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What changed in SILICON LABORATORIES INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of SILICON LABORATORIES 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.

+212 added−214 removedSource: 10-K (2023-02-01) vs 10-K (2022-02-02)

Top changes in SILICON LABORATORIES INC.'s 2023 10-K

212 paragraphs added · 214 removed · 160 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

43 edited+26 added−9 removed75 unchanged
Biggest changeActions we have taken in pursuit of these commitments include: Environmental Programs ● Adopted and require our suppliers to support the Responsible Business Alliance® (RBA®) Code of Conduct; ● Prioritized qualified suppliers who are socially and environmentally progressive; ● Delivered products that met environmental regulations and requirements; and ● Demanded excellence in our quality and environmental management systems, each certified to ISO 9001 and ISO 14001 standards.
Biggest changeWe demand excellence in our quality and environmental management systems, each respectively certified to ISO 9001:2015 and ISO 14001:2015 standards. We strive to deliver products that meet environmental regulations and requirements and have high standards for our global supply chain partners, prioritizing qualified suppliers who are socially and environmentally progressive.
In addition to being able to manage numerous application tasks, an RTOS enhances scalability, and makes complex applications predictable and reliable. To address these application needs, in 2016 we acquired Micrium, an embedded RTOS provider. Micrium has established itself as a reliable, high performance and trusted RTOS software platform, with an installed base that has grown to millions of devices.
In addition to being able to manage numerous application tasks, an RTOS enhances scalability, and makes complex applications predictable and reliable. To address these application needs, we acquired Micrium, an embedded RTOS provider. Micrium has established itself as a reliable, high performance and trusted RTOS software platform, with an installed base that has grown to millions of devices.
Our semiconductor devices leverage standard complementary metal oxide semiconductor (CMOS), a low cost, widely available process technology. Use of CMOS technology enables smaller, more cost-effective and energy-efficient solutions. Our software expertise allows us to develop products for markets where intelligent data capture, high-performance processing and communication are increasingly important product differentiators.
Our semiconductor devices leverage standard complementary metal oxide semiconductor (“CMOS”), a low-cost, widely available process technology. The use of CMOS technology enables smaller, more cost-effective, and energy-efficient solutions. Our software expertise allows us to develop products for markets where intelligent data capture, high-performance processing, and communication are increasingly important product differentiators.
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; 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.
We believe our demonstrated proficiency in the design of modules provides our customers with significant advantages such as fast time to market, reduced development cost, global wireless certifications and software reuse. Silicon-to-Cloud Security Integration Expertise Security is of paramount importance to our customers.
We believe our demonstrated proficiency in the design of modules provides our customers with significant advantages such as fast time to market, reduced development cost, global wireless certifications and software reuse. 7 Table of Contents Silicon-to-Cloud Security Integration Expertise Security is of paramount importance to our customers.
Item 1. Business Overview Silicon Laboratories Inc. is a leader in secure, intelligent wireless technology for a more connected world. Our integrated hardware and software platform, intuitive development tools, industry leading ecosystem and robust support enable customers in building advanced industrial, commercial, home and life applications.
Item 1. Business Overview Silicon Laboratories Inc. is a leader in secure, intelligent wireless technology for a more connected world. Our integrated hardware and software platform, intuitive development tools, industry-leading ecosystem, and robust support help customers build advanced industrial, commercial, home, and life applications.
While we continue to file new patent applications with respect to our recent developments, existing patents are granted for prescribed time periods and will expire at various times in the future. 9 Table of Contents We claim copyright protection for proprietary documentation for our products.
While we continue to file new patent applications with respect to our recent developments, existing patents are granted for prescribed time periods and will expire at various times in the future. We claim copyright protection for proprietary documentation for our products.
The introduction of our Series 2 portfolio provides a greater focus on updatable device security which is becoming vital to the evolution and success of IoT. We bring enhanced capability to the industry protecting user data, system keys and manufacturer brands from malicious threats both hands-on and internet-based.
The introduction of our Series 2 portfolio provides a greater focus on updatable device security which is becoming vital to the evolution and success of IoT. We bring enhanced capability to the industry protecting user data, system keys and manufacturer brands from malicious threats both hands-on and internet-based. Our broad portfolio addresses a variety of target markets.
Direct and distribution customers buy on an individual purchase order basis, rather than pursuant to long-term agreements. 4 Table of Contents We consider our customer to be the end customer purchasing either directly from a distributor, a contract manufacturer or us. During fiscal 2021, our ten largest end customers accounted for 21% of our revenues.
Direct and distribution customers buy on an individual purchase order basis, rather than pursuant to long-term agreements. We consider our customer to be the end customer purchasing either directly from a distributor, a contract manufacturer or us. During fiscal 2022, our ten largest end customers accounted for 20% of our revenues.
This operation can be performed by the same contractor that assembled the IC, other third-party test subcontractors or within our internal facilities prior to shipping to our customers. During fiscal 2021, most of our units shipped were tested by offshore third-party test subcontractors. We expect that our utilization of offshore third-party test subcontractors will remain substantial during fiscal 2022.
This operation can be performed by the same contractor that assembled the IC, other third-party test subcontractors or within our internal facilities prior to shipping to our customers. During fiscal 2022, most of our units shipped were tested by offshore third-party test subcontractors.
We highly value our engineering talent and strive to maintain a very high bar when bringing new recruits to the company. Research and development expenses were $273.2 million, $235.2 million and $205.7 million in fiscal 2021, 2020 and 2019, respectively. 5 Table of Contents Technology Our product development process facilitates the design of highly-innovative, analog-intensive, mixed-signal ICs.
We highly value our engineering talent and strive to maintain a very high bar when bringing new recruits to the company. Research and development expenses were $332.3 million, $273.2 million and $235.2 million in fiscal 2022, 2021 and 2020, respectively. Technology Our product development process facilitates the design of highly-innovative, analog-intensive, mixed-signal ICs.
The following table summarizes the diverse product areas and applications for the various products that we have introduced to customers: Product Areas and Description Applications ​ ​ ​ Wireless Microcontrollers and Sensor Products ​ ​ Our EFM32™, EFM8™, 8051, wireless MCUs and wireless SoCs are based on numerous wireless protocols, including Zigbee, sub-GHz proprietary, Bluetooth, Z-Wave, Thread and Wi-Fi technologies.
The following summarizes the products that we have introduced to customers: Wireless Microcontrollers and Sensor Products Our EFM32™, EFM8™, 8051, wireless MCUs and wireless SoCs are based on numerous wireless protocols, including Bluetooth, sub-GHz proprietary technologies, Thread, Wi-Fi, Zigbee and Z-Wave technologies.
By doing so, we create products that, when compared to many competing products, offer the following benefits: ● Require less printed circuit board (PCB) space; ● Reduce the use of external components lowering the system cost and simplifying design; ● Offer superior performance improving our customers’ end products; ● Provide increased reliability and manufacturability, improving customer yields; and/or ● Reduce system power requirements enabling smaller form factors and/or longer battery life. 3 Table of Contents Revenues during fiscal 2021, 2020 and 2019 were generated predominately by sales of our mixed-signal products.
By doing so, we create products that, when compared to many competing products, offer the following benefits: ● Require less printed circuit board (PCB) space; ● Reduce the use of external components lowering the system cost and simplifying design; ● Offer superior performance improving our customers’ end products; ● Provide increased reliability and manufacturability, improving customer yields; and/or ● Reduce system power requirements enabling smaller form factors and/or longer battery life.
The health and safety of our employees is of utmost important to us. We offer comprehensive benefits to protect the health of our employees and their families as well as their way of life.
We offer comprehensive benefits to protect the health of our employees and their families as well as their way of life.
Our benefits programs are tailored to the various countries in which we operate. We benchmark for market practices, and regularly review our compensation and benefit programs against the market to ensure they remain competitive. We support a high-performance culture through learning and development solutions aligned with our strategic priorities. Our approach is business-centric, accessible and inclusive.
We benchmark for market practices, and regularly review our compensation and benefit programs against the market to ensure they remain competitive. 10 Table of Contents We support a high-performance culture through learning and development solutions aligned with our strategic priorities. Our approach is business-centric, accessible and inclusive.
Women represent approximately 20% of our workforce and men represent approximately 80%. We are a multi-national and multi-ethnic workforce, with sites and employees in more than a dozen countries. We are committed to fostering a diverse and inclusive workplace that attracts and retains exceptional talent. We actively promote diversity in our recruitment, development and promotion practices.
We are a multi-national and multi-ethnic workforce, with sites and employees in more than a dozen countries. We are committed to fostering a diverse and inclusive workplace that attracts and retains exceptional talent. We actively promote representation in our organization and equity in our recruitment, development, promotion and compensation practices.
As a result, manufacturers of electronic devices value providers that can supply them with mixed-signal solutions offering greater functionality, smaller size and lower power requirements at a reduced cost and shorter time-to-market. 2 Table of Contents Products We provide analog-intensive, mixed-signal solutions for use in a variety of electronic products in a broad range of applications for the IoT including connected home and security, industrial automation and control, smart metering, smart lighting, commercial building automation, consumer electronics, asset tracking and medical instrumentation.
As a result, manufacturers of electronic devices value providers that can supply them with mixed-signal solutions offering greater functionality, smaller size, and lower power requirements at a reduced cost and shorter time-to-market. 2 Table of Contents Products We provide analog-intensive, mixed-signal solutions for use in a variety of electronic products in a broad range of applications for the IoT.
While advanced software tools exist to help automate digital IC design, there are far fewer tools for advanced analog and mixed-signal IC design. In many cases, our analog circuit design efforts begin at the fundamental transistor level. We believe that we have a demonstrated ability to design the most difficult analog and RF circuits using standard CMOS technologies.
While advanced software tools exist to help automate digital IC design, there are far fewer tools for advanced analog and mixed-signal IC design. In many cases, our analog circuit design efforts begin at the fundamental transistor level.
Capacity is currently limited at certain of our third-party foundry, assembly and test subcontractors due to a spike in semiconductor demand. 8 Table of Contents Backlog We include in backlog accepted product purchase orders from customers and worldwide distributor stocking orders.
Capacity is currently limited at certain of our third-party foundry, assembly and test subcontractors due to a spike in semiconductor demand. Backlog We include in backlog accepted product purchase orders from customers and worldwide distributor stocking orders. Product orders in our backlog are subject to changes in delivery schedules or cancellation at the option of the purchaser typically without penalty.
We strive to meet this objective by offering competitive compensation and benefits in a diverse, inclusive and safe workplace, with opportunities for our employees to grow and develop in their careers. As of January 1, 2022, we employed 1,667 people, of whom more than 60% are in engineering roles.
We strive to meet this objective by offering competitive compensation and benefits in a diverse, inclusive, equitable and safe workplace, with opportunities for our employees to grow and develop in their careers. As of December 31, 2022, we employed 1,964 people, of whom 67% were in engineering roles. Women represented 22% of our workforce and men represented 78%.
Our talent development programs provide employees with the resources they need to help achieve their career goals, build management skills and lead their organizations.
Our talent development programs provide employees with the resources they need to help achieve their career goals, build management skills and lead their organizations. We regularly review succession plans and focus on promoting internal talent to help grow our employees’ careers.
We attempt to reuse successful techniques for integration in new applications where similar benefits can be realized. We believe that we have attracted many of the best engineers in our industry.
This integration generally results in lower costs, smaller die sizes, lower power demands and enhanced price/performance characteristics. We attempt to reuse successful techniques for integration in new applications where similar benefits can be realized. We believe that we have attracted many of the best engineers in our industry.
We maintain numerous sales offices in Asia, the Americas and Europe. Revenue is attributed to a geographic area based on the shipped-to location. The percentage of our revenues derived from outside of the United States was 86% in fiscal 2021.
Revenue is attributed to a geographic area based on the shipped-to location. The percentage of our revenues derived from outside of the United States was 83% in fiscal 2022.
Our leading IoT platform helps customers quickly create secure, intelligent connected devices that solve some of the world’s biggest challenges. Our team and technology assist customers to build connected devices that measurably solve development challenges, including energy efficiency, economic growth, better health, infrastructure innovation, sustainable cities and responsible production.
Our leading Internet of Things (“IoT”) platform helps customers quickly create secure, intelligent connected devices. Our team and technology assist customers to build connected devices that measurably solve development challenges, including energy efficiency, and enable applications that support better health, innovative infrastructure and sustainable cities.
Although we sell the products to, and are paid by distributors and contract manufacturers, we refer to such end customer as our customer. Three of our distributors who sell to our customers, Arrow Electronics, Edom Technology and Sekorm, each represented 28%, 18% and 12% of our revenues during fiscal 2021, respectively.
Although we sell the products to, and are paid by distributors and contract manufacturers, we refer to such end customer as our customer. Two of our distributors who sell to our customers, Arrow Electronics and Edom Technology, represented 33% and 17% of our revenues during fiscal 2022, respectively. We maintain numerous sales offices in Asia, the Americas and Europe.
The impacts of the COVID-19 pandemic on our suppliers are uncertain, evolving and dependent on numerous unpredictable factors outside of our control. If our suppliers experience closures or reductions in their capacity utilization levels in the future, we may have difficulty sourcing materials necessary to fulfill production requirements.
If our suppliers experience closures or reductions in their capacity utilization levels in the future, we may have difficulty sourcing materials necessary to fulfill production requirements.
As our patent portfolio has been built over time, the remaining terms of the individual patents in our patent portfolio vary. There can be no assurance that patents will ever be issued with respect to our patent applications. Furthermore, it is possible that any patents held by us may be invalidated, circumvented, challenged or licensed to others.
There can be no assurance that patents will ever be issued with respect to our patent applications. Furthermore, it is possible that any patents held by us may be invalidated, circumvented, challenged or licensed to others. In addition, there can be no assurance that such patents will provide us with competitive advantages or adequately safeguard our proprietary rights.
These specialized security components are designed to enhance cryptographic capabilities and exploit unique physical characteristics of CMOS to establish foundations of trust and enable device identity and assurance. 7 Table of Contents In addition to developing specific security hardware and software capabilities, we also focus design and engineering efforts on technologies that simplify and accelerate adoption by customers of security features engineered into our silicon chips.
In addition to developing specific security hardware and software capabilities, we also focus design and engineering efforts on technologies that simplify and accelerate adoption by customers of security features engineered into our silicon chips.
This system integration at the chip level leverages our deep expertise in mixed-signal and RF design, and low-power wireless MCU architectures pioneered for more than a decade. 6 Table of Contents Microcontroller and System on a Chip Design Expertise We have the talent and circuit integration methodologies required to combine precision analog, high-speed digital, flash memory and in-system programmability into a single, monolithic CMOS integrated circuit.
Microcontroller and System on a Chip Design Expertise We have the talent and circuit integration methodologies required to combine precision analog, high-speed digital, flash memory and in-system programmability into a single, monolithic CMOS integrated circuit.
We use employee feedback to drive and improve processes and ensure a deep understanding of our culture and vision among our employees. We believe the development of our company culture, along with competitive compensation, career growth and development opportunities have helped increase employee tenure and reduce voluntary turnover. During fiscal 2021, our voluntary employee turnover rate was approximately 10%.
We believe the development of our company culture, along with competitive compensation, career growth and development opportunities have helped increase employee tenure and reduce voluntary turnover. During fiscal 2022, our voluntary employee turnover rate was 9%. The health and safety of our employees is of utmost important to us.
