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

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

+523 added−366 removedSource: 10-K (2023-03-30) vs 10-K (2022-03-16)

Top changes in SEMTECH CORP's 2023 10-K

523 paragraphs added · 366 removed · 274 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

65 edited+39 added−21 removed32 unchanged
Biggest changeOur net sales by major end market as a percentage of total net sales are detailed below: Fiscal Years (percentage of net sales) 2022 2021 2020 Infrastructure 35 % 42 % 38 % High-End Consumer 30 % 27 % 29 % Industrial 35 % 31 % 33 % Total 100 % 100 % 100 % We believe that our diversity in end markets provides stability to our business and opportunity for growth. 6 The following table depicts our main product lines and their end market and product applications: Typical End Product Applications Product Groups Infrastructure High-End Consumer Industrial Signal Integrity Optical module ICs supporting up to 400Gb/s for Ethernet, Fibre Channel protocols in data center and access applications, and 4G/5G/LTE wireless applications Serial Digital Interconnect interface ICs for Broadcast Video, Video over IP technology for Pro AV applications Wireless and Sensing Smartphones, media players, tablets, wearables, hearing aids and high end audio IoT, Industrial Asset Monitoring, Tracking & Logistics, Smart Metering, Smart Home, Smart Building / City, Smart Agriculture, Power Management and Aviation & Aerospace Protection Servers, workstations, desktop PC/notebooks, ultrabooks, optical modules, printers, copiers, 4G/5G/LTE base stations, 1/10 Gb/s Ethernet Smartphones, tablets, wearables, cameras, TVs, set top boxes Industrial automation, measurement & instrumentation, automotive, IoT Seasonality Seasonality has not historically had a material impact on our business segments or results of operations.
Biggest changeOur net sales by major end market as a percentage of total net sales are detailed below: Fiscal Years (percentage of net sales) 2023 2022 2021 Infrastructure 38 % 35 % 42 % High-End Consumer 21 % 30 % 27 % Industrial 41 % 35 % 31 % Total 100 % 100 % 100 % We believe that our diversity in end markets provides stability to our business and opportunity for growth. 9 The following table depicts our main product lines and their end market and product applications: Typical End Product Applications Product Groups Infrastructure High-End Consumer Industrial Signal Integrity Optical module ICs supporting up to 400Gb/s for Ethernet, Fibre Channel protocols in data center and access applications, and 4G/5G/LTE wireless applications Serial Digital Interconnect interface ICs for Broadcast Video, Video over IP technology for Pro AV applications Advanced Protection and Sensing Servers, workstations, desktop PC/notebooks, ultrabooks, optical modules, printers, copiers, 4G/5G/LTE base stations, 1/10 Gb/s Ethernet Smartphones, media players, tablets, wearables, cameras, TVs, set top boxes, and high end audio Industrial automation, measurement & instrumentation, automotive, IoT, and hearing aids IoT System IoT, Industrial Asset Monitoring, Tracking & Logistics, Smart Metering, Smart Home, Smart Building / City, Smart Agriculture, and Power Management IoT Connected Services IoT, Industrial Asset Monitoring and Control, Tracking & Logistics, Smart Metering, Smart Home, Smart Building / City, Smart Agriculture, and Healthcare Seasonality Our net sales are subject to some seasonal variation.
The key trends that we believe are significant for our future growth include: • Increasing bandwidth over high-speed networks, fueling growth in high speed multimedia transmission, as well as better connectivity; • Demand for smaller, lighter, more highly integrated and feature-rich mobile devices; and • Increasing demands for cloud and internet connectivity to low power sensors, enabling a more connected, intelligent and sustainable planet.
The key trends that we believe are significant for our future growth include: • Increasing bandwidth over high-speed networks, fueling growth in high speed multimedia transmission, as well as better connectivity; • Demand for smaller, lighter, more highly integrated and feature-rich connected devices; and • Increasing demands for Internet and cloud connectivity to low power sensors, enabling a more connected, intelligent and sustainable planet.
Design wins are indications by the customer that they intend to 4 incorporate our products into their end product designs. Although we believe that a design win is an indicator of future potential growth, it does not inevitably result in us being awarded business or receiving a purchase commitment.
Design wins are indications by the customer that they intend to incorporate our products into their end product designs. Although we believe that a design win is an indicator of future potential growth, it does not inevitably result in us being awarded business or receiving a purchase commitment.
We continue our focus on improving our hiring, development, advancement and retention of diverse talent and our overall diversity representation. We continuously promote inclusion through our stated core values and principles. We provide training to all employees to 11 improve their understanding of behaviors that can be perceived as discriminatory, exclusionary, and/or harassing.
We continue our focus on improving our hiring, development, advancement and retention of diverse talent and our overall diversity representation. We continuously promote inclusion through our stated core values and principles. We provide training to all employees to improve their understanding of behaviors that can be perceived as discriminatory, exclusionary, and/or harassing.
