51.5 % 53.6 % 54.4 % Operating expenses: Research and development 12.7 % 11.2 % 12.2 % Sales and marketing 7.6 % 6.5 % 7.3 % General and administrative 10.2 % 6.9 % 8.6 % Amortization 6.7 % 5.5 % 6.5 % Total operating expenses 37.2 % 30.1 % 34.6 % Operating income 14.3 % 23.5 % 19.8 % Interest income, net 2.5 % 0.5 % 0.1 % Other expense, net (0.5 )% — % (0.2 )% Income before provision for income taxes 16.3 % 24.0 % 19.7 % Provision for income taxes 1.4 % 1.8 % 1.7 % Net income 14.9 % 22.2 % 18.0 % Results of Operations for 2023, 2022 and 2021 Revenue .
We record contract liabilities when the customer has been billed in advance of completing our performance obligations. These amounts are recorded as deferred revenue in the Consolidated Balance Sheets. Business combinations.
We record contract liabilities when the customer has been billed in advance of completing our performance obligations. These amounts are recorded as deferred revenue in the Consolidated Balance Sheets. Inventory Valuation. Inventories are stated at the lower of cost or net realizable value.
Thereafter, if cash generated from operations and financing activities is insufficient to satisfy our working capital requirements, we may seek additional funding through bank borrowings, sales of securities or other means. Market conditions due to the COVID-19 pandemic or other factors may have an impact on our ability to access such additional funding.
Thereafter, if cash generated from operations and financing activities is insufficient to satisfy our working capital requirements, we may seek additional funding through bank borrowings, sales of securities or other means.
Our revenue is derived from the sale of our systems and software, spare parts, and services. Our revenue was $788.9 million, $556.5 million and $305.9 million for the years ended January 1, 2022, December 26, 2020 and December 31, 2019, respectively. This represents an increase of 41.8% from 2020 to 2021 and an increase of 81.9% from 2019 to 2020.
Our revenue is derived from the sale of our systems and software, spare parts, and services. Our revenue was $815.9 million, $1,005.2 million and $788.9 million for the years ended December 30, 2023, December 31, 2022 and January 1, 2022, respectively. This represents a decrease of 18.8% from 2022 to 2023 and an increase of 27.4% from 2021 to 2022.
Year Ended January 1, 2022 December 26, 2020 December 31, 2019 Revenue $ 788,899 $ 556,496 $ 305,896 Taiwan 25 % 22 % 22 % South Korea 20 % 16 % 14 % China 19 % 22 % 26 % United States 16 % 15 % 15 % Europe 8 % 9 % 8 % Japan 8 % 11 % 10 % Southeast Asia 4 % 5 % 5 % Total revenue 100 % 100 % 100 % The overall Asia region continues to account for a majority of our revenues as a substantial amount of the worldwide capacity investments for semiconductor manufacturing continue to occur in this region and we expect that trend to continue.
The following table sets forth, for the periods indicated, our revenue by geographic region as percentages of our revenue. 34 Table of Contents Year Ended December 30, 2023 December 31, 2022 January 1, 2022 Revenue $ 815,868 $ 1,005,183 $ 788,899 South Korea 21 % 22 % 20 % Taiwan 17 % 20 % 25 % China 17 % 25 % 19 % United States 16 % 12 % 16 % Japan 11 % 6 % 8 % Southeast Asia 11 % 7 % 4 % Europe 7 % 8 % 8 % Total revenue 100 % 100 % 100 % The overall Asia region continues to account for a majority of our revenues as a substantial amount of the worldwide capacity investments for semiconductor manufacturing continue to occur in this region and we expect that trend to continue.
On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, accounts receivable, inventories, business acquisitions, intangible assets, share-based payments, income taxes and warranty obligations.
The preparation of the financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, accounts receivable, inventories, business acquisitions, intangible assets, share-based payments, income taxes and warranty obligations.
Revenue from systems is recognized when we transfer control of the product to our customer. To indicate transfer of control, we must have a present right to payment, legal title must have passed to the customer and the customer must have the significant risks and rewards of ownership.
To indicate transfer of control, we must have a present right to payment, legal title must have passed to the customer and the customer must have the significant risks and rewards of ownership. We generally transfer control for system sales when the customer or the customer’s agent picks up the system at our facility.
The following table sets forth , for the periods indicated, our revenue by geographic region as percentages of our revenue.