Accordingly, we do not believe that our backlog at any time is necessarily representative of actual sales for any succeeding period. Competition The markets for semiconductors generally, and for analog and mixed-signal ICs in particular, are intensely competitive. We anticipate that the market for our products will continually evolve and will be subject to rapid technological change.
Our backlog may fluctuate significantly depending upon customer order patterns which may, in turn, vary considerably based on rapidly changing business circumstances. Accordingly, we do not believe that our backlog at any time is necessarily representative of actual sales for any succeeding period. Competition The markets for semiconductors generally, and for analog and mixed-signal ICs in particular, are intensely competitive.
Mixed-Signal, Firmware and System Design Expertise We consider the partitioning of a circuit to be a proprietary and creative design technique.
We believe that we have a demonstrated ability to design the most difficult analog and RF circuits using standard CMOS technologies. 6 Table of Contents Mixed-Signal, Firmware and System Design Expertise We consider the partitioning of a circuit to be a proprietary and creative design technique.
These devices leverage our mixed-signal capability to provide high accuracy, process technology to improve performance and lower power consumption than competing parts. Our products are supported by Simplicity Studio™, which provides one-click access to design tools, documentation, software and support resources.
Our products are supported by Simplicity Studio™, which provides one-click access to design tools, documentation, software and support resources.
We regularly review succession plans and focus on promoting internal talent to help grow our employees’ careers. 10 Table of Contents We believe that our future success will be dependent on retaining the services of our key personnel, developing their successors and properly managing the transition of key roles when they occur.
We believe that our future success will be dependent on retaining the services of our key personnel, developing their successors and properly managing the transition of key roles when they occur. Our key technical personnel represent a significant asset and serve as the primary source for our technological and product innovations.
These principles are also reflected in our employee training, in particular with respect to our policies against harassment, discrimination and the elimination of bias in the workplace. We hold our employees to high performance standards and our compensation plans are designed to deliver competitive base pay and attractive incentive opportunities.
We hold our employees to high performance standards and our compensation plans are designed to deliver competitive base pay and attractive incentive opportunities. Our benefits programs are tailored to the various countries in which we operate.
We seek to protect our technology through a combination of patents, copyrights, trade secrets, trademarks and confidentiality procedures. As of January 1, 2022, we had approximately 1,377 issued or pending United States and foreign patents. Patents generally have a term of twenty years from the date they are filed.
As of December 31, 2022, we had 1,459 issued or pending United States and foreign patents. Patents generally have a term of twenty years from the date they are filed. As our patent portfolio has been built over time, the remaining terms of the individual patents in our patent portfolio vary.
Current and potential competitors have established or may establish financial and strategic relationships between themselves or with our existing or potential customers, resellers or other third parties. Accordingly, it is possible that new competitors or alliances among competitors could emerge and rapidly acquire significant market share. Intellectual Property Our future success depends in part upon our proprietary technology.
Current and potential competitors have established or may establish financial and strategic relationships between themselves or with our existing or potential customers, resellers or other third parties.
We strive to minimize resource use and reduce the environmental impact of our production processes by designing smaller and more energy-efficient products, conserving energy and precious resources, and investing in sustainable technologies and energy conservation practices. Innovative solutions don’t stop at our products – we are focused on addressing complex community challenges through collaborative, actionable and results-driven programs.
We live by our promise to “do the right thing” for our employees, customers, shareholders, communities, and the planet. We strive to minimize resource use and reduce our environmental impact by designing smaller and more energy-efficient products, conserving energy and precious resources, and investing in sustainable technologies and energy conservation practices.
Our close collaboration with our customers provides us with knowledge of derivative product ideas or completely new product line offerings that may not otherwise arise in other new product discussions.
Our close collaboration with our customers provides us with knowledge of derivative product ideas or completely new product line offerings that may not otherwise arise in other new product discussions. 5 Table of Contents Research and Development Through our research and development efforts, we leverage experienced analog and mixed-signal engineering talent and expertise to create new ICs that integrate functions typically performed less efficiently by multiple discrete components.
We have continued to diversify our product portfolio and introduce new products and solutions through both organic investment and acquisitions. Mergers and acquisitions are an important part of our growth strategy. Our products integrate complex mixed-signal functions that are frequently performed by numerous discrete components in competing products into a single chip, chipset or system-on-chip (SoC).
We have built a leading wireless development platform and product portfolio for the IoT based on Bluetooth®, sub-GHz proprietary technologies, Thread, Wi-Fi®, Zigbee® and Z-Wave®. Our products integrate complex mixed-signal functions that are frequently performed by numerous discrete components in competing products into a single chip, chipset or system-on-chip (SoC).
Our key technical personnel represent a significant asset and serve as the primary source for our technological and product innovations. We use employee surveys to better understand and improve the employee experience and identify opportunities to continually strengthen our work philosophy.
We use employee surveys to better understand and improve the employee experience and identify opportunities to continually strengthen our work philosophy. We use employee feedback to drive and improve processes and ensure a deep understanding of our culture and vision among our employees.
Our broad portfolio addresses a variety of target markets, including smart home, commercial (building automation and retail) and industrial (smart energy, factory automation, smart cities). Our sensor products include optical sensors (proximity, ambient light gestures and heart rate monitoring), as well as relative humidity (RH) / temperature sensors and Hall effect magnetic sensors.
Our sensor products include optical sensors (proximity, ambient light gestures and heart rate monitoring), as well as relative humidity (RH) / temperature sensors and Hall effect magnetic sensors. These devices leverage our mixed-signal capability to provide high accuracy, process technology to improve performance and lower power consumption than competing parts.
Our philanthropy program provides financial, volunteer and in-kind support to organizations that are solving critical community needs, improving the quality of life, including those promoting diversity, inclusion and social justice, and expanding STEM opportunities for underrepresented groups.
Our philanthropy program prioritizes financial, volunteer and in-kind support to organizations that are helping to expand technology access and education to underrepresented groups, support advancements in sustainability and energy conservation, and invest in critical community needs where we work and live.
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We have built a leading wireless development platform and product portfolio for the IoT based on Zigbee®, sub-GHz proprietary technologies, Bluetooth®, Z-Wave®, Thread, and Wi-Fi®. We have developed a fully integrated, certified Wi-SUN® solution simplifying Low Power Wide Area Network (LPWAN) deployment for smart cities.
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We have continued to diversify our product portfolio and introduce new products and solutions through both organic investment and acquisitions. Revenues during fiscal 2022, 2021 and 2020 were generated predominately by sales of our mixed-signal products.
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In-house protocol stacks and Micrium® real-time operating system (RTOS) help simplify software development for IoT developers by coordinating and prioritizing multiprotocol connectivity, SoC peripherals and other system-level activities. ​ ​ - Home automation /security systems - Industrial automation and control - Smart metering - Smart lighting - Commercial building automation - Patient monitoring - Connected medical products - Smart appliances - Smart speaker - Access control - HVAC control - Cameras - Asset tracking - Medical instrumentation - Consumer health & fitness (wearables) - Smart home sensing - Toys and consumer electronics - Monitors and lavatory controls ​ ​ Divestiture On April 22, 2021, we entered into an Asset Purchase Agreement pursuant to which Skyworks Solutions, Inc. agreed to acquire certain assets, rights, and properties, and assume certain liabilities, comprising our infrastructure and automotive business for $2.75 billion in cash.
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In-house protocol stacks and Micrium® real-time operating system (RTOS) help simplify software development for IoT developers by coordinating and prioritizing multiprotocol connectivity, SoC peripherals and other system-level activities. ​ 3 Table of Contents We group our products as Industrial & Commercial or Home & Life based on the target markets they address.
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The transaction closed on July 26, 2021. See Note 3, Discontinued Operations , to the Consolidated Financial Statements for additional information. Customers, Sales and Marketing We market our products through our direct sales force and through a network of independent sales representatives and distributors.
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These markets and their corresponding applications are described below: ​ Target Market Applications ​ ​ ​ Industrial & Commercial ​ ​ Industrial IoT ​ ​ The Industrial IoT market is highly fragmented with a diverse collection of products and applications.
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Research and Development Through our research and development efforts, we leverage experienced analog and mixed-signal engineering talent and expertise to create new ICs that integrate functions typically performed less efficiently by multiple discrete components. This integration generally results in lower costs, smaller die sizes, lower power demands and enhanced price/performance characteristics.
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Leveraging the Industrial IoT allows companies to increase production and efficiency, understand and improve processes, and predict faults in processes before downtime occurs. Industrial IoT solutions address energy efficiency, operation excellence and smart usage of commercial spaces.
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Product orders in our backlog are subject to changes in delivery schedules or cancellation at the option of the purchaser typically without penalty. Our backlog may fluctuate significantly depending upon customer order patterns which may, in turn, vary considerably based on rapidly changing business circumstances.
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Our industrial IoT solutions simplify human-machine interfaces and access controls; add wireless connectivity to commercial luminaires, sensors and controls; implement HVAC sensor and actuator networks in commercial buildings; provide increased convenience to electrical providers and consumers through submetering: improve maintenance routines using IoT predictive maintenance; and drive greater energy efficiency and safety with smart circuit breakers. ​ - Industrial automation and control - Smart buildings - Access control - HVAC control - Industrial wearables - Industrial power tools ​ ​ ​ ​ Smart Cities ​ ​ Cities are now using digitization and wireless technology to increase service capacity while decreasing carbon emissions.
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In addition, there can be no assurance that such patents will provide us with competitive advantages or adequately safeguard our proprietary rights.
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By leveraging smart city solutions, cities monitor municipal assets in real-time and residents actively track their energy consumption.
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In response to the COVID-19 pandemic, we implemented a response plan that we believe was in the best interest of our employees and the communities in which we operate. This included largely transitioning our global workforce to a remote work model, while implementing additional safety measures for essential employees continuing critical on-site work.
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Our smart city solutions enable cities to operate smarter, produce and distribute energy more efficiently, and prioritize renewable energy. ​ - Smart metering - Smart street lighting - Renewable energy - Electric vehicle supply equipment - Smart agriculture ​ ​ ​ Commercial IoT ​ ​ Commercial IoT, such as smart retail solutions, can increase retailer efficiency, reduce labor costs and provide consumer insights by merging digital online e-commerce and physical stores into an omnichannel experience.
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Corporate Social Responsibility As a global corporate citizen, we are committed to environmental sustainability, operational excellence, and providing support for people and communities around the world. We live by our promise to "do the right thing" for our employees, customers, shareholders, communities and planet.
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Our smart retail solutions, such as electronic shelf labels, increase productivity and profitability via centralized and dynamic price management without the labor-intensive manual price updates.
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Social Programs ● Donated a portion of our annual profits to charitable organizations; ● Allocated funds to our global sites for grants supporting critical causes locally; ● Provided corporate matching gifts to expand the impact of individual employee donations; ● Offered 24 hours of paid time off per year for employees to volunteer in their communities; ● Sponsored community service projects and supported relief efforts when disasters occur; ● Partnered with organizations committed to building diverse, equitable, and inclusive environments; ● Provided financial grants to nonprofits offering STEM education programs for underrepresented and underserved groups; and ● Supported research to improve safety, sustainability, and overall quality of life in densifying cities. 11 Table of Contents Governmental Regulations We are subject to international, federal, state and local regulations that are customary to businesses in the semiconductor industry.
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Our smart lighting solutions use wireless access points to enable indoor location services which track assets and consumer behavior and speed up click-and-collect ordering. ​ - Asset tracking - Smart lighting - Electronic shelf labels - Theft protection - Enterprise access points ​ ​ ​ Home & Life ​ ​ ​ ​ ​ Smart Home ​ ​ Smart home devices provide functional, energy-efficient living spaces with secure, reliable, and robust wireless smart home solutions.
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Sensors collect real-time data continuously to automate lighting, heating, and appliances, minimizing energy consumption while maximizing convenience.
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Our smart home solutions provide the functionality consumers demand while delivering features that accelerate adoption - privacy, simplicity, and performance. ​ - Home automation/security systems - Smart speaker - Smart lighting - HVAC control - Smart cameras - Smart appliances - Smart home sensing ​ ​ ​ 4 Table of Contents Target Market Applications ​ ​ ​ Connected Health ​ ​ Smart medical devices, such as pulse oximeters, ECG monitors, and fitness wearables, make healthcare more accessible and are improving lives around the world.
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Crowded RF environments, regulatory requirements, and security make development of these connected medical devices challenging for device manufacturers.
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Our low-power, high-performance wireless SoCs and modules simplify this process and accelerate time-to-market to develop secure, reliable, smart medical devices. ​ - Consumer health & fitness (wearables) - Connected medical products - Medical instrumentation - Patient monitoring ​ Customers, Sales and Marketing We market our products through our direct sales force and through a network of independent sales representatives and distributors.
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This system integration at the chip level leverages our deep expertise in mixed-signal and RF design, and low-power wireless MCU architectures pioneered for more than a decade.
Added
These specialized security components are designed to enhance cryptographic capabilities and exploit unique physical characteristics of CMOS to establish foundations of trust and enable device identity and assurance.
Added
We expect that our utilization of offshore third-party test subcontractors will remain substantial during fiscal 2023. 8 Table of Contents The impacts of the COVID-19 pandemic on our suppliers are uncertain, evolving and dependent on numerous unpredictable factors outside of our control.
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We anticipate that the market for our products will continually evolve and will be subject to rapid technological change.
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Accordingly, it is possible that new competitors or alliances among competitors could emerge and rapidly acquire significant market share. 9 Table of Contents Intellectual Property Our future success depends in part upon our proprietary technology. We seek to protect our technology through a combination of patents, copyrights, trade secrets, trademarks and confidentiality procedures.
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We have focused attention on improving our environmental, social and governance (“ESG”) metrics. We included diversity, equity and inclusion (“DEI”) metrics as a component of senior management bonuses for fiscal 2022. These principles are also reflected in our employee training, in particular with respect to our policies against harassment, discrimination and the elimination of bias in the workplace.
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We have taken additional health and safety measures due to the COVID-19 pandemic and will continue to adjust these as needed based upon health authority guidelines. Corporate Social Responsibility As a global corporate citizen, we are committed to advancing responsible and sustainable operations throughout our supply chain.
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We believe our products enable sustainable IoT solutions across home, medical, industrial and commercial environments, including air pollution and waste management monitoring, water integrity, residential irrigation monitoring, street lighting networks, advanced metering infrastructure and building energy management.
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Innovative solutions don’t stop at our products – we are also actively supporting research to improve safety, sustainability, and overall quality of life in densifying cities as the founding corporate partner for the Smart City Living Lab at The International Institute of Information Technology in Hyderabad, India.
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In 2022, we joined the Responsible Business Alliance® (“RBA®”), an industry coalition dedicated to responsible business conduct in the global supply chain. We support, and require our suppliers to support, the RBA Code of Conduct.
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Each year we donate a portion of our annual profits to charitable organizations, allocating global site grants to support local community needs, and providing corporate matching gifts for our US-based employees. We also offer 24 hours of paid time off annually for employees to volunteer in their communities.
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For more information on our ESG commitments and progress, please visit the Environmental, Social and Governance (“ESG”) section of our website at www.silabs.com.