Our compensation program is designed to attract, reward and retain those highly-talented individuals who possess the critical skills necessary to support our business objectives, contribute to the achievement of our annual strategic goals and create long-term value for our stockholders.
Our compensation program is designed to attract, reward and retain those highly-talented individuals who possess the critical skills necessary to support our business objectives, contribute to the achievement of 14 our annual strategic goals and create long-term value for our stockholders.
In order to capitalize on our strengths in analog and mixed-signal processing design, development and marketing, we intend to pursue the following strategies: Leverage our rare analog and mixed-signal design expertise We invest heavily in the human resources needed to define, design and market high-performance analog and mixed-signal platform products.
In order to capitalize on our strengths in design, development and marketing, we intend to pursue the following strategies: Leverage our rare analog and mixed-signal design expertise We invest heavily in the human resources needed to define, design and market high-performance analog and mixed-signal platform products.
Additionally, as communications functions are increasingly integrated into a range of systems and devices, these products require analog sensing, processing and control capabilities, which increases the number and size of our targeted end markets. Leverage outsourced semiconductor fabrication capacity We outsource most of our manufacturing in order to focus more of our resources on designing, developing and marketing our products.
Additionally, as communications functions are increasingly integrated into a range of systems and devices, these products require analog sensing, processing and control capabilities, which increases the number and size of our targeted end markets. Leverage outsourced manufacturing capacity We outsource most of our manufacturing in order to focus more of our resources on designing, developing and marketing our products.
Additionally, there has been a trend toward consolidation in our industry as companies attempt to strengthen or hold their market positions in an evolving industry. Such consolidations may make it more difficult for us to compete effectively, including on the basis of price, sales and marketing programs, channel coverage, technology or product functionality.
Additionally, there has been a trend toward consolidation in the semiconductor industry as companies attempt to strengthen or hold their market positions in an evolving industry. Such consolidations may make it more difficult for us to compete effectively, including on the basis of price, sales and marketing programs, channel coverage, technology or product functionality.
We believe we compete effectively based upon our ability to capitalize on efficiencies and economies of scale in production and sales, and our ability to maintain or improve our productivity and product yields to reduce manufacturing costs. Our industry is also characterized by rapid technological change, and design and other technological obsolescence.
We believe we compete effectively based upon our ability to capitalize on efficiencies and economies of scale in production and sales, and our ability to maintain or improve our productivity and product yields to reduce manufacturing costs. The semiconductor industry is also characterized by rapid technological change, and design and other technological obsolescence.
A majority of our offshore assembly and test activity is conducted by third-party subcontractors based in China, Taiwan and Malaysia. We have operations offices located in the Philippines, Malaysia and China that support and coordinate some of the worldwide shipment of products.
A majority of our offshore assembly and test activity is conducted by third-party subcontractors based in Vietnam, China, Taiwan and Mexico. We have operations offices located in the Philippines, Malaysia, Vietnam and China that support and coordinate some of the worldwide shipment of products.
Overview of the Semiconductor Industry The semiconductor industry is broadly divided into analog and digital semiconductor products. Analog semiconductors condition and regulate "real world" functions such as temperature, speed, sound and electrical current. Digital semiconductors process binary information, such as that used by computers.
Overview of the Semiconductor and IoT Industries The semiconductor industry is broadly divided into analog and digital semiconductor products. Analog semiconductors condition and regulate "real world" functions such as temperature, speed, sound and electrical current. Digital semiconductors process binary information, such as that used by computers.
Our industry is characterized by decreasing average unit selling prices over the life of a product as the volumes typically increase. However, price decreases can sometimes be quite rapid and faster than the rate of increase of the associated product volumes.
Semiconductor Industry The semiconductor industry is characterized by decreasing average unit selling prices over the life of a product as the volumes typically increase. However, price decreases can sometimes be quite rapid and faster than the rate of increase of the associated product volumes.