Results of Operations The following table sets forth, for the periods indicated, our results of operations as percentages of our revenue. Our results of operations are reported as one business segment.
We account for a contract when it has approval and commitment from both parties, the rights of the parties and payment terms are identified, the contract has commercial substance and collectability of consideration is probable.
We account for a contract when it has approval and commitment from both parties, the rights of the parties and payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Contracts with customers may include multiple performance obligations. For such arrangements, we allocate revenue to each performance obligation based on its relative standalone selling price.
Our future capital requirements will depend on many factors, including the timing and amount of our revenue and our investment decisions, which will affect our ability to generate additional cash.
The credit agreement is available to us until such time that either party terminates the arrangement at its discretion. To date, we have not utilized the line of credit. Our future capital requirements will depend on many factors, including the timing and amount of our revenue and our investment decisions, which will affect our ability to generate additional cash.
Amortization of identifiable intangible assets, primarily purchased technology, was $51.4 million, $53.7 million and $10.4 million in fiscal years 2021, 2020 and 2019, respectively. The year-over-year dollar decrease from 2020 through 2021 was primarily due to certain intangible assets becoming fully amortized, partially offset by amortization for newly acquired intangible assets in 2021.
The year-over-year dollar increase from 2021 through 2022 was primarily due to increased facilities expenses of $5.0 million, partially offset by a decrease of $3.8 million in depreciation expense. • Amortization of Identifiable Intangible Assets . Amortization of identifiable intangible assets, primarily purchased technology, was $54.8 million, $55.3 million and $51.4 million in fiscal years 2023, 2022 and 2021, respectively.
Our gross profit was $429.1 million, $278.5 million and $135.0 million for the years ended January 1, 2022, December 26, 2020, and December 31, 2019, respectively. Our gross profit represented 54.4%, 50.0% and 44.1% for the years ended January 1, 2022, December 26, 2020, and December 31, 2019, respectively.
Our gross profit was $420.3 million, $539.2 million and $429.1 million for the years ended December 30, 2023, December 31, 2022, and January 1, 2022, respectively. Our gross profit represented 51.5%, 53.6% and 54.4% of our revenue for the years ended December 30, 2023, December 31, 2022, and January 1, 2022, respectively.
The year-over-year dollar increase from 2020 through 2021 was primarily due to increased costs related to new product initiatives and increased variable compensation plan costs.
The year-over-year dollar increase from 2021 through 2022 was primarily due to higher compensation costs of $7.4 million for increased headcount and variable compensation costs, the write-off of purchased in process research and development assets of $4.6 million and increased costs related to new product initiatives of approximately $3.3 million.
The income tax provision differs from the federal statutory income tax rate of 21% for 2020 primarily due to a benefit related to the FDII of $4.3 million, tax benefits for research and development credits of $4.9 million, and a one-time benefit related to the closure of an IRS audit for tax years 2016 through 2018 of $2.9 million.
The income tax provision differs from the federal statutory income tax rate of 21% for 2022 primarily due to a benefit related to the Foreign Derived Intangible Income Deduction (“FDII”) of $25.4 million, excess benefits related to stock compensation of $3.5 million, tax benefits for research and development credits of $7.1 million, and a one-time benefit of $1.5 million related to the recognition of a tax benefit associated with the lapse of a statute of limitations.
In fiscal years 2021, 2020 and 2019, net interest income was $1.2 million, $2.9 million and $3.7 million, respectively. The decrease in net interest income from 2020 to 2021 was due to lower interest rates during the 2021 period. The decrease in net interest income from 2019 to 2020 was due to lower interest rates during the 2020 period.
Interest income, net . In fiscal years 2023, 2022 and 2021, net interest income was $20.4 million, $5.0 million and $1.2 million, respectively. The increases in net interest income from 2022 to 2023 and from 2021 to 2022 were due to higher average balances and higher interest rates during both the 2023 and 2022 periods, respectively. Income taxes.
We have a credit agreement with a bank that provides for a line of credit that is secured by the marketable securities we have with the bank. We are permitted to borrow up to 70% of the value of eligible securities held at the time the line of credit is accessed.
We are permitted to borrow up to 70% of the value of eligible securities held at the time the line of credit is accessed. As of December 30, 2023, the available line of credit was approximately $100.0 million with an available interest rate of 7.0%.