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Our website and the information contained therein or connected thereto are not intended to be incorporated into this Annual Report on Form 10-K. 11 Table of Contents Governmental Regulations We are subject to international, federal, state and local regulations that are customary to businesses in the semiconductor industry.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

52 edited+17 added−9 removed110 unchanged
Biggest changeOur international operations are subject to a number of risks, including: ● Complexity and costs of managing international operations and related tax obligations, including our headquarters for non-U.S. operations in Singapore; ● Protectionist laws and business practices, including trade restrictions, tariffs, export controls, quotas and other trade barriers, including China-U.S. trade policies; ● Trade tensions, geopolitical uncertainty, or governmental actions, including those arising from the trade dispute between the U.S. and China, may lead customers to favor products from non-US companies which could put us at a competitive disadvantage and result in decreased customer demand for our products and our customers’ products; ● Restrictions or tariffs imposed on certain countries and sanctions or export controls imposed on customers or suppliers may affect our ability to sell and source our products; ● Difficulties related to the protection of our intellectual property rights in some countries; 13 Table of Contents ● Public health crises, such as the COVID-19 pandemic, may affect our international operations, suppliers and customers and we may experience delays in product development, a decreased ability to support our customers and reduced design win activity if the travel restrictions or business shutdowns or slowdowns continue for an extended period of time in any of the countries in which we, our suppliers and our customers operate and do business; ● Multiple, conflicting and changing tax and other laws and regulations that may impact both our international and domestic tax and other liabilities and result in increased complexity and costs, including the impact of the Tax Cuts and Jobs Act, which we expect to increase our effective tax rate, in part due to the impact of the requirement to capitalize and amortize foreign research and development expenses beginning in 2022; ● Longer sales cycles; ● Greater difficulty in accounts receivable collection and longer collection periods; ● High levels of distributor inventory subject to price protection and rights of return to us; ● Political and economic instability; ● Greater difficulty in hiring and retaining qualified personnel; and ● The need to have business and operations systems that can meet the needs of our international business and operating structure.
Biggest changeOur international operations are subject to a number of risks, including: ● Complexity and costs of managing international operations and related tax obligations, including our headquarters for non-U.S. operations in Singapore; ● Protectionist laws and business practices, including trade restrictions, tariffs, export controls, quotas and other trade barriers, including China-U.S. trade policies; ● Trade tensions, geopolitical uncertainty, or governmental actions, including those arising from the trade dispute between the U.S. and China, may lead customers to favor products from non-US companies which could put us at a competitive disadvantage and result in decreased customer demand for our products and our customers’ products; ● Rising tensions and deteriorating military, political and economic relations between China and Taiwan could disrupt the operations of our third-party foundry, assembly and test subcontractors, which could severely impact our ability to manufacture the majority of our products and as a result, could adversely affect our business, revenues and results of operations; ● Restrictions or tariffs imposed on certain countries and sanctions or export controls imposed on customers or suppliers may affect our ability to sell and source our products; ● Difficulties related to the protection of our intellectual property rights in some countries; ● Public health crises, such as the COVID-19 pandemic, may affect our international operations, suppliers and customers and we may experience delays in product development, a decreased ability to support our customers and reduced design win activity if the travel restrictions or business shutdowns or slowdowns continue for an extended period of time in any of the countries in which we, our suppliers and our customers operate and do business; ● Multiple, conflicting and changing tax and other laws and regulations that may impact both our international and domestic tax and other liabilities and result in increased complexity and costs, including the impact of the Tax Cuts and Jobs Act, which increased our effective tax rate, in part due to the impact of the requirement to capitalize and amortize foreign research and development expenses beginning in 2022; ● Longer sales cycles; ● Greater difficulty in accounts receivable collection and longer collection periods; ● High levels of distributor inventory subject to price protection and rights of return to us; ● Political and economic instability; ● Risks that demand and the supply chain may be adversely affected by military conflict (including between Russia and Ukraine), terrorism, sanctions or other geopolitical events globally; ● Greater difficulty in hiring and retaining qualified personnel; and ● The need to have business and operations systems that can meet the needs of our international business and operating structure.
The extent of the impact of the COVID-19 pandemic on our operational and financial performance will depend on future developments, including the duration, severity and spread of the pandemic, related restrictions on travel and transportation and other actions that may be taken by governmental authorities, the impact to the business of our suppliers or customers and other items identified in the risk factors below, all of which are uncertain and cannot be predicted.
The extent of the impact of the COVID-19 pandemic on our operational and financial performance will depend on future developments, including the duration, severity and spread of the pandemic, related restrictions on travel and transportation and other actions that may be taken by governmental authorities, the impact to the business of our suppliers or customers and other items identified in our risk factors, all of which are uncertain and cannot be predicted.
We have reduced the average unit price of our products in anticipation of or in response to competitive pricing pressures, new product introductions by us or our competitors and other factors.
In the past, we have reduced the average unit price of our products in anticipation of or in response to competitive pricing pressures, new product introductions by us or our competitors and other factors.
For example, if the travel restrictions or business shutdowns or slowdowns continue for an extended period of time in Taiwan, South Korea or the other countries in which our current manufacturers, assemblers, test service providers, distributors and customers are located, we may experience delays in product production, a decreased ability to support our customers, reduced design win activity, and overall lack of productivity.
For example, if travel restrictions or business shutdowns or slowdowns occur for an extended period of time in Taiwan, South Korea or the other countries in which our current manufacturers, assemblers, test service providers, distributors and customers are located, we may experience delays in product production, a decreased ability to support our customers, reduced design win activity, and overall lack of productivity.
Deteriorating general worldwide economic conditions, including reduced economic activity, concerns about credit and inflation, increased energy costs, decreased consumer confidence, reduced corporate profits, decreased spending and similar adverse business conditions, would make it very difficult for our customers, our vendors, and us to accurately forecast and plan future business activities and could cause U.S. and foreign businesses to slow spending on our products.
Deteriorating general worldwide economic conditions, including reduced economic activity, concerns about credit, interest rates and inflation, increased energy costs, decreased consumer confidence, reduced corporate profits, decreased spending and similar adverse business conditions, would make it very difficult for our customers, our vendors, and us to accurately forecast and plan future business activities and could cause U.S. and foreign businesses to slow spending on our products.
For example, our certificate of incorporation and bylaws provide for: ● The division of our Board of Directors into three classes to be elected on a staggered basis, one class each year; ● The ability of our Board of Directors to issue shares of our preferred stock in one or more series without further authorization of our stockholders; 25 Table of Contents ● A prohibition on stockholder action by written consent; ● Elimination of the right of stockholders to call a special meeting of stockholders; ● A requirement that stockholders provide advance notice of any stockholder nominations of directors or any proposal of new business to be considered at any meeting of stockholders; and ● A requirement that a supermajority vote be obtained to amend or repeal certain provisions of our certificate of incorporation.
For example, our certificate of incorporation and bylaws provide for: ● The division of our Board of Directors into three classes to be elected on a staggered basis, one class each year; ● The ability of our Board of Directors to issue shares of our preferred stock in one or more series without further authorization of our stockholders; ● A prohibition on stockholder action by written consent; ● Elimination of the right of stockholders to call a special meeting of stockholders; ● A requirement that stockholders provide advance notice of any stockholder nominations of directors or any proposal of new business to be considered at any meeting of stockholders; and ● A requirement that a supermajority vote be obtained to amend or repeal certain provisions of our certificate of incorporation.
If this occurs, our stock price may drop, perhaps significantly. 15 Table of Contents A number of factors, in addition to those cited in other risk factors applicable to our business, may contribute to fluctuations in our revenues and operating results, including: ● The timing and volume of orders received from our customers; ● The timeliness of our new product introductions and the rate at which our new products may cannibalize our older products; ● The rate of acceptance of our products by our customers, including the acceptance of new products we may develop for integration in the products manufactured by such customers, which we refer to as “design wins”; ● The time lag and realization rate between “design wins” and production orders; ● Supplier capacity constraints; ● The demand for, and life cycles of, the products incorporating our mixed-signal solutions; ● The rate of adoption of mixed-signal products in the markets we target; ● Deferrals or reductions of customer orders in anticipation of new products or product enhancements from us or our competitors or other providers of mixed-signal ICs; ● Changes in product mix; ● The average selling prices for our products could drop suddenly due to competitive offerings or competitive predatory pricing; ● The average selling prices for our products generally decline over time; ● Changes in market standards; ● Impairment charges related to inventory, equipment or other long-lived assets; ● The software used in our products, including software provided by third parties, may not meet the needs of our customers; ● Our customers may not be able to obtain other components such as capacitors (which are currently in short supply) that they need to incorporate in conjunction with our products, leading to potential downturn in the demand for our products; ● Significant legal costs to defend our intellectual property rights or respond to claims against us; and ● The rate at which new markets emerge for products we are currently developing or for which our design expertise can be utilized to develop products for these new markets.
A number of factors, in addition to those cited in other risk factors applicable to our business, may contribute to fluctuations in our revenues and operating results, including: ● The timing and volume of orders received from our customers; ● The timeliness of our new product introductions and the rate at which our new products may cannibalize our older products; ● The rate of acceptance of our products by our customers, including the acceptance of new products we may develop for integration in the products manufactured by such customers, which we refer to as “design wins”; ● The time lag and realization rate between “design wins” and production orders; ● Supplier capacity constraints; ● The demand for, and life cycles of, the products incorporating our mixed-signal solutions; ● The rate of adoption of mixed-signal products in the markets we target; ● Deferrals or reductions of customer orders in anticipation of new products or product enhancements from us or our competitors or other providers of mixed-signal ICs; ● Changes in product mix; ● The average selling prices for our products could drop suddenly due to competitive offerings or competitive predatory pricing; ● The average selling prices for our products generally decline over time; ● Changes in market standards; ● Impairment charges related to inventory, equipment or other long-lived assets; 17 Table of Contents ● The software used in our products, including software provided by third parties, may not meet the needs of our customers; ● Our customers may not be able to obtain other components such as capacitors (which are currently in short supply) that they need to incorporate in conjunction with our products, leading to potential downturn in the demand for our products; ● Significant legal costs to defend our intellectual property rights or respond to claims against us; and ● The rate at which new markets emerge for products we are currently developing or for which our design expertise can be utilized to develop products for these new markets.
This disposition and any other disposition of a business or product line would entail a number of risks that could materially and adversely affect our business and operating results, including: ● Diversion of management’s time and attention from our core business; ● Difficulties separating the divested business; ● Risks to relations with customers who previously purchased products from our disposed product line; ● Reduced leverage with suppliers due to reduced aggregate volume; ● Risks related to employee relations; ● Risks that the disposition is not completed on the expected timeline, or at all; ● Risks associated with the transfer and licensing of intellectual property; ● Risks that we do not realize the anticipated benefits from the disposition; ● Risks from third-party claims arising out of the disposition; ● Security risks and other liabilities related to the transition services provided in connection with the disposition; ● Tax issues associated with dispositions; and ● Disposition-related disputes, including disputes over earn-outs and escrows.
Any dispositions could harm our financial condition Any disposition of a business or product line would entail a number of risks that could materially and adversely affect our business and operating results, including: ● Diversion of management’s time and attention from our core business; ● Difficulties separating the divested business; ● Risks to relations with customers who previously purchased products from our disposed product line; ● Reduced leverage with suppliers due to reduced aggregate volume; ● Risks related to employee relations; ● Risks that the disposition is not completed on the expected timeline, or at all; ● Risks associated with the transfer and licensing of intellectual property; ● Risks that we do not realize the anticipated benefits from the disposition; ● Risks from third-party claims arising out of the disposition; ● Security risks and other liabilities related to the transition services provided in connection with the disposition; ● Tax issues associated with dispositions; and 22 Table of Contents ● Disposition-related disputes, including disputes over earn-outs and escrows.
We also are subject to the anti-takeover laws of Delaware which may discourage, delay or prevent someone from acquiring or merging with us, which may adversely affect the market price of our common stock. ​ Item 1B. Unresolved Staff Comments None. ​
We also are subject to the anti-takeover laws of Delaware which may discourage, delay or prevent someone from acquiring or merging with us, which may adversely affect the market price of our common stock. ​ 26 Table of Contents Item 1B. Unresolved Staff Comments None. ​
These errors could also cause significant re-engineering costs, the diversion of our engineering personnel’s attention from our product development efforts and cause significant customer relations and business reputation problems. Any defects could result in refunds, product replacement, product recall or other liability. Any of the foregoing could impose substantial costs and harm our business.
These errors could also cause significant re-engineering costs, the diversion of our engineering personnel’s attention from our product development efforts and cause significant customer relations and business reputation problems. Any defects could result in refunds, product replacement, product recall or other liability.
We expect utilization of third-party subcontractors to continue in the future. The cyclical nature of the semiconductor industry drives wide fluctuations in available capacity at third-party vendors. On occasion, we have been unable to adequately respond to unexpected increases in customer demand due to capacity constraints and, therefore, were unable to benefit from this incremental demand.
The cyclical nature of the semiconductor industry drives wide fluctuations in available capacity at third-party vendors. On occasion, we have been unable to adequately respond to unexpected increases in customer demand due to capacity constraints and, therefore, were unable to benefit from this incremental demand.
The impacts of the COVID-19 pandemic, or a similar public health crisis, on our business, customers, suppliers, employees, markets and financial results and condition are uncertain, evolving and dependent on numerous unpredictable factors outside of our control, including: ● The duration and impact of a global economic recession or depression that could reduce demand and/or pricing for our products; ● Disruptions to our business and supply chain (and the business and supply chains of our customers) in connection with the sourcing of materials, equipment and engineering support, and services from geographic areas impacted by the public health crisis, including disruptions caused by illnesses, quarantines and restrictions on people’s ability to work, office and factory closures, disruptions to ports and other shipping infrastructure, border closures, and other travel or health-related restrictions; ● Delays or limitations on the ability of our customers to make timely payments; ● Governmental actions to limit exposure to and spreading of such infectious diseases, such as travel restrictions, quarantines and business shutdowns or slowdowns, facility closures or other restrictions; ● Deterioration of worldwide credit and financial markets that could limit our ability to obtain external financing to fund our operations and capital expenditures or to refinance our existing indebtedness; ● Potential asset impairments, including goodwill, intangible assets, investments and other assets; ● Complexities related to our employees temporarily working from home as well as increased cyber-related risks due to our employees working from home; ● Potential failure of our computer systems or communication systems; and 12 Table of Contents ● Investment-related risks, including difficulties in liquidating investments due to current market conditions and adverse investment performance.
The impacts of the COVID-19 pandemic, or a similar public health crisis, on our business, customers, suppliers, employees, markets and financial results and condition are uncertain, evolving and dependent on numerous unpredictable factors outside of our control, including: ● The duration and impact of a global economic recession or depression that could reduce demand and/or pricing for our products; ● Disruptions to our business and supply chain (and the business and supply chains of our customers) in connection with the sourcing of materials, equipment and engineering support, and services from geographic areas impacted by the public health crisis, including disruptions caused by illnesses, quarantines and restrictions on people’s ability to work, office and factory closures, disruptions to ports and other shipping infrastructure, border closures, and other travel or health-related restrictions; ● Delays or limitations on the ability of our customers to make timely payments; ● Governmental actions to limit exposure to and spreading of such infectious diseases, such as travel restrictions, quarantines and business shutdowns or slowdowns, facility closures or other restrictions; ● Deterioration of worldwide credit and financial markets that could limit our ability to obtain external financing to fund our operations and capital expenditures or to refinance our existing indebtedness; ● Potential asset impairments, including goodwill, intangible assets, investments and other assets; ● Complexities related to our employees temporarily working from home as well as increased cyber-related risks due to our employees working from home; ● Challenges with reopening our offices, including implementing a hybrid model of working from home or the office, establishing appropriate office safety protocols, maintaining our corporate culture, and continuing to attract, retain and motivate our employees; ● Potential failure of our computer systems or communication systems; and ● Investment-related risks, including difficulties in liquidating investments due to current market conditions and adverse investment performance.
There are significant risks associated with relying on these third-party foundries and subcontractors, including: ● Failure by us, our customers or their end customers to qualify a selected supplier; ● Potential insolvency of the third-party subcontractors; ● Reduced control over delivery schedules and quality; ● Limited warranties on wafers or products supplied to us; ● Potential increases in prices or payments in advance for capacity; ● Increased need for international-based supply, logistics and financial management; ● Disruption to our supply chain resulting from cyber-attacks on our suppliers’ information technology systems; ● Their inability to supply or support new or changing packaging technologies; and ● Low test yields.
There are significant risks associated with relying on these third-party foundries and subcontractors, including: ● Failure by us, our customers or their end customers to qualify a selected supplier; ● Disruption to our suppliers’ operations due to geopolitical changes, including risks related to deteriorating relations between China and Taiwan; ● Potential insolvency of the third-party subcontractors; ● Reduced control over delivery schedules and quality; ● Limited warranties on wafers or products supplied to us; ● Potential increases in prices or payments in advance for capacity; ● Increased need for international-based supply, logistics and financial management; ● Disruption to our supply chain resulting from cyber-attacks on our suppliers’ information technology systems; 12 Table of Contents ● Their inability to supply or support new or changing packaging technologies; and ● Low test yields.
During fiscal 2021, 81% of our revenue was derived from distributors (and 58% of our revenue was derived from our three largest distributors). As we execute our indirect sales strategy, we must manage the potential conflicts that may arise with our direct sales efforts.
During fiscal 2022, 81% of our revenue was derived from distributors (and 49% of our revenue was derived from our two largest distributors). As we execute our indirect sales strategy, we must manage the potential conflicts that may arise with our direct sales efforts.
Therefore, we rely on third-party vendors to manufacture the products we design. We also currently rely on third-party assembly subcontractors in Asia to assemble and package the silicon chips provided by the wafers for use in final products. Additionally, we rely on these offshore subcontractors for a substantial portion of the testing requirements of our products prior to shipping.
We also currently rely on third-party assembly subcontractors in Asia to assemble and package the silicon chips provided by the wafers for use in final products. Additionally, we rely on these offshore subcontractors for a substantial portion of the testing requirements of our products prior to shipping. We expect utilization of third-party subcontractors to continue in the future.
In addition, a significant portion of the assembly and testing of our products occurs in South Korea. Any disruption resulting from these events, including the COVID-19 pandemic, could also cause significant delays in shipments of our products until we are able to shift our manufacturing, assembling or testing from the affected subcontractor to another third-party vendor.
Any disruption resulting from these events, including the COVID-19 pandemic, could also cause significant delays in shipments of our products until we are able to shift our manufacturing, assembling or testing from the affected subcontractor to another third-party vendor.
Our ten largest customers or distributors represent a substantial majority of our accounts receivable. If any such customer or distributor, or a material portion of our smaller customers or distributors, were to become insolvent or otherwise not satisfy their obligations to us, we could be materially harmed.
If any such customer or distributor, or a material portion of our smaller customers or distributors, were to become insolvent or otherwise not satisfy their obligations to us, we could be materially harmed.
As a result, we have devoted and expect to continue to devote a large amount of resources to develop products based on new and emerging technologies and standards that will be commercially introduced in the future. Research and development expense during fiscal 2021 was $273.2 million, or 37.9% of revenues.
As a result, we have devoted and expect to continue to devote a large amount of resources to develop products based on new and emerging technologies and standards that will be commercially introduced in the future. Research and development expense during fiscal 2022 was $332.3 million, or 32.5% of revenues.
Accordingly, we have reported higher interest expense because of the recognition of both the debt discount amortization and the notes’ coupon interest. 24 Table of Contents Our debt could adversely affect our operations and financial condition We believe we have the ability to service our debt, but our ability to make the required payments thereunder when due depends upon our future performance, which will be subject to general economic conditions, industry cycles and other factors affecting our operations, including risk factors described herein, such as the potential implications of the COVID-19 pandemic, many of which are beyond our control.
Our debt could adversely affect our operations and financial condition We believe we have the ability to service our debt, but our ability to make the required payments thereunder when due depends upon our future performance, which will be subject to general economic conditions, industry cycles and other factors affecting our operations, including risk factors described herein, such as the potential implications of the COVID-19 pandemic, many of which are beyond our control.
We believe that any expansion of our customers' supplier bases could have an adverse effect on the prices we are able to charge and volume of product that we are able to sell to our customers, which would negatively affect our revenues and operating results. 18 Table of Contents Customers may decide not to purchase our products at all, purchase fewer products than they did in the past, or alter their purchasing patterns, particularly because: ● We do not have material long-term purchase contracts with our customers; ● Substantially all of our sales to date have been made on a purchase order basis, which permits our customers to cancel, change or delay product purchase commitments with little or no notice to us and without penalty; ● Some of our customers may have efforts underway to actively diversify their vendor base which could reduce purchases of our products; and ● Some of our customers have developed or acquired products that compete directly with products these customers purchase from us, which could affect our customers’ purchasing decisions in the future.
Customers may decide not to purchase our products at all, purchase fewer products than they did in the past, or alter their purchasing patterns, particularly because: ● We do not have material long-term purchase contracts with our customers; ● Substantially all of our sales to date have been made on a purchase order basis, which permits our customers to cancel, change or delay product purchase commitments with little or no notice to us and without penalty; ● Some of our customers may have efforts underway to actively diversify their vendor base which could reduce purchases of our products; and ● Some of our customers have developed or acquired products that compete directly with products these customers purchase from us, which could affect our customers’ purchasing decisions in the future.
On January 2, 2022, we irrevocably elected cash settlement for the principal amount of the 2025 Notes. If we do not have adequate cash available to settle the principal amount of the 2025 Notes, we could seek to raise additional funds through debt or equity capital.
Our convertible senior notes could adversely affect our operating results and financial condition On January 2, 2022, we irrevocably elected cash settlement for the principal amount of the 2025 Notes. If we do not have adequate cash available to settle the principal amount of the 2025 Notes, we could seek to raise additional funds through debt or equity capital.
If the COVID-19 pandemic continues to progress in ways that significantly disrupt the manufacture, shipment and sales of our products or the products of our customers, this may materially negatively impact our operating results for subsequent periods.
If the COVID-19 pandemic significantly disrupts the manufacture, shipment and sales of our products or the products of our customers, this may materially negatively impact our operating results for subsequent periods.
These inventory risks are exacerbated when our customers purchase indirectly through contract manufacturers or hold component inventory levels greater than their consumption rate because this causes us to have less visibility regarding the accumulated levels of inventory for such customers. A resulting write-off of unusable or excess inventories would adversely affect our operating results.
These inventory risks are exacerbated when our customers purchase indirectly through contract manufacturers or hold component inventory levels greater than their consumption rate because this causes us to have less visibility regarding the accumulated levels of inventory for such customers.
Most of our current manufacturers, assemblers, test service providers, distributors and customers are concentrated in the same geographic region, which increases the risk that a natural disaster, epidemic, labor strike, war or political unrest could disrupt our operations or sales Most of our foundries and several of our assembly and test subcontractors’ sites are located in Taiwan and most of our other foundry, assembly and test subcontractors are located in the Pacific Rim region.
Similarly, a decrease in the value of the U.S. dollar could reduce our buying power with respect to international suppliers. 14 Table of Contents Most of our current manufacturers, assemblers, test service providers, distributors and customers are concentrated in the same geographic region, which increases the risk that a natural disaster, epidemic, labor strike, war or political unrest could disrupt our operations or sales Most of our foundries and several of our assembly and test subcontractors’ sites are located in Taiwan and most of our other foundry, assembly and test subcontractors are located in the Pacific Rim region.
Product liability, data breach or cyber liability claims may be asserted with respect to our products. Many of our products focus on wireless connectivity and the IoT market and such connectivity may make these products particularly susceptible to cyber-attacks.
Any of the foregoing could impose substantial costs and harm our business. 21 Table of Contents Product liability, data breach or cyber liability claims may be asserted with respect to our products. Many of our products focus on wireless connectivity and the IoT market and such connectivity may make these products particularly susceptible to cyber-attacks.
Intellectual property litigation also could force us to take specific actions, including: ● Cease using, selling or manufacturing certain products, services or processes; ● Attempt to obtain a license, which license may require the payment of substantial royalties or may not be available on reasonable terms or at all; ● Incur significant costs, time delays and lost business opportunities to develop alternative technologies or redesign products; or ● Pursue legal remedies with third parties to enforce our indemnification rights, which may not adequately protect our interests. 23 Table of Contents We may be unable to protect our intellectual property, which would negatively affect our ability to compete Our products rely on our proprietary technology, and we expect that future technological advances made by us will be critical to sustain market acceptance of our products.
Intellectual property litigation also could force us to take specific actions, including: ● Cease using, selling or manufacturing certain products, services or processes; ● Attempt to obtain a license, which license may require the payment of substantial royalties or may not be available on reasonable terms or at all; ● Incur significant costs, time delays and lost business opportunities to develop alternative technologies or redesign products; or ● Pursue legal remedies with third parties to enforce our indemnification rights, which may not adequately protect our interests.
There can be no assurance that alternate capacity could be obtained on favorable terms, if at all. 21 Table of Contents A natural disaster, epidemic, labor strike, war or political unrest where our customers’ facilities are located would likely reduce our sales to such customers.
There can be no assurance that alternate capacity could be obtained on favorable terms, if at all. A natural disaster, epidemic, labor strike, war or political unrest where our customers’ facilities are located would likely reduce our sales to such customers. In addition, a significant portion of the assembly and testing of our products occurs in South Korea.
Our pursuit of necessary technological advances may require substantial time and expense. We may not be successful in developing or using new technologies or in developing new products or product enhancements that achieve market acceptance. If our products fail to achieve market acceptance, our growth prospects, operating results and competitive position could be adversely affected.
Our pursuit of necessary technological advances may require substantial time and expense. We may not be successful in developing or using new technologies or in developing new products or product enhancements that achieve market acceptance.
Attempted or successful attacks against our products and services could damage our reputation with customers or users and reduce demand for our products and services. 16 Table of Contents Additionally, there is an increased risk that we may experience cybersecurity-related events such as COVID-19 themed phishing attacks and other security challenges as a result of most of our employees and our service providers working remotely from non-corporate managed networks during the ongoing COVID-19 pandemic and potentially continuing working remotely even after the COVID-19 pandemic has subsided.
Additionally, there is an increased risk that we may experience cybersecurity-related events such as COVID-19 themed phishing attacks and other security challenges as a result of most of our employees and our service providers working remotely from non-corporate managed networks during the ongoing COVID-19 pandemic and potentially continuing working remotely even after the COVID-19 pandemic has subsided. 16 Table of Contents In addition, the risk of cyber-attacks has increased in connection with the military conflict between Russia and Ukraine and the resulting geopolitical conflict.
If the industry cannot agree on a common set of standards, then the growth of the IoT market may be slower than expected. 17 Table of Contents Any acquisitions we make could disrupt our business and harm our financial condition As part of our growth and product diversification strategy, we continue to evaluate opportunities to acquire other businesses, intellectual property or technologies that would complement our current offerings, expand the breadth of our markets or enhance our technical capabilities.
Any acquisitions we make could disrupt our business and harm our financial condition As part of our growth and product diversification strategy, we continue to evaluate opportunities to acquire other businesses, intellectual property or technologies that would complement our current offerings, expand the breadth of our markets or enhance our technical capabilities.
We expect to face competition in the future from our current competitors, other manufacturers and designers of semiconductors, and start-up semiconductor design companies. As the markets for communications products grow, we also may face competition from traditional communications device companies.
We compete with Broadcom, Espressif, Infineon, MediaTek, Microchip, Nordic Semiconductor, NXP, Qualcomm, Renesas, STMicroelectronics, Synaptics, Telink, Texas Instruments and others. We expect to face competition in the future from our current competitors, other manufacturers and designers of semiconductors, and start-up semiconductor design companies. As the markets for communications products grow, we also may face competition from traditional communications device companies.
Intellectual Property Risks Significant litigation over intellectual property in our industry may cause us to become involved in costly and lengthy litigation which could adversely affect our business The semiconductor and software industries have experienced significant litigation involving patents and other intellectual property rights.
If our products fail to achieve market acceptance, our growth prospects, operating results and competitive position could be adversely affected. 23 Table of Contents Intellectual Property Risks Significant litigation over intellectual property in our industry may cause us to become involved in costly and lengthy litigation which could adversely affect our business The semiconductor and software industries have experienced significant litigation involving patents and other intellectual property rights.
If these patents are found to be invalid or unenforceable, our competitors could introduce competitive products that could reduce both the volume and price per unit of our products.
In addition, substantially all of our products that we have sold include technology related to one or more of our issued U.S. patents. If these patents are found to be invalid or unenforceable, our competitors could introduce competitive products that could reduce both the volume and price per unit of our products.
The costs of compliance with the GDPR and the potential for fines and penalties in the event of a breach of the GDPR may have an adverse effect on our operations.
In May 2018, the European Union’s General Data Protection Regulation (“GDPR”) went into effect, replacing the EU’s 1995 Data Protection Directive. The costs of compliance with the GDPR and the potential for fines and penalties in the event of a breach of the GDPR may have an adverse effect on our operations.
The excess of the principal amount of the liability component over its carrying amount represents the debt discount, which is accreted to interest expense over the term of the notes using the effective interest method.
The excess of the principal amount of the liability component over its carrying amount represents the debt discount, which was accreted to interest expense over the term of the notes using the effective interest method. Accordingly, we have reported higher interest expense because of the recognition of both the debt discount amortization and the notes’ coupon interest.
However, we may not be able to obtain additional funds on favorable terms, or at all, particularly during financial market instability related to the COVID-19 pandemic. If we decide to raise additional funds by issuing equity or convertible debt securities, the ownership percentages of existing shareholders would be reduced.
However, we may not be able to obtain additional funds on favorable terms, or at all, particularly during financial market instability related to the COVID-19 pandemic.
Item 1A. Risk Factors Global Business Risks The COVID-19 pandemic could adversely affect our business, results of operations, and financial condition The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets.
A resulting write-off of unusable or excess inventories would adversely affect our operating results. 20 Table of Contents The COVID-19 pandemic could adversely affect our business, results of operations, and financial condition The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets.
The average selling prices of our products could decrease rapidly which may negatively impact our revenues and gross profit We may experience substantial period-to-period fluctuations in future operating results due to the erosion of our average selling prices.