Payments due by period Total Less than 1 year 1-3 years 3-5 years More than 5 years Operating lease obligations $ 21,104 $ 5,029 $ 7,515 $ 5,261 $ 3,299 Purchase obligations (1) 373,638 345,334 28,304 — — Total $ 394,742 $ 350,363 $ 35,819 $ 5,261 $ 3,299 (1) Represents our agreements to purchase goods and services consisting of outstanding purchase orders for goods and services.
Payments due by period Total Less than 1 year 1-3 years 3-5 years More than 5 years Operating lease obligations $ 21,673 $ 5,929 $ 9,429 $ 5,192 $ 1,123 Purchase obligations (1) 437,105 426,087 11,018 — — Total $ 458,778 $ 432,016 $ 20,447 $ 5,192 $ 1,123 (1) Represents our agreements to purchase goods and services consisting of outstanding purchase orders for goods and services.
The income tax provision differs from the federal statutory income tax rate of 21% for 2019 primarily due to a benefit related to the FDII of $2.3 million and tax benefits for research and development credits of $2.1 million, partially offset by non-deductible transaction costs of $1.1 million and Section 162(m) limitation on the deductibility of executive compensation of $0.8 million.
The income tax provision differs from the federal statutory income tax rate of 21% for 2021 primarily due to a benefit related to the Foreign Derived Intangible Income Deduction (“FDII”) of $11.1 million, excess benefits related to stock compensation of $3.8 million, tax benefits for research and development credits of $3.6 million, tax benefit from foreign income being taxed at lower rates of $3.8 million, and a one-time benefit of $2.0 million from a reduction to recorded tax reserve related to a lapse of a statute of limitations.
Our cash, cash equivalents and marketable securities balance increased to $511.3 million at the end of fiscal 2021 compared to $373.7 million at the end of the fiscal 2020. This increase was primarily the result of $175.3 million of cash generated from operating activities.
Our cash, cash equivalents and marketable securities balance increased to $697.8 million at the end of fiscal 2023 compared to $547.8 million at the end of fiscal 2022.
Our sales and 35 Table of Contents marketing expenses were $57.2 million, $48.1 million and $28.3 million in fiscal years 2021, 2020 and 2019, respectively. The year-over-year dollar increase from 2020 through 2021 was primarily due to increased personnel costs, including variable compensation plan costs.
The year-over-year dollar increase from 2021 through 2022 was primarily due to increased total compensation costs of $5.8 million for higher headcount and variable compensation plan costs. Higher travel related expenses of approximately $0.4 million contributed to the overall increase. 35 Table of Contents • General and Administrative .
For a discussion of certain risks related to the international nature of our business and our operations and the COVID-19 pandemic, see Part I, Item 1A – Risk Factors of this 2021 Form 10-K. Results of Operations The following table sets forth, for the periods indicated, our results of operations as percentages of our revenue.
However, the new export controls have resulted in lower net sales in China for fiscal 2023 compared to the prior fiscal year. 33 Table of Contents For a discussion of the risks related to our business and operations, see Part I, Item 1A – Risk Factors of this Annual Report on Form 10-K.
The increase in gross profit as a percentage of revenue from 2020 to 2021 was primarily due to higher factory utilization associated with stronger sales levels in the 2021 fiscal period, inventory reserve charges for a discontinued product line and the sale of inventory written-up to fair value upon the 2019 Merger in the 2020 fiscal period.
The decrease in gross profit as a percentage of revenue from 2021 to 2022 was primarily due to supply chain cost increases in the 2022 fiscal period, partially offset by higher factory utilization associated with increased sales volume during the 2022 fiscal period. Operating Expenses. Our operating expenses consist of: • Research and Development .
Parts and services revenue is generated from part sales, maintenance service contracts, system upgrades, as well as time and material billable service calls. During fiscal 2020, parts and services revenue increased primarily due to inclusion of $54.3 million of parts and service revenue from legacy Nanometrics for 2020.
This decline was partially offset by an increase in units shipped of our inspection and lithography product lines to customers in specialty devices and advanced packaging applications. Parts and services revenue is generated from part sales, maintenance service contracts, and system upgrades, as well as time and material billable service calls.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our Consolidated Financial Statements. Revenue Recognition.
Note 2 of Notes to Consolidated Financial Statements describes the significant accounting policies used in the preparation of the consolidated financial statements. Certain of these significant accounting policies are considered to be critical accounting policies and involve critical accounting estimates. We review the accounting policies we use in reporting our financial results on a regular basis.