Future acquisitions also could cause us to incur debt or contingent liabilities or cause us to issue equity securities that could negatively impact the ownership percentages of existing shareholders. 19 Table of Contents The average selling prices of our products could decrease rapidly which may negatively impact our revenues and gross profit We may experience substantial period-to-period fluctuations in future operating results due to the erosion of our average selling prices.
There can be no assurance that any insurance we maintain will sufficiently protect us from such claims. 19 Table of Contents We may be subject to information technology failures that could damage our reputation, business operations and financial condition We rely on information technology for the effective operation of our business.
We may be subject to information technology failures that could damage our reputation, business operations and financial condition We rely on information technology for the effective operation of our business.
See Significant litigation over intellectual property in our industry may cause us to become involved in costly and lengthy litigation which could seriously harm our business. Furthermore, any failure of third-party technology to perform properly would adversely affect sales of our products incorporating such technology.
See Significant litigation over intellectual property in our industry may cause us to become involved in costly and lengthy litigation which could seriously harm our business.
Furthermore, product liability risks are particularly significant with respect to medical and automotive applications because of the risk of serious harm to users of these end-products.
Furthermore, product liability risks are particularly significant with respect to medical and automotive applications because of the risk of serious harm to users of these end-products. There can be no assurance that any insurance we maintain will sufficiently protect us from such claims.
If we are unable to develop or acquire new and enhanced products that achieve market acceptance in a timely manner, our operating results and competitive position could be harmed Our future success will depend on our ability to develop or acquire new products and product enhancements that achieve market acceptance in a timely and cost-effective manner.
The loss of any of our key employees or the inability to attract or retain qualified personnel both in the United States and internationally, including engineers, sales, applications and marketing personnel, could delay the development and introduction of, and negatively impact our ability to sell, our products. 18 Table of Contents If we are unable to develop or acquire new and enhanced products that achieve market acceptance in a timely manner, our operating results and competitive position could be harmed Our future success will depend on our ability to develop or acquire new products and product enhancements that achieve market acceptance in a timely and cost-effective manner.
Competition within the numerous markets we target may reduce sales of our products and reduce our market share The markets for semiconductors in general, and for mixed-signal products in particular, are intensely competitive. We expect that the market for our products will continually evolve and will be subject to rapid technological change.
Competition could decrease our prices, reduce our sales, lower our gross profit and/or decrease our market share. 15 Table of Contents Competition within the numerous markets we target may reduce sales of our products and reduce our market share The markets for semiconductors in general, and for mixed-signal products in particular, are intensely competitive.
These companies may enter the mixed-signal semiconductor market by introducing their own products or by entering into strategic relationships with or acquiring other existing providers of semiconductor products.
These companies may enter the mixed-signal semiconductor market by introducing their own products or by entering into strategic relationships with or acquiring other existing providers of semiconductor products. In addition, large companies may restructure their operations to create separate companies or may acquire new businesses that are focused on providing the types of products we produce or acquire our customers.
If we are unable to effectively manage our expanding global operations, including our international headquarters in Singapore, our business could be materially and adversely affected. 20 Table of Contents We are subject to risks relating to product concentration We derive a substantial portion of our revenues from a limited number of products, and we expect these products to continue to account for a large percentage of our revenues in the near term.
We are subject to risks relating to product concentration We derive a substantial portion of our revenues from a limited number of products, and we expect these products to continue to account for a large percentage of our revenues in the near term. Continued market acceptance of these products, is therefore, critical to our future success.
Liquidity and Credit Risks We are subject to credit risks related to our accounts receivable We do not generally obtain letters of credit or other security for payment from customers, distributors or contract manufacturers. Accordingly, we are not protected against accounts receivable default or bankruptcy by these entities.
Furthermore, any failure of third-party technology to perform properly would adversely affect sales of our products incorporating such technology. 24 Table of Contents Liquidity and Credit Risks We are subject to credit risks related to our accounts receivable We do not generally obtain letters of credit or other security for payment from customers, distributors or contract manufacturers.
We are a global company, which subjects us to additional business risks including logistical and financial complexity, political instability and currency fluctuations We have established international subsidiaries and have opened offices in international markets to support our activities in Asia, the Americas and Europe. This has included the establishment of a headquarters in Singapore for non-U.S. operations.
The impact from the rapidly changing market and economic conditions due to the COVID-19 outbreak is uncertain, disrupting the business of our customers and suppliers, and could impact our business and operating results in the future. 13 Table of Contents We are a global company, which subjects us to additional business risks including logistical and financial complexity, supply disruption, political instability and currency fluctuations We have established international subsidiaries and have opened offices in international markets to support our activities in Asia, the Americas and Europe.
Complying with these laws and the possibility of proceedings against us by governmental entities or others in relation to these laws could increase operational costs. In May 2018, the European Union’s General Data Protection Regulation (“GDPR”) went into effect, replacing the EU’s 1995 Data Protection Directive.
Changes in the privacy and data security/protection laws could have an adverse effect on our operations Federal, state and international privacy-related or data protection laws and regulations could have an adverse effect on our operations. Complying with these laws and the possibility of proceedings against us by governmental entities or others in relation to these laws could increase operational costs.
During fiscal 2021, the percentage of our revenues derived from outside of the United States was 86% (and the revenue associated with end customers in China was 24%, and revenue attributed to China based on shipped-to location was 43) %. We may not be able to maintain or increase global market demand for our products.
This has included the establishment of a headquarters in Singapore for non-U.S. operations. During fiscal 2022, the percentage of our revenues derived from outside of the United States was 83% (and the revenue associated with end customers in China was 14%, and revenue attributed to China based on shipped-to location was 33%).
Stock and Governance Risks Our stock price may be volatile The market price of our common stock has been volatile in the past and may be volatile in the future.
If we decide to raise additional funds by issuing equity or convertible debt securities, the ownership percentages of existing shareholders would be reduced. 25 Table of Contents Stock and Governance Risks Our stock price may be volatile The market price of our common stock has been volatile in the past and may be volatile in the future.
None of our third-party foundry, assembly or test subcontractors have provided assurances that adequate capacity will be available to us. In addition, the COVID-19 pandemic has caused further global economic uncertainty.
None of our third-party foundry, assembly or test subcontractors have provided assurances that adequate capacity will be available to us. The semiconductor industry has recently experienced an economic up-cycle. This recent up-cycle could be followed by a downturn, and historically, such down-cycles have resulted in a decline in overall GDP performance and greater overall uncertainty regarding the economy.
In addition, as we target and supply products to numerous markets and applications, we face competition from a relatively large number of competitors. We compete with Broadcom, Espressif, Infineon, MediaTek, Microchip, Nordic Semiconductor, NXP, Qualcomm, Renesas, STMicroelectronics, Synaptics, Telink, Texas Instruments and others.
We expect that the market for our products will continually evolve and will be subject to rapid technological change. In addition, as we target and supply products to numerous markets and applications, we face competition from a relatively large number of competitors.
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The impact from the rapidly changing market and economic conditions due to the COVID-19 outbreak is uncertain, disrupting the business of our customers and suppliers, and could impact our business and operating results in the future.
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Item 1A. Risk Factors Global Business Risks We rely on third parties to manufacture, assemble and test our products, which subjects us to risks of disruptions in our supply chain We do not have our own wafer fab manufacturing facilities. Therefore, we rely on third-party vendors to manufacture the products we design.
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Similarly, a decrease in the value of the U.S. dollar could reduce our buying power with respect to international suppliers.
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In addition, geopolitical changes in China-Taiwan relations could disrupt TSMC’s operations and impact our third-party assembly subcontractors in Asia. Such a disruption could severely impact our ability to manufacture the majority of our products and as a result, could adversely affect our business, revenues and results of operations.
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In addition, large companies may restructure their operations to create separate companies or may acquire new businesses that are focused on providing the types of products we produce or acquire our customers. 14 Table of Contents We rely on third parties to manufacture, assemble and test our products and the failure to successfully manage our relationships with our manufacturers and subcontractors would negatively impact our ability to sell our products We do not have our own wafer fab manufacturing facilities.
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In recent months, inflation and interest rates have increased significantly. Such pressures could impact demand for our customers’ end products and increase our costs. If our costs become subject to significant inflationary pressures, we may not be able to fully offset such higher costs with increased revenues.
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The loss of any of our key employees or the inability to attract or retain qualified personnel both in the United States and internationally, including engineers, sales, applications and marketing personnel, could delay the development and introduction of, and negatively impact our ability to sell, our products.
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If such a downturn occurs, it could have a material adverse effect on our business and operating results. In addition, the COVID-19 pandemic has caused further global economic uncertainty.
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Future acquisitions also could cause us to incur debt or contingent liabilities or cause us to issue equity securities that could negatively impact the ownership percentages of existing shareholders.
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We may not be able to maintain or increase global market demand for our products.
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Continued market acceptance of these products, is therefore, critical to our future success. In addition, substantially all of our products that we have sold include technology related to one or more of our issued U.S. patents.
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If we are unable to effectively manage our expanding global operations, including our international headquarters in Singapore, our business could be materially and adversely affected.
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Any dispositions could harm our financial condition On April 22, 2021, we entered into an Asset Purchase Agreement pursuant to which Skyworks Solutions, Inc. agreed to acquire certain assets, rights, and properties, and assume certain liabilities, comprising our infrastructure and automotive business for $2.75 billion in cash. The transaction closed on July 26, 2021.
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Attempted or successful attacks against our products and services could damage our reputation with customers or users and reduce demand for our products and services.
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Competition could decrease our prices, reduce our sales, lower our gross profit and/or decrease our market share. 22 Table of Contents Changes in the privacy and data security/protection laws could have an adverse effect on our operations Federal, state and international privacy-related or data protection laws and regulations could have an adverse effect on our operations.
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In light of those and other geopolitical events, nation-state actors or their supporters may launch retaliatory cyber-attacks, and may attempt to cause supply chain and other third-party service provider disruptions, or take other geopolitically motivated retaliatory actions that may disrupt our business operations, result in data compromise, or both.
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Our convertible senior notes could adversely affect our operating results and financial condition On January 1, 2022, a condition regarding early conversion of our 2025 convertible senior notes (the “2025 Notes”) was met, and as a result, holders may convert their notes at any time during the quarter ending March 31, 2022.
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Nation-state actors have in the past carried out, and may in the future carry out, cyber-attacks to achieve their aims and goals, which may include espionage, information operations, monetary gain, ransomware, disruption, and destruction. In February 2022, the U.S.
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Cybersecurity and Infrastructure Security Agency issued a “Shields Up” alert for American organizations noting the potential for Russia’s cyber-attacks on Ukrainian government and critical infrastructure organizations to impact organizations both within and beyond the United States, particularly in the wake of sanctions imposed by the United States and its allies. These circumstances increase the likelihood of cyber-attacks and/or security breaches.
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If this occurs, our stock price may drop, perhaps significantly.
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If the industry cannot agree on a common set of standards, then the growth of the IoT market may be slower than expected.
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We believe that any expansion of our customers’ supplier bases could have an adverse effect on the prices we are able to charge and volume of product that we are able to sell to our customers, which would negatively affect our revenues and operating results.
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We may be unable to protect our intellectual property, which would negatively affect our ability to compete Our products rely on our proprietary technology, and we expect that future technological advances made by us will be critical to sustain market acceptance of our products.
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Accordingly, we are not protected against accounts receivable default or bankruptcy by these entities. Our ten largest customers or distributors represent a substantial majority of our accounts receivable.
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With our adoption of Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40) , in fiscal 2022, the principal balance of the 2025 Notes is no longer separated between liability and equity components.
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This resulted in an increase to the carrying value of our convertible debt, representing the unamortized debt discount, with an offsetting reduction in stockholders’ equity.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeIn addition to these properties, we lease smaller facilities in various locations in the United States, Canada, China, Denmark, Finland, France, Germany, Hungary, India, Italy, Japan, Norway, Singapore, South Korea, Taiwan and the United Kingdom for engineering, sales and marketing, administrative and manufacturing support activities.
Biggest changeIn addition to these properties, we lease smaller facilities in various locations in the United States, Canada, China, Denmark, Finland, France, Germany, Hungary, India, Italy, Japan, Norway, Singapore, South Korea, Taiwan and the United Kingdom for engineering, sales and marketing, administrative and manufacturing support activities. We believe that these facilities are suitable and adequate to meet our current operating needs.
The buildings contain approximately 441,000 square feet of floor space, of which approximately 155,000 square feet were leased to other tenants.
The buildings contain approximately 441,000 square feet of floor space, of which approximately 89,000 square feet were leased to other tenants.
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We believe that these facilities are suitable and adequate to meet our current operating needs. ​

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings Information regarding legal proceedings is provided in Note 13, Commitments and Contingencies , to the Consolidated Financial Statements. Such information is incorporated by reference herein. ​ Item 4. Mine Safety Disclosures Not applicable. ​ 26 Table of Contents Part II
Biggest changeItem 3. Legal Proceedings Information regarding legal proceedings is provided in Note 13, Commitments and Contingencies , to the Consolidated Financial Statements. Such information is incorporated by reference herein. ​ Item 4. Mine Safety Disclosures Not applicable. ​ 27 Table of Contents Part II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest change(2) Stockholder returns over the indicated period should not be considered indicative of future stockholder returns. 27 Table of Contents Issuer Purchases of Equity Securities The following table summarizes repurchases of our common stock during the three months ended January 1, 2022 (in thousands, except per share amounts): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Number of ​ Approximate Dollar ​ ​ Total ​ ​ ​ ​ Shares Purchased as ​ Value of Shares that ​ ​ Number of ​ Average Price ​ Part of Publicly ​ May Yet Be ​ ​ Shares ​ Paid per ​ Announced Plans ​ ​ Purchased Under the Period Purchased Share or Programs Plans or Programs October 3, 2021 – October 30, 2021 (1) 2,130 $ 213.50 2,130 $ 41,696 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ October 31, 2021 – November 27, 2021 — $ — — $ 41,696 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ November 28, 2021 – January 1, 2022 — $ — — $ — Total 2,130 $ 213.50 2,130 ​ ​ (1) On October 27, 2021, we entered into an accelerated share repurchase (“ASR”) agreement with Goldman Sachs & Co.
Biggest change(2) Stockholder returns over the indicated period should not be considered indicative of future stockholder returns. 28 Table of Contents Issuer Purchases of Equity Securities The following table summarizes repurchases of our common stock during the three months ended December 31, 2022 (in thousands, except per share data): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Number of ​ ​ Approximate Dollar ​ ​ Total ​ ​ ​ ​ Shares Purchased as ​ ​ Value of Shares that ​ ​ Number of ​ ​ Average Price ​ Part of Publicly ​ ​ May Yet Be ​ ​ Shares ​ ​ Paid per ​ Announced Plans ​ ​ Purchased Under the Period Purchased ​ Share or Programs ​ Plans or Programs October 2, 2022 – October 29, 2022 830 $ 120.26 830 $ 312,873 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ October 30, 2022 – November 26, 2022 480 $ 123.21 480 $ 253,650 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ November 27, 2022 – December 31, 2022 297 $ 137.07 297 $ 212,977 Total 1,607 $ 124.25 1,607 ​ ​ ​ Our share repurchase program authorizes repurchases up to $500 million through December 2023.