Total systems and software revenue increased $194.7 million for the year ended December 26, 2020, as compared to the year ended December 31, 2019, primarily due to the inclusion of $178.6 million of revenue from legacy Nanometrics for the 34 Table of Contents period and increased investment from our foundry and logic customers.
Total systems and software revenue increased $196.6 million for the year ended December 31, 2022, as compared to the year ended January 1, 2022, primarily due to an increase in overall demand for our products from semiconductor industry customers, particularly in advanced nodes applications, and specialty devices and advanced packaging.
The year-over-year dollar increase from 2019 through 2020 was primarily due to amortization of additional purchased intangible assets recorded as a result of the 2019 Merger where such amortization expense was included for the full 2020 fiscal year and in 2019 included from October 25, 2019 to December 31, 2019. Interest income, net .
The year-over-year dollar decrease from 2022 through 2023 was primarily due to certain assets becoming fully amortized. The year-over-year dollar increase from 2021 through 2022 was primarily due to a full year of amortization being included in the 2022 fiscal period for in-process research and development that became classified as an identifiable intangible asset in the second half of 2021.
Incidental items that are immaterial in the context of the contract are recognized as expense. Contracts with customers may include multiple performance obligations. For such arrangements, we allocate revenue to each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based on the prices charged to customers or the expected cost-plus margin.
We generally determine standalone selling prices based on the prices charged to customers or the expected cost-plus margin. Revenue from systems is recognized when we transfer control of the product to our customer.
Removed
During fiscal 2021, there was an increase in wafer fabrication equipment spending by semiconductor manufacturers, driven by the growing importance of semiconductor technology across a broadening range of industries, from mobile devices to cloud computing and high-performance computers.
Added
The following table summarizes certain key financial information for the periods indicated below (in thousands, except per share and percent data): Year Ended December 30, December 31, 2023 2022 Revenue $ 815,868 $ 1,005,183 Gross profit $ 420,254 $ 539,221 Gross profit as a percent of revenue 52 % 54 % Total operating expenses $ 304,176 $ 302,507 Net income $ 121,159 $ 223,334 Diluted earnings per share $ 2.46 $ 4.49 • In fiscal 2023, revenue decreased 19% compared to fiscal 2022, primarily due to a decrease in sales to memory and foundry customers in advanced nodes.
Removed
We are also seeing increasing global emphasis on more advanced power devices for electric vehicles and smart power grids to help combat climate change. Customer demand was strong throughout the year and we continued to increase our production output levels. Revenues in the four quarters of 2021 increased sequentially as customers transitioned to advanced nodes and increased advanced packaging volumes.
Added
The decreases were partially offset by increases in sales to wafer substrate, memory and discrete & specialty customers in specialty device and advanced packaging applications. • Gross profit as a percentage of revenue decreased to 52% for fiscal 2023 from 54% for fiscal 2022.
Removed
While we have seen improvements in our own operations, we experienced higher costs of goods sold related to freight and logistics costs during the year.
Added
This was primarily driven by decreased revenue volume, unfavorable product mix, and increased manufacturing costs due to inflationary pressures. • The increase in operating expenses in fiscal 2023 compared to fiscal 2022 was primarily due to higher general and administrative expenses related to litigation and restructuring charges which included reductions in workforce.
Removed
Risks and uncertainties related to the COVID-19 pandemic and the supply chain remain and we expect this uncertainty especially in the supply chain to continue to be a factor through at least the first half of 2022, and possibly the entire year.
Added
This increase was primarily the result of $172.0 million of cash generated from operating activities, partially offset by cash used for capital expenditures of $22.6 million and $10.8 million of cash used for tax payments related to net share settlement of employee stock-based compensation plans.
Removed
Over the longer term, we believe that demand for semiconductors will continue to drive sustainable growth for our products and services across all of the markets we serve.
Added
In 2022 and 2023, the United States government implemented additional export regulations for U.S. semiconductor technology sold in China. We have applied for export licenses to continue doing business with our customers that are affected by the new export rules.