The program allows for repurchases to be made in the open market or in private transactions, including structured or accelerated transactions, subject to applicable legal requirements and market conditions. ​ Item 6. [Reserved] ​ ​ ​ ​ 28 Table of Contents
The program allows for repurchases to be made in the open market or in private transactions, including structured or accelerated transactions, subject to applicable legal requirements and market conditions. ​ Item 6. [Reserved] ​ ​ ​ ​ 29 Table of Contents
Our common stock is quoted on the NASDAQ National Market (NASDAQ) under the symbol "SLAB". As of January 24, 2022, there were 62 holders of record of our common stock. Dividend Policy We have never declared or paid any cash dividends on our common stock and we currently do not intend to pay cash dividends.
Our common stock is quoted on the NASDAQ National Market (NASDAQ) under the symbol “SLAB”. As of January 24, 2023, there were 60 holders of record of our common stock. Dividend Policy We have never declared or paid any cash dividends on our common stock and we currently do not intend to pay cash dividends.
Stock Performance Graph The graph depicted below shows a comparison of cumulative total stockholder returns for an investment in Silicon Laboratories Inc. common stock, the NASDAQ Composite Index and the PHLX Semiconductor Index. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Company / Index 12/31/16 12/30/17 12/29/18 12/28/19 01/02/21 01/01/22 Silicon Laboratories Inc. ​ $ 100.00 ​ $ 135.85 ​ $ 120.77 ​ $ 179.26 ​ $ 195.91 ​ $ 317.57 NASDAQ Composite Index ​ $ 100.00 ​ $ 129.64 ​ $ 124.98 ​ $ 172.81 ​ $ 249.51 ​ $ 304.85 PHLX Semiconductor Index ​ $ 100.00 ​ $ 140.54 ​ $ 131.15 ​ $ 216.62 ​ $ 331.27 ​ $ 473.22 (1) The graph assumes that $100 was invested in our common stock and in each index at the market close on December 31, 2016, and that all dividends were reinvested.
Stock Performance Graph The graph depicted below shows a comparison of cumulative total stockholder returns for an investment in Silicon Laboratories Inc. common stock, the NASDAQ Composite Index and the PHLX Semiconductor Index. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Company / Index 12/30/17 ​ 12/29/18 ​ 12/28/19 ​ 01/02/21 ​ 01/01/22 ​ 12/31/22 Silicon Laboratories Inc. ​ $ 100.00 ​ $ 88.90 ​ $ 131.96 ​ $ 144.21 ​ $ 233.77 ​ $ 153.65 NASDAQ Composite Index ​ $ 100.00 ​ $ 96.41 ​ $ 133.30 ​ $ 192.47 ​ $ 235.15 ​ $ 158.65 PHLX Semiconductor Index ​ $ 100.00 ​ $ 93.32 ​ $ 154.13 ​ $ 235.71 ​ $ 336.71 ​ $ 219.26 (1) The graph assumes that $100 was invested in our common stock and in each index at the market close on December 30, 2017, and that all dividends were reinvested.
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LLC. Under the ASR Agreement, we received an aggregate initial share delivery of approximately 1.7 million shares. On January 20, 2022, we received an additional 0.3 million shares at no additional costs in connection with final delivery through the ASR Agreement. Our share repurchase program authorizes repurchases up to $250 million through December 2022.

Item 7. Management's Discussion & Analysis

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

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Biggest changeThe following table sets forth our Consolidated Statements of Income data as a percentage of revenues for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year ​ ​ 2021 2020 2019 Revenues ​ 100.0 % 100.0 % 100.0 % Cost of revenues ​ 41.0 42.3 40.9 ​ Gross margin ​ 59.0 57.7 59.1 ​ Operating expenses: ​ ​ ​ ​ ​ Research and development ​ 37.9 46.0 43.4 ​ Selling, general and administrative ​ 25.7 32.7 34.4 ​ Operating expenses ​ 63.6 78.7 77.8 ​ Operating loss ​ (4.6) (21.0) (18.7) ​ Other income (expense): ​ ​ ​ ​ ​ Interest income and other, net ​ 0.8 1.8 2.7 ​ Interest expense ​ (4.3) (6.7) (4.2) ​ Loss from continuing operations before income taxes ​ (8.1) (25.9) (20.2) ​ Provision (benefit) for income taxes ​ 1.9 (2.9) 1.5 ​ Equity-method earnings ​ 1.9 ​ 0.4 ​ 0.1 ​ Loss from continuing operations ​ (8.1) ​ (22.6) ​ (21.6) ​ Income from discontinued operations, net of income taxes ​ 301.8 ​ 25.1 ​ 25.7 ​ Net income ​ 293.7 % 2.5 % 4.1 % ​ 31 Table of Contents Comparison of Fiscal 2021 to Fiscal 2020 Revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year ​ ​ ​ ​ ​ (in millions) 2021 2020 Change % Change Revenues ​ $ 720.9 ​ $ 510.9 ​ $ 210.0 41.1 % ​ The change in revenues in fiscal 2021 was due to increased demand for our IoT products.
Biggest changeThe following table sets forth our Consolidated Statements of Income data as a percentage of revenues for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year ​ ​ 2022 2021 2020 Revenues ​ 100.0 % 100.0 % 100.0 % Cost of revenues ​ 37.3 41.0 42.3 ​ Gross margin ​ 62.7 59.0 57.7 ​ Operating expenses: ​ ​ ​ ​ ​ Research and development ​ 32.5 37.9 46.0 ​ Selling, general and administrative ​ 18.6 25.7 32.7 ​ Operating expenses ​ 51.1 63.6 78.7 ​ Operating income (loss) ​ 11.6 (4.6) (21.0) ​ Other income (expense): ​ ​ ​ ​ ​ Interest income and other, net ​ 1.4 0.8 1.8 ​ Interest expense ​ (0.6) (4.3) (6.7) ​ Income (loss) from continuing operations before income taxes ​ 12.4 (8.1) (25.9) ​ Provision (benefit) for income taxes ​ 3.8 1.9 (2.9) ​ Equity-method earnings ​ 0.3 ​ 1.9 ​ 0.4 ​ Income (loss) from continuing operations ​ 8.9 ​ (8.1) ​ (22.6) ​ Income from discontinued operations, net of income taxes ​ — ​ 301.8 ​ 25.1 ​ Net income ​ 8.9 % 293.7 % 2.5 % ​ 32 Table of Contents Comparison of Fiscal 2022 to Fiscal 2021 Revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year ​ ​ ​ ​ ​ (in millions) 2022 2021 Change % Change Industrial & Commercial ​ $ 573.7 ​ $ 377.4 ​ $ 196.3 52.0 % Home & Life ​ ​ 450.4 ​ ​ 343.5 ​ ​ 106.9 ​ 31.1 % ​ ​ $ 1,024.1 ​ $ 720.9 ​ $ 303.2 ​ 42.1 % ​ The increase in revenues in fiscal 2022 was due to increased revenues of $196.3 million from our Industrial & Commercial products and $106.9 million from our Home & Life products.
Please see the “Cautionary Statement” and “Risk Factors” above for discussions of the uncertainties, risks and assumptions associated with these statements. Our fiscal year-end financial reporting periods are a 52- or 53-week fiscal year that ends on the Saturday closest to December 31. Fiscal 2021 had 52 weeks.
Please see the “Cautionary Statement” and “Risk Factors” above for discussions of the uncertainties, risks and assumptions associated with these statements. Our fiscal year-end financial reporting periods are a 52- or 53-week fiscal year that ends on the Saturday closest to December 31. Fiscal 2022 and 2021 had 52 weeks.
We plan to continue introducing products that increase the content we provide for existing applications, thereby enabling us to serve markets we do not currently address and expand our total available market opportunity. During fiscal 2021, 2020 and 2019, we had no customer that represented more than 10% of our revenues.
We plan to continue introducing products that increase the content we provide for existing applications, thereby enabling us to serve markets we do not currently address and expand our total available market opportunity. During fiscal 2022, 2021 and 2020, we had no customer that represented more than 10% of our revenues.
Our revenues are subject to variation from period to period due to the volume of shipments made within a period, the mix of products we sell and the prices we charge for our products. 30 Table of Contents Cost of Revenues.
Our revenues are subject to variation from period to period due to the volume of shipments made within a period, the mix of products we sell and the prices we charge for our products. 31 Table of Contents Cost of Revenues.
Incorrect estimates could result in future impairment charges, and those charges could be material to our results of operations. 37 Table of Contents Revenue recognition – We recognize revenue when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
Incorrect estimates could result in future impairment charges, and those charges could be material to our results of operations. Revenue recognition – We recognize revenue when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
Judgment is inherent in this process and differences between the estimated and actual taxable income could result in a material impact on our Consolidated Financial Statements. We recognize liabilities for uncertain tax positions based on a two-step process.
Judgment is inherent in this process, and differences between the estimated and actual taxable income could result in a material impact on our Consolidated Financial Statements. 37 Table of Contents We recognize liabilities for uncertain tax positions based on a two-step process.
We may enter into acquisitions or strategic arrangements in the future which also could require us to seek additional equity or debt financing. Contractual Obligations Our purchase obligations primarily include contractual arrangements in the form of purchase orders with suppliers. As of January 1, 2022, such purchase obligations were $190.2 million.
We may enter into acquisitions or strategic arrangements in the future which also could require us to seek additional equity or debt financing. Contractual Obligations Our purchase obligations primarily include contractual arrangements in the form of purchase orders and purchase commitments with suppliers. As of December 31, 2022, such purchase obligations were $134.2 million.
The remaining balance was held by our foreign subsidiaries. Our cash equivalents and short-term investments consisted of government debt securities, which include agency bonds, agency discount notes, municipal bonds and U.S. government securities; corporate debt securities, which include asset-backed securities, corporate bonds, certificates of deposit and commercial paper; and money market funds. Our long-term investments consisted of auction-rate securities.
The remaining balance was held by our foreign subsidiaries. Our cash equivalents and short-term investments consisted of government debt securities, which include agency bonds, municipal bonds, variable rate demand notes and U.S. government securities; corporate debt securities, which include asset-backed securities, corporate bonds, commercial paper and Yankee bonds; and money market funds.
We believe our existing cash, cash equivalents, investments, credit under our Credit Facility, and cash generated from operations are sufficient to meet our short-term and long-term capital requirements, although we could be required, or could elect, to seek additional funding prior to that time.
We believe our existing cash, cash equivalents, investments, credit under our credit facility, and cash generated from operations are sufficient to meet our short-term (i.e., over at least the next twelve months) and long-term capital requirements, although we could be required, or could elect, to seek additional funding prior to that time.
Gross margin increased in fiscal 2021 primarily due to variations in product mix. We may experience variations in the average selling prices of certain of our products. Increases in average selling prices may occur during periods of increased demand, but such demand may be short-lived and could be accompanied by higher product costs.
We may experience variations in the average selling prices of certain of our products. Increases in average selling prices may occur during periods of increased demand, but such demand may be short-lived and could be accompanied by higher product costs.
Operating Activities Net cash provided by operating activities was $91.2 million during fiscal 2021, compared to net cash used of $8.8 million during fiscal 2020.
Operating Activities Net cash provided by operating activities was $141.3 million during fiscal 2022, compared to net cash provided of $91.2 million during fiscal 2021.
The decrease in research and development expense as a percent of revenues in fiscal 2021 was due to our increased revenues. We expect that research and development expense will increase in absolute dollars in the first quarter of 2022 compared to the fourth quarter of 2021.
The decrease in selling, general and administrative expense as a percent of revenues in fiscal 2022 was due to our increased revenues. We expect that selling, general and administrative expense will remain relatively stable in absolute dollars in the first quarter of 2023 compared to the fourth quarter of 2022.
Debt As of January 1, 2022, our debt included $535 million principal amount of convertible senior notes (the “2025 Notes”). We also had an undrawn $400 million revolving credit facility.
Debt As of December 31, 2022, our debt included $535 million principal amount of convertible senior notes (the “2025 Notes”). On January 2, 2022, we irrevocably elected cash settlement for the principal amount of the 2025 Notes. We also had an undrawn $400 million revolving credit facility.
Operating cash flows during fiscal 2020 reflect our net income of $12.5 million, adjustments of $(2.8) million for income from discontinued operations, depreciation, amortization, stock-based compensation, equity-method earnings and deferred income taxes, and a net cash outflow of $18.5 million due to changes in our operating assets and liabilities.
Operating cash flows during fiscal 2022 reflect our net income of $91.4 million, adjustments of $97.5 million for depreciation, amortization, stock-based compensation, equity-method earnings and deferred income taxes, and a net cash outflow of $47.6 million due to changes in our operating assets and liabilities.
The decrease in selling, general and administrative expense as a percent of revenues in fiscal 2021 was due to our increased revenues.
The decrease in research and development expense as a percent of revenues in fiscal 2022 was due to our increased revenues.
See Note 11, Debt , to the Consolidated Financial Statements for additional information. 36 Table of Contents Capital Requirements Our future capital requirements will depend on many factors, including the rate of sales growth, market acceptance of our products, the timing and extent of research and development projects, potential acquisitions of companies or technologies and the expansion of our sales and marketing activities.
Capital Requirements Our future capital requirements will depend on many factors, including the rate of sales growth, market acceptance of our products, the timing and extent of research and development projects, potential acquisitions of companies or technologies and the expansion of our sales and marketing activities.
Gross Profit ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year ​ ​ ​ (in millions) 2021 2020 Change Gross profit ​ $ 425.4 ​ $ 294.8 ​ $ 130.6 ​ Gross margin ​ 59.0 % 57.7 % 1.3 % ​ Gross profit increased in fiscal 2021 due primarily to increased product sales.
Gross Profit ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year ​ ​ ​ (in millions) 2022 2021 Change Gross profit ​ $ 642.6 ​ $ 425.4 ​ $ 217.2 ​ Gross margin ​ 62.7 % 59.0 % 3.7 % ​ Gross profit increased in fiscal 2022 due primarily to increased product sales.
Interest expense on our convertible senior notes includes contractual interest, amortization of the debt discount and amortization of debt issuance costs. Equity-method Earnings. Equity-method earnings represents income or loss on our equity-method investment. Provision (Benefit) for Income Taxes.
Interest expense on our convertible senior notes includes contractual interest, amortization of debt issuance costs, and for periods prior to fiscal 2022, amortization of the debt discount. Provision (Benefit) for Income Taxes.
Our inventory levels will vary based on the availability of supply, and to a lesser extent, the impact of variations between forecasted demand used for purchasing inventory and actual demand. Our DOI was 55 days at January 1, 2022 and 70 days at January 2, 2021.
Inventory increased to $100.4 million at December 31, 2022 from $49.3 million at January 1, 2022. Our inventory levels will vary based on the availability of supply, and to a lesser extent, the impact of variations between forecasted demand used for purchasing inventory and actual demand.
Provision (benefit) for income taxes includes both domestic and foreign income taxes at the applicable tax rates adjusted for non-deductible expenses, research and development tax credits and other permanent differences.
Provision (benefit) for income taxes includes both domestic and foreign income taxes at the applicable tax rates adjusted for non-deductible expenses, research and development tax credits and other permanent differences. Equity-method Earnings. Equity-method earnings represents income or loss on our equity-method investment. Income from discontinued operations, net of income taxes.