Removed
The following table summarizes certain key financial information for the periods indicated below (in thousands, except per share and percent data): Year Ended January 1, December 26, 2022 2020 Revenue $ 788,899 $ 556,496 Gross profit $ 429,086 $ 278,453 Gross profit as a percent of revenue 54 % 50 % Total operating expenses $ 272,679 $ 251,776 Net income $ 142,349 $ 31,025 Diluted earnings per share $ 2.86 $ 0.63 • In fiscal 2021, revenue increased 41.8% compared to the fiscal 2020, primarily due to an increase in sales to foundry and memory customers for both advanced nodes and specialty devices and advanced packaging applications. • Gross margin as a percentage of revenue increased to 54% during fiscal 2021 compared to 50% in fiscal 2020 primarily driven by a favorable impact from higher revenue volume of products and services, charges to cost of goods sold in the 2020 period for both the sale of inventory written-up to fair value upon the 2019 Merger and inventory reserve charges for a discontinued product line. 32 Table of Contents • The increase in operating expenses in fiscal 2021 compared to fiscal 2020 was mainly driven by onboarding of new headcount to support the growth we are experiencing and an increase in employee-related expenses as a result of higher variable compensation plan costs recorded during the year.
Added
During fiscal 2023, the decrease in total parts and services revenue was primarily due to lower factory utilization by several of our customers resulting in a decline in their spare parts requirements.
Removed
This source of cash was partially offset by net cash of $23.8 million used for the purchase of Inspectrology and $12.0 million used for capital expenditures. Key Events Business Combination. In the first quarter of 2021, the Company acquired Inspectrology, LLC, a supplier of overlay metrology for controlling lithography and etch processes in the compound semiconductor market.
Added
The decrease in gross profit as a percentage of revenue from 2022 to 2023 was primarily due to decreased revenue volume, unfavorable product mix, and increased manufacturing costs due to inflationary pressures during the 2023 fiscal period.
Removed
The purchase consideration consisted of $24.0 million in cash paid at closing and an earnout subject to achievement of certain revenue targets for fiscal year 2021 and fiscal year 2022. As of January 1, 2022, $2.3 million of the earnout has been achieved with potential for up to an additional payment of $5.0 million based on fiscal 2022 results.
Added
The year-over-year dollar decrease from 2022 through 2023 was primarily due to decreases of $4.6 million for the write-off of acquired in-process research and development assets and cost containment initiatives of $3.3 million, partially offset by increases in depreciation expenses of $0.6 million and travel expenses of $0.3 million.
Removed
Impact of the COVID-19 Pandemic on Our Business . As of February 25, 2022, our operations have been impacted by our pandemic response, as described below, given the global nature of our workforce and our operations, but we have not experienced significant financial impact directly related to the pandemic.
Added
Our sales and marketing expenses were $61.8 million, $65.7 million and $57.2 million in fiscal years 2023, 2022 and 2021, respectively.
Removed
The ultimate extent to which COVID-19 will impact our business depends on future developments, which are highly uncertain and very difficult to predict, including the effectiveness and utilization of vaccines for COVID-19 and its variants, new information that may emerge concerning the severity of COVID-19 and its variants, and actions to contain or limit their spread.
Added
The year-over-year dollar decrease from 2022 through 2023 was primarily due to a decrease in total compensation costs of $1.5 million on lower headcount and variable compensation plan elements, a decrease in outside service expenses of $0.8 million and a decrease in depreciation expense of $0.7 million, partially offset by an increase in travel expenses of $0.3 million.
Removed
We have prioritized the health and safety of our employees and customers in our pandemic response. As governmental authorities implement restrictions on commercial operations, we have continued to ensure compliance with these directives while also maintaining business continuity for our essential operations. We have a global workforce.
Added
The year-over-year dollar increase from 2022 through 2023 was primarily due increased litigation expenses of $7.4 million, restructuring charges of $3.6 million for employee severance costs during the 2023 period, an increase in depreciation expense of $1.9 million and an increase in facilities expenses of $0.4 million.
Removed
Although our manufacturing facilities are in the United States, we maintain offices and have employees in the United States, South Korea, Japan, Taiwan, China, Singapore and Europe. Our operations at these offices are subject to various governmental directives and, as a result thereof, we have instituted a work-from-home policy for these employees to the extent practical.
Added
These benefits were partially offset by the inclusion of U.S. tax on foreign source income of $0.5 million and non-deductible officer’s compensation of $2.3 million, and an increase to the Company’s valuation allowance of $2.9 million.
Removed
Where our essential employees are required to continue to report to work to perform their responsibilities, we have implemented staggered shifts or otherwise adjusted work schedules to maximize our operating capacity while adhering to applicable restrictions, including recommended distancing between persons.
Added
These benefits were partially offset by the inclusion of U.S. tax on foreign source income of $1.4 million and non-deductible officer’s compensation of $1.9 million.