Business Outlook The following represents our business outlook for the first quarter of fiscal 2022. ​ ​ ​ ​ Income Statement Item Estimate ​ ​ ​ Revenues ​ $220 million to $230 million ​ ​ ​ Gross margin ​ 63% ​ ​ ​ Operating expenses ​ $128 million ​ ​ ​ Effective tax rate ​ 37% ​ ​ ​ Diluted earnings per share ​ $0.15 to $0.25 ​ Liquidity and Capital Resources Our principal sources of liquidity as of January 1, 2022 consisted of $2.0 billion in cash, cash equivalents and short-term investments, of which approximately $730.7 million was held by our U.S. entities.
Income from discontinued operations in fiscal 2021 was $2.2 billion, including a gain on sale of $2.1 billion, net of tax. 34 Table of Contents Business Outlook The following represents our business outlook for the first quarter of fiscal 2023. ​ ​ ​ ​ Income Statement Item Estimate ​ ​ ​ Revenues ​ $242 million to $252 million ​ ​ ​ Gross margin ​ 63% ​ ​ ​ Operating expenses ​ $139 million ​ ​ ​ Effective tax rate ​ 31% ​ ​ ​ Diluted earnings per share ​ $0.36 to $0.46 ​ Liquidity and Capital Resources Our principal sources of liquidity as of December 31, 2022 consisted of $1.2 billion in cash, cash equivalents and short-term investments, of which $0.9 billion was held by our U.S. entities.
Such information is incorporated by reference herein. ​ 38 Table of Contents
Such information is incorporated by reference herein. ​
Equity-method Earnings Equity-method earnings in fiscal 2021 were $13.7 million compared to $2.1 million in fiscal 2020. The increase in equity-method earnings in fiscal 2021 was due to an increase in the unrealized gain on an equity-method investment.
Equity-method Earnings Equity-method earnings in fiscal 2022 were $3.4 million compared to $13.7 million in fiscal 2021. The decrease in equity-method earnings in fiscal 2022 was due to a decrease in the unrealized gains on an equity-method investment.
However, rapid changes in our markets and across our product areas make it difficult for us to accurately estimate the impact of seasonal factors on our business. 29 Table of Contents Discontinued Operations On April 22, 2021, we entered into an Asset Purchase Agreement pursuant to which Skyworks Solutions, Inc. agreed to acquire certain assets, rights, and properties, and assume certain liabilities, comprising our infrastructure and automotive business for $2.75 billion in cash.
However, rapid changes in our markets and across our product areas make it difficult for us to accurately estimate the impact of seasonal factors on our business. 30 Table of Contents Discontinued Operations On July 26, 2021, we sold our infrastructure and automotive business to Skyworks Solutions, Inc. for $2.75 billion in cash.
The sale was completed pursuant to the terms of the Agreement on July 26, 2021. The results of operations of the sold component have been presented in the accompanying consolidated financial statements as discontinued operations and, therefore, are excluded from the following discussion of the results of our continuing operations.
The prior year comparable period results of operations of the sold component have been presented in the accompanying Consolidated Financial Statements as discontinued operations and, therefore, are excluded from the following discussion of the results of our continuing operations.
Unit shipment volumes of our products increased by 37.1% while average selling prices increased by 2.7% compared to fiscal 2020. The average selling prices of our products may fluctuate significantly from period to period due to changes in product mix, pricing decisions and other factors.
Unit volumes of our products increased while average selling prices increased substantially compared to fiscal 2021. The average selling prices of our products may fluctuate significantly from period to period due to changes in product mix, pricing decisions and other factors. In general, as our products become more mature, we expect to experience decreases in average selling prices.
Impairment of goodwill and other long-lived assets – We review long-lived assets which are held and used, including fixed assets and purchased intangible assets, for impairment whenever changes in circumstances indicate that the carrying amount of the assets may not be recoverable.
In the event that actual demand is lower or market conditions are worse than originally projected, additional inventory write-downs may be required. 36 Table of Contents Impairment of goodwill and other long-lived assets – We review long-lived assets which are held and used, including fixed assets and purchased intangible assets, for impairment whenever changes in circumstances indicate that the carrying amount of the assets may not be recoverable.
Research and Development ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year ​ ​ ​ ​ ​ (in millions) 2021 2020 Change % Change Research and development ​ $ 273.2 ​ $ 235.2 ​ $ 38.0 16.2 % Percent of revenue ​ 37.9 % 46.0 % ​ ​ The increase in research and development expense in fiscal 2021 was primarily due to increases of $23.9 million for personnel-related expenses, $8.8 million for new product introduction costs, $2.1 million for occupancy costs and $1.0 million for the amortization of intangible assets.
Research and Development ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year ​ ​ ​ ​ ​ (in millions) 2022 2021 Change % Change Research and development ​ $ 332.3 ​ $ 273.2 ​ $ 59.1 21.6 % Percent of revenue ​ 32.5 % 37.9 % ​ ​ ​ ​ The increase in research and development expense in fiscal 2022 was primarily due to increases of $48.6 million for personnel-related expenses, $2.6 million for new product introduction costs and $2.3 million for depreciation expense.
During fiscal 2021, we paid $140.6 million in cash and issued 528,022 shares of common stock in connection with the redemption of the remaining principal of our 2022 convertible senior notes. Through acquisitions and internal development efforts, we have continued to diversify our portfolio and introduce new products and solutions with added functionality and integration.
In fiscal 2022, we acquired 6.9 million shares of our common stock for $887.6 million. Through acquisitions and internal development efforts, we have continued to diversify our product portfolio and introduce new products and solutions with added functionality and integration.
We rely on third parties in Asia to assemble, package, and, in most cases, test these devices and ship these units to our customers. Testing performed by such third parties facilitates faster delivery of products to our customers (particularly those located in Asia), shorter production cycle times, lower inventory requirements, lower costs and increased flexibility of test capacity.
Testing performed by such third parties facilitates faster delivery of products to our customers (particularly those located in Asia), shorter production cycle times, lower inventory requirements, lower costs and increased flexibility of test capacity. The sales cycle for our ICs can be as long as 12 months or more.
Fiscal 2020 had 53 weeks with the extra week occurring in the first quarter of the year. Fiscal 2019 had 52 weeks. Fiscal 2021, 2020 and 2019 ended on January 1, 2022, January 2, 2021 and December 28, 2019, respectively.
Fiscal 2020 had 53 weeks with the extra week occurring in the first quarter of the year. Fiscal 2022, 2021 and 2020 ended on December 31, 2022, January 1, 2022 and January 2, 2021, respectively. Impact of COVID-19 The COVID-19 pandemic has impacted the global economy, disrupting our operations, global supply chains and the operations of our customers.
Although we actually sell the products to, and are paid by, the distributors and contract manufacturers, we refer to such end customer as our customer.
Although we actually sell the products to, and are paid by, the distributors and contract manufacturers, we refer to such end customer as our customer. Two of our distributors who sell to our customers, Arrow Electronics and Edom Technology, represented 33% and 17% during fiscal 2022, respectively.
Accounts receivable increased to $98.3 million at January 1, 2022 from $95.2 million at January 2, 2021. The increase in accounts receivable resulted primarily from normal variations in the timing of collections and billings.
Accounts receivable decreased to $71.4 million at December 31, 2022 from $98.3 million at January 1, 2022. The decrease in accounts receivable resulted primarily from normal variations in the timing of collections and billings. Our DSO was 25 days at December 31, 2022 and 42 days at January 1, 2022.
The increase in cash inflows was principally due to $2.75 billion in proceeds from the sale of our infrastructure and automotive business, offset by a payment of $252.8 million for incomes taxes on the gain on sale. Net cash provided by discontinued operations was $141.9 million during fiscal 2020, compared to net cash provided of $140.4 million during fiscal 2019.
The decrease in cash inflows was principally due to $2.75 billion in proceeds from the sale of our infrastructure and automotive business in fiscal 2021, offset by a decrease of $183.3 million for incomes tax payments on the gain on sale.
As a fabless semiconductor company, we rely on third-party semiconductor fabricators in Asia, and to a lesser extent the United States and Europe, to manufacture the silicon wafers that reflect our IC designs. Each wafer contains numerous die, which are cut from the wafer to create a chip for an IC.
We group our products as Industrial & Commercial or Home & Life based on the target markets they address. As a fabless semiconductor company, we rely on third-party semiconductor fabricators in Asia, and to a lesser extent the United States and Europe, to manufacture the silicon wafers that reflect our IC designs.
Due to this lengthy sales cycle, we typically experience a significant delay between incurring research and development and selling, general and administrative expenses, and the corresponding sales.
An additional three to six months or more are usually required before a customer ships a significant volume of devices that incorporate our ICs. Due to this lengthy sales cycle, we typically experience a significant delay between incurring research and development and selling, general and administrative expenses, and the corresponding sales.
Three of our distributors who sell to our customers, Arrow Electronics, Edom Technology and Sekorm, each represented 28%, 18% and 12% of our revenues during fiscal 2021, 28%, 19% and 14% of our revenues during fiscal 2020, and 26%, 18% and 10% of our revenues during fiscal 2019, respectively.
Three of our distributors, Arrow Electronics, Edom Technology and Sekorm, represented 28%, 18% and 12% of our revenues during fiscal 2021, and 28%, 19% and 14% of our revenues during fiscal 2020, respectively. The percentage of our revenues derived from outside of the United States was 83% in fiscal 2022, 86% in fiscal 2021 and 88% in fiscal 2020.
Net cash provided by operating activities was $91.2 million during fiscal 2021. Accounts receivable were $98.3 million at January 1, 2022, representing 42 days sales outstanding (DSO). Inventory was $49.3 million at January 1, 2022, representing 55 days of inventory (DOI).
We ended fiscal 2022 with $1.2 billion in cash, cash equivalents and short-term investments. Net cash provided by operating activities was $141.3 million during fiscal 2022. Accounts receivable were $71.4 million at December 31, 2022, representing 25 days sales outstanding (DSO). Inventory was $100.4 million at December 31, 2022, representing 90 days of inventory (DOI).
The percentage of our revenues derived from outside of the United States was 86% in fiscal 2021, 88% in fiscal 2020 and 87% in fiscal 2019. All of our revenues to date have been denominated in U.S. dollars. We believe that a majority of our revenues will continue to be derived from customers outside of the United States.
All of our revenues to date have been denominated in U.S. dollars. We believe that a majority of our revenues will continue to be derived from customers outside of the United States. Results of Operations The following describes the line items set forth in our Consolidated Statements of Income: Revenues. Revenues are generated predominately by sales of our products.
Operating expenses increased $56.3 million in fiscal 2021 compared to fiscal 2020 due primarily to increased personnel-related expenses, new product introduction costs, occupancy costs and amortization of intangible assets. Operating loss in fiscal 2021 was $32.8 million compared to $107.1 million in fiscal 2020. We ended fiscal 2021 with $2.0 billion in cash, cash equivalents and short-term investments.
Operating expenses increased $65.1 million in fiscal 2022 compared to fiscal 2021 due primarily to increased personnel-related expenses, outside services, new product introduction costs, depreciation expense, and sales commissions offset in part by a decrease in the amortization of intangible assets. Operating income (loss) in fiscal 2022 was $119.3 million compared to $(32.8) million in fiscal 2021.
Income from discontinued operations, net of income taxes ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year ​ (in millions) 2021 2020 Change Income from discontinued operations, net of income taxes ​ $ 2,175.3 ​ $ 128.0 ​ $ 2,047.3 ​ The increase in income from discontinued operations, net of income taxes in fiscal 2021 was primarily due to a gain on sale of $2.1 billion, net of tax, in fiscal 2021.
Income from discontinued operations, net of income taxes ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year ​ (in millions) 2022 2021 Change Income from discontinued operations, net of income taxes ​ $ — ​ $ 2,175.3 ​ $ (2,175.3) ​ There was no income from prior year discontinued operations in fiscal 2022.
Current Period Highlights of Continuing Operations Revenues increased $209.9 million in fiscal 2021 compared to fiscal 2020 due to increased demand for our products. Gross profit increased $130.6 million during the same period due primarily to increased product sales. Gross margin increased to 59.0% in fiscal 2021 compared to 57.7% in fiscal 2020 primarily due to variations in product mix.
Gross margin increased to 62.7% in fiscal 2022 compared to 59.0% in fiscal 2021 primarily due to increases in the price of our products and variations in product mix.
For a description of other contractual obligations, see Note 11, Debt , and Note, 12, Leases , to the Consolidated Financial Statements Critical Accounting Policies and Estimates The preparation of financial statements and accompanying notes in conformity with U.S. generally accepted accounting principles requires that we make estimates and assumptions that affect the amounts reported.
For a description of other contractual obligations, see Note 11, Debt , and Note 12, Leases , to the Consolidated Financial Statements.
The increase in cash outflows was principally due to an increase of $1.1 billion for repurchases of our common stock in fiscal 2021 and $845.0 million in proceeds from the issuance of debt in fiscal 2020, offset by a decrease of $484.2 million in payments on debt in fiscal 2021.
The decrease in cash outflows was principally due to a decrease of $266.6 million for repurchases of our common stock and a decrease of $140.6 million in payments on debt in fiscal 2022. 35 Table of Contents Discontinued Operations Net cash used in discontinued operations was $69.5 million during fiscal 2022 related to income tax payments, compared to net cash provided of $2.6 billion during fiscal 2021.
Provision (Benefit) for Income Taxes ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year ​ ​ ​ (in millions) 2021 2020 Change Provision (benefit) for income taxes ​ $ 13.4 ​ $ (14.6) ​ $ 28.0 Effective tax rate ​ (23.1) % 11.0 % ​ The provision for income taxes for fiscal 2021 compared to the benefit from income taxes in fiscal 2020 was primarily due to the reallocation of income tax benefit from continuing operations to discontinued operations under Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2019-12, Simplifying the Accounting for Income Taxes, and an increase in the beginning of year valuation allowance on deferred tax assets for state attribute carryforwards.
Provision (Benefit) for Income Taxes ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year ​ ​ ​ (in millions) 2022 2021 Change Provision (benefit) for income taxes ​ $ 38.5 ​ $ 13.4 ​ $ 25.1 Effective tax rate ​ 29.6 % ​ (30.2) % ​ ​ The increase in the effective tax rate for fiscal 2022 was primarily due to the recognition of certain tax benefits for fiscal 2021 in discontinued operations under the FASB ASU 2019-12, Simplifying the Accounting for Income Taxes, and the required adoption of new U.S. tax rules regarding the capitalization of research and experimental costs in fiscal 2022.
Financing Activities Net cash used in financing activities was $1.3 billion during fiscal 2021, compared to cash provided of $200.9 million during fiscal 2020.
The increase in cash inflows was principally due to a decrease in cash outflows of $714.0 million from net purchases, sales and maturities of marketable securities in 2022. Financing Activities Net cash used in financing activities was $887.1 million during fiscal 2022, compared to cash used of $1.3 billion during fiscal 2021.
Selling, General and Administrative ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year ​ ​ ​ ​ ​ (in millions) 2021 2020 Change % Change Selling, general and administrative ​ $ 185.0 ​ $ 166.7 ​ $ 18.3 11.0 % Percent of revenue ​ 25.7 % 32.7 % ​ ​ The increase in selling, general and administrative expense in fiscal 2021 was primarily due to an increase of $18.9 million for personnel-related expenses.