Removed
We have also provided our essential employees with appropriate protective equipment and have enhanced and increased cleanings at our facilities. At this time, we have not experienced any reduction in productivity, though we have incurred certain costs related to the implementation of these policies and practices.
Added
Our future effective income tax rate depends on various factors, such as tax legislation, the geographic composition of our pre-tax income, the amount of our pre-tax income as business activities fluctuate, non-deductible expenses incurred in connection with acquisitions and research and development credits as a percentage of aggregate pre-tax income. 36 Table of Contents Liquidity and Capital Resources Our cash, cash equivalents and marketable securities consist of the following: Year Ended December 30, December 31, 2023 2022 Cash and cash equivalents $ 233,508 $ 175,872 Marketable securities 464,303 371,912 Total cash, cash equivalents and marketable securities $ 697,811 $ 547,784 Sources and Uses of Cash A summary of cash provided by (used in) operating, investing, and financing activities is as follows: Year Ended December 30, December 31, January 1, 2023 2022 2022 Cash provided by operating activities $ 171,973 $ 136,703 $ 175,281 Cash used in investing activities $ (103,387 ) $ (55,691 ) $ (141,793 ) Cash (used in) provided by financing activities $ (9,475 ) $ (68,350 ) $ 2,670 Operating Activities Cash provided by operating activities during fiscal 2023 was $172.0 million, which reflects net income, adjusted to exclude the effect of non-cash operating charges, of $204.5 million.
Removed
In addition, we have enhanced our email screening and cyber monitoring of our devices to further support our work from home policy. As certain countries have relaxed restrictions over the past few months, we have restarted certain activities in accordance with local guidelines.

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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 changeAs of January 1, 2022, and December 26, 2020, we had seven and eight outstanding forward contracts, respectively, with a total notional contract value of $32.3 million and $37.6 million, respectively. We do not use derivative financial instruments for trading or speculative purposes.
Biggest changeAs of December 30, 2023, and December 31, 2022, we had thirty-eight and six outstanding forward contracts, respectively, with a total notional contract value of $51.6 million and $27.9 million, respectively. We do not use derivative financial instruments for trading or speculative purposes.
We enter into foreign currency forward contracts to minimize the short-term impact of exchange rate fluctuations on certain foreign currency denominated monetary assets and liabilities, primarily cash and intercompany receivables and payables. In addition, we hedge certain anticipated foreign currency cash flows, primarily on revenues denominated in Japanese yen.
Foreign Currency Risk We enter into foreign currency forward contracts to minimize the short-term impact of exchange rate fluctuations on certain foreign currency denominated monetary assets and liabilities, primarily cash and intercompany receivables and payables. In addition, we hedge certain anticipated foreign currency cash flows, primarily on revenues denominated in Japanese yen.
These forward contracts are not designated as accounting hedges, so the change in fair value of the forward exchange contracts is recognized under the caption “Other income (expense), net” in the Consolidated Statements of Operations for each reporting period.
These forward contracts are not designated as accounting hedges, so the change in fair value of the forward exchange contracts is recognized under the caption “Other expense, net” in the Consolidated Statements of Operations for each reporting period.
Based on a sensitivity analysis performed on our financial investments held as of January 1, 2022, a hypothetical increase of 100 basis points in interest rates would result in a decrease of $2.2 million in the fair value of our available-for-sale debt securities and would not have a material impact on our consolidated financial position, results of operations or cash flows.
Based on a sensitivity analysis performed on our financial investments held as of December 30, 2023, a hypothetical increase of 100 basis points in interest rates would result in a decrease of $3.0 million in the fair value of our available-for-sale debt securities and would not have a material impact on our consolidated financial position, results of operations or cash flows.
Removed
Foreign Currency Risk A substantial portion of our systems and software revenues are denominated in U.S. dollars. However, our international operations are exposed to foreign currency exchange rate fluctuations arising from U.S. dollar denominated intercompany balances between our U.S. headquarters and that of our foreign owned entities.
Removed
Since each foreign entity’s functional currency is generally denominated in its local currency, there is exposure to foreign exchange risk when the foreign entity’s intercompany balance is remeasured at a reporting date, resulting in transaction gains or losses. The intercompany balance, exposed to foreign currency risk, as of January 1, 2022 was approximately $46.8 million.
Removed
A hypothetical change of 10% in the relative value of the U.S. dollar versus local functional currencies could result in approximately $0.5 million in foreign currency exchange losses / (gains).

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