We expect that research and development expense will increase in absolute dollars in the first quarter of 2023 compared to the fourth quarter of 2022. 33 Table of Contents Selling, General and Administrative ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year ​ ​ ​ ​ ​ (in millions) 2022 2021 Change % Change Selling, general and administrative ​ $ 191.0 ​ $ 185.0 ​ $ 6.0 3.2 % Percent of revenue ​ 18.6 % 25.7 % ​ ​ ​ ​ The increase in selling, general and administrative expense in fiscal 2022 was primarily due to increases of $5.1 million for personnel-related expenses, $4.0 million for outside services, and $1.3 million for sales commissions offset in part by a decrease of $7.1 million for the amortization of intangible assets.
Interest Income and Other, Net ​ Interest income and other, net in fiscal 2020 was $9.0 million compared to $12.9 million in fiscal 2019. The decrease in interest income and other, net in fiscal 2020 was primarily due to lower interest rates on the underlying instruments.
Interest Income and Other, Net Interest income and other, net in fiscal 2022 was $13.9 million compared to $5.7 million in fiscal 2021. The increase in interest income and other, net in fiscal 2022 was primarily due to increased interest income earned as a result of higher market interest rates.
Interest Expense ​ Interest expense in fiscal 2020 was $34.1 million compared to $20.2 million in fiscal 2019.
Interest Expense Interest expense in fiscal 2022 was $6.7 million compared to $31.0 million in fiscal 2021.
The third parties that perform our semiconductor manufacturing, assembly, packaging and testing have generally remained operational.
We implemented a response plan and continued operations while largely transitioning our global workforce to a remote work model. We have reopened offices in all of our locations, subject to local regulations. The third parties that perform our semiconductor manufacturing, assembly, packaging and testing have generally remained operational.
The increase in interest expense in fiscal 2020 was primarily due to a net increase of $8.0 million in interest resulting from an increase in the aggregate balance of notes outstanding and a loss of $4.1 million recorded on the early extinguishment of a portion of the 2022 Notes.
The decrease in interest expense in fiscal 2022 was primarily due to a decrease of $20.9 million in amortization of debt discount in fiscal 2022 and a loss of $3.4 million recorded on the early extinguishment of our remaining 2022 convertible senior notes in fiscal 2021. See Note 11, Debt , to the Consolidated Financial Statements for additional information.
Gross margin decreased in fiscal 2020 primarily due to variations in product mix.
The increase in gross profit in fiscal 2022 was due to increases in gross profit for both of our product groups. Gross margin increased primarily due to increases in the price of our products and variations in product mix.
Removed
Impact of COVID-19 A new strain of novel coronavirus which causes a severe respiratory disease (“COVID-19”) was identified in 2019, and subsequently declared a worldwide pandemic by the World Health Organization. We implemented a response plan and continued operations while largely transitioning our global workforce to a remote work model.
Added
Each wafer contains numerous die, which are cut from the wafer to create a chip for an IC. We rely on third parties in Asia to assemble, package, and, in most cases, test these devices and ship these units to our customers.
Removed
The sales cycle for our ICs can be as long as 12 months or more. An additional three to six months or more are usually required before a customer ships a significant volume of devices that incorporate our ICs.
Added
Current Period Highlights of Continuing Operations Revenues increased $303.2 million in fiscal 2022 compared to fiscal 2021 due to increased revenues from both our Industrial & Commercial products and Home & Life products.
Removed
In fiscal 2021, we repurchased 6.5 million shares of our common stock for an aggregate cost of $1.15 billion, including 4.0 million shares through a tender offer, 1.7 million shares through an ASR agreement and 0.8 million shares through our existing share repurchase program.
Added
In fiscal 2022, we introduced a portfolio of Matter development solutions providing support for Matter over Wi-Fi, Matter over Thread, Bluetooth Low Energy (LE) commissioning, and Matter bridges to Zigbee and Z-Wave; an end-to-end development platform with complete connectivity support for Amazon Sidewalk; a new flagship SoC and power amplifier for Wi-SUN®, the FG25 SoC and EFF01 Front End Module designed to provide a sub-gigahertz transmission range of up to 3 kilometers in dense urban environments with no data loss; our first Wi-Fi 6 and Bluetooth LE SoC family ideal for battery-powered or energy-efficient IoT devices with always-on cloud connectivity; a Bluetooth Location Services solution using accurate, low-power Bluetooth devices to simplify Angle of Arrival (AoA) and Angle of Departure (AoD) location services; and a family of 2.4 GHz wireless SoCs for Bluetooth and multi-protocol operations with a built-in AI and Machine Learning (ML) accelerator, improving performance for AI and ML applications on battery-powered edge devices.
Removed
In fiscal 2021, we introduced a 3D virtual smart home platform that takes users through innovative smart home solutions, various applicable protocols, and ecosystem connections; Z-Wave 800 system-on-chips (SoCs) and modules for the Z-Wave smart home and automation ecosystem; Custom Part Manufacturing Service (CPMS) to support IoT companies with the implementation of ‘Zero Trust’ security architectures to meet emerging cybersecurity standards; the Unify Software Development Kit (SDK), which provides the common building blocks for connectivity across IoT ecosystems; new sub-1-GHz SoCs delivering wireless solutions that combine long-range RF and energy efficiency with certified ARM PSA Level 3 security; a fully integrated, certified Wi-SUN® solution simplifying Low Power Wide Area Network (LPWAN) deployment for smart cities; wireless solutions for development of Matter end products that support Thread, Wi-Fi, and Bluetooth protocols; and a new 32-bit MCU on our award-winning xG22 platform for IoT edge applications.
Added
Income from discontinued operations, net of income taxes includes the results of operations of our former infrastructure and automotive business.
Removed
Results of Operations The following describes the line items set forth in our Consolidated Statements of Income: Revenues. Revenues are generated predominately by sales of our products.
Added
Increased product demand and production capacity constraints have increased the selling price and costs of our products, and has resulted in period-to-period fluctuations in our gross margin. We expect the prices we pay for inventory to continue to increase in future periods and that this will reduce our gross margins.
Removed
In general, as our products become more mature, we expect to experience decreases in average selling prices.
Added
Increased product demand and higher product costs have increased the value of the inventory we hold. Our DOI was 90 days at December 31, 2022 and 55 days at January 1, 2022. Investing Activities Net cash provided by investing activities was $240.5 million during fiscal 2022, compared to net cash used of $476.7 million during fiscal 2021.
Removed
We expect that selling, general and administrative expense will decrease in absolute dollars in the first quarter of 2022 compared to the fourth quarter of 2021. 32 Table of Contents Interest Income and Other, Net Interest income and other, net in fiscal 2021 was $5.7 million compared to $9.0 million in fiscal 2020.
Added
Comparison of Fiscal 2021 to Fiscal 2020 ​ A discussion of changes in our results of operations and liquidity and capital resources from fiscal 2020 to fiscal 2021 has been omitted from this Form 10-K, but may be found in “Item 7.
Removed
The decrease in interest income and other, net in fiscal 2021 was primarily due to lower interest rates on the underlying instruments. Interest Expense Interest expense in fiscal 2021 was $31.0 million compared to $34.1 million in fiscal 2020.
Added
Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K filed with the Securities and Exchange Commission on February 2, 2022. Critical Accounting Estimates The preparation of financial statements and accompanying notes in conformity with U.S. generally accepted accounting principles requires that we make estimates and assumptions that affect the amounts reported.
Removed
The decrease in interest expense in fiscal 2021 was primarily due to a net decrease of $2.7 million in interest resulting from the reduction in the aggregate balance of convertible notes outstanding and a decrease in borrowings from our existing credit facility.
Removed
Additionally, tax expense on the gain from the divestiture of the infrastructure and automotive business to Skyworks Solutions of $346.9 million was recorded in discontinued operations for the period, net of tax benefits associated with discontinued operations before the gain on sale of $7.2 million for fiscal 2021.
Removed
See Note 3, Discontinued Operations , to the Consolidated Financial Statements for additional information.
Removed
Comparison of Fiscal 2020 to Fiscal 2019 ​ Revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year ​ (in millions) 2020 2019 Change % Change Revenues ​ $ 510.9 ​ $ 473.8 ​ $ 37.1 7.8 % ​ The change in revenues in fiscal 2020 was due to increased demand for our IoT products.
Removed
Unit shipment volumes of our products increased by 17.0% while average selling prices decreased by 7.4% compared to fiscal 2019. 33 Table of Contents Gross Profit ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year ​ (in millions) 2020 2019 Change Gross profit ​ $ 294.8 ​ $ 280.2 ​ $ 14.6 ​ Gross margin ​ 57.7 % 59.1 % (1.4) % ​ Gross profit increased in fiscal 2020 due primarily to increased product sales.
Removed
Research and Development ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year ​ (in millions) 2020 2019 Change % Change Research and development ​ $ 235.2 ​ $ 205.7 ​ $ 29.5 14.3 % Percent of revenue ​ 46.0 % 43.4 % ​ ​ ​ ​ The increase in research and development expense in fiscal 2020 was primarily due to increases of $18.0 million for personnel-related expenses, including costs associated with increased headcount and an acquisition, $5.2 million for new product introduction costs, $3.5 million for the amortization of intangible assets and $1.1 million for occupancy costs.
Removed
Selling, General and Administrative ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year ​ (in millions) 2020 2019 Change % Change Selling, general and administrative ​ $ 166.7 ​ $ 163.2 ​ $ 3.5 2.2 % Percent of revenue ​ 32.7 % 34.4 % ​ ​ ​ ​ The increase in selling, general and administrative expense in fiscal 2020 was primarily due to an increase of $3.3 million for personnel-related expenses, including costs associated with increased headcount.
Removed
Provision (Benefit) for Income Taxes ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year ​ (in millions) 2020 2019 Change Provision (benefit) for income taxes ​ $ (14.6) ​ $ 7.0 ​ $ (21.6) Effective tax rate ​ 11.0 % (7.3) % — ​ The decrease in the provision for income taxes for fiscal 2020 as compared to fiscal 2019 was primarily due to the impact in fiscal 2019 of a change in our position related to the treatment of stock-based compensation within our intercompany cost-sharing arrangement offset by the increased impact of fiscal 2020 permanent tax differences.
Removed
The incremental, discrete income tax expense recognized in fiscal 2019 for the cost-sharing change was $18.4 million. 34 Table of Contents Equity-method Earnings Equity-method earnings in fiscal 2020 were $2.1 million compared to $0.3 million in fiscal 2019. The increase in equity-method earnings in fiscal 2020 was due to an increase in the unrealized gain on an equity-method investment.
Removed
Income from discontinued operations, net of income taxes ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year ​ (in millions) 2020 2019 Change Income from discontinued operations, net of income taxes ​ $ 128.0 ​ $ 121.9 ​ $ 6.1 ​ The increase in income from discontinued operations, net of income taxes in fiscal 2020 was primarily due to a decrease in the provision for income taxes in fiscal 2020.
Removed
Operating cash flows during fiscal 2021 reflect our net income of $2.1 billion, adjustments of $(2.0) billion for income from discontinued operations, depreciation, amortization, stock-based compensation, equity-method earnings and deferred income taxes, and a net cash inflow of $20.7 million due to changes in our operating assets and liabilities.
Removed
Net cash used in operating activities was $8.8 million during fiscal 2020, compared to net cash provided of $22.1 million during fiscal 2019.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

6 edited+1 added−3 removed0 unchanged
Biggest changeAccordingly, gains and losses resulting from remeasuring transactions denominated in currencies other than U.S. dollars are recorded in the Consolidated Statements of Income. We use foreign currency forward contracts to manage exposure to foreign exchange risk. Gains and losses on foreign currency forward contracts are recognized in earnings in the same period during which the hedged transaction is recognized.
Biggest changeOur foreign subsidiaries are considered to be extensions of the U.S. parent. The functional currency of the foreign subsidiaries is the U.S. dollar. Accordingly, gains and losses resulting from remeasuring transactions denominated in currencies other than U.S. dollars are recorded in the Consolidated Statements of Income. We use foreign currency forward contracts to manage exposure to foreign exchange risk.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk Interest Income Our investment portfolio includes cash, cash equivalents, short-term investments and long-term investments. Our main investment objectives are the preservation of investment capital and the maximization of after-tax returns on our investment portfolio. Our interest income is sensitive to changes in the general level of U.S. interest rates.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk Interest Income Our investment portfolio includes cash, cash equivalents and short-term investments. Our main investment objectives are the preservation of investment capital and the maximization of after-tax returns on our investment portfolio. Our interest income is sensitive to changes in the general level of U.S. interest rates.
Our investment portfolio holdings as January 1, 2022 and January 2, 2021 yielded less than 100 basis points. A decline in yield to zero basis points on our investment portfolio holdings as of January 1, 2022 and January 2, 2021 would decrease our future annual interest income by approximately $3.6 million and $5.2 million, respectively.
A 100 basis point decline in yield on our investment portfolio holdings as of December 31, 2022 would decrease our future annual interest income by approximately $11.0 million. Our investment portfolio holdings as January 1, 2022 yielded less than 100 basis points.
Foreign currency exchange rate risk We are exposed to foreign currency exchange rate risk primarily through assets, liabilities and operating expenses of our subsidiaries denominated in currencies other than the U.S. dollar. Our foreign subsidiaries are considered to be extensions of the U.S. parent. The functional currency of the foreign subsidiaries is the U.S. dollar.
If we borrow from the credit facility in the future, we will again be exposed to interest rate fluctuations. Foreign currency exchange rate risk We are exposed to foreign currency exchange rate risk primarily through assets, liabilities and operating expenses of our subsidiaries denominated in currencies other than the U.S. dollar.
The interest rate on the credit facility consists of a variable rate of interest and an applicable margin. While we have drawn from the credit facility in the past, we have no borrowings as of January 1, 2022. If we borrow from the credit facility in the future, we will again be exposed to interest rate fluctuations.
Interest Expense We are exposed to interest rate fluctuations in the normal course of our business, including through our credit facility. The interest rate on the credit facility consists of a variable-rate of interest and an applicable margin. While we have drawn from the credit facility in the past, we have no borrowings as of December 31, 2022.
We believe that our investment policy, which defines the duration, concentration, and minimum credit quality of the allowable investments, meets our investment objectives. Interest Expense We are exposed to interest rate fluctuations in the normal course of our business, including through our credit facility.
A decline in yield to zero basis points on our investment portfolio holdings as of January 1, 2022 would decrease our future annual interest income by approximately $3.6 million. We believe that our investment policy, which defines the duration, concentration, and minimum credit quality of the allowable investments, meets our investment objectives.
Removed
Investments in Auction-rate Securities As of January 1, 2022, we held $6.0 million par value auction-rate securities, all of which have experienced failed auctions because sell orders exceeded buy orders. We are unable to predict if these funds will become available before their maturity dates.
Added
Gains and losses on foreign currency forward contracts are recognized in earnings in the same period during which the hedged transaction is recognized. ​
Removed
Additionally, if we determine that a credit-related decline in the fair value of any of our available-for-sale auction-rate securities has occurred, we may be required to adjust the carrying value of the investments through an impairment charge. ​ Item 8.
Removed
Financial Statements and Supplementary Data The Financial Statements and supplementary data required by this item are included in Part IV, Item 15 of this Form 10-K and are presented beginning on page F-1. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. ​ 39 Table of Contents

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