We believe that a compensation program that rewards employees both for short-term and long-term performance aligns employees' and our stockholders' interests. Health and Wellbeing We provide access to a variety of flexible and convenient health and welfare programs, including benefits that support their physical and mental health through tools and resources to help them maintain and improve their health status.
We believe that a compensation program that rewards employees both for short-term and long-term performance aligns employees' and our stockholders' interests. Health and Well-being We provide access to a variety of flexible and convenient health and welfare programs, including benefits that support their physical and mental health through tools and resources to help them maintain and improve their health status.
A significant amount of our third-party subcontractors and suppliers, including third-party foundries that supply silicon wafers, are located in the United States ("U.S."), Taiwan and China.
A significant amount of our third-party subcontractors and suppliers, including third-party foundries that supply silicon wafers, are located in the United States ("U.S."), Taiwan, China, Vietnam and Malaysia .
Our products address these market trends by providing solutions that are ultra-low power thereby extending battery life, small form factor enabling smaller more mobile devices, highly integrated enabling more functionality within devices, and high-performance enabling product differentiation within our customer base.
Our products address these market trends by providing solutions that are ultra-low power thereby extending battery life, small form factor enabling smaller more autonomous and connected devices, highly integrated enabling more functionality within devices, and high-performance enabling product differentiation within our customer base.
Registration generally provides rights in addition to basic trademark protections and is typically renewable upon proof of continued use. We have registered, or are in the process of registering, our SEMTECH trademark in many jurisdictions. In one location use of this trademark is prohibited, but we are permitted to use our Semtech International trade name.
Registration generally provides rights in addition to basic trademark protections and is typically renewable upon proof of continued use. We have registered, or are in the process of registering, our SEMTECH and other trademarks in many jurisdictions. In one location the SEMTECH 13 trademark is prohibited, but we are permitted to use our Semtech International trade name.
Our ability to compete effectively and to expand our business will depend on our ability to continue to recruit and retain key engineering talent, our ability to execute on new product developments, and our ability to persuade customers to design these new products into their applications.
Our ability to compete effectively and to expand our business will depend on our ability to continue to recruit and retain key engineering talent, our ability to execute on new product developments, and, in certain cases, our ability to persuade customers to design these new products into their applications.
The prices of certain other basic materials, such as metals, gases and chemicals used in the production of ICs, can exhibit price volatility depending on the changes in demand for these basic commodities.
The prices of certain other basic materials, such as metals, gases and chemicals used in the production of our products, can exhibit price volatility depending on the changes in demand for these basic commodities.
Our reports filed with, or furnished to, the SEC are also available directly at the SEC’s website at www.sec.gov. 12
Our reports filed with, or furnished to, the SEC are also available directly at the SEC’s website at www.sec.gov. 15
No other foreign country comprised more than 5% of our sales in fiscal year 2022.
No other foreign country comprised more than 5% of our sales in fiscal year 2023.
Manufacturing Capabilities Our strategy is to outsource most of our manufacturing functions to third-party foundries and assembly and test contractors. The third-party foundries fabricate silicon wafers, while the assembly and test contractors package and test our products.
Manufacturing Capabilities Our strategy is to outsource most of our manufacturing functions to third-party foundries, assembly, test contractors and electronics manufacturing services ("EMS") partners. The third-party foundries fabricate silicon wafers, while the assembly and test contractors package and test our products.
Circuit design engineers, layout engineers, product and test engineers, application engineers, and field application engineers are our most valuable employees. Together they perform the critical tasks of design and layout of ICs, turning these circuits into silicon devices, and conferring with customers about designing these devices into their applications. The majority of our engineers fit into one of these categories.
Circuit design engineers, layout engineers, product and test engineers, application engineers, and field application engineers are our most valuable employees. Together they perform the critical tasks of design and layout of ICs and other products, turning these circuits into silicon devices, and conferring with customers about designing these devices into their applications.
Sonova International Sumitomo Electric Sony Corp ZTE Corporation Our customers include major OEMs and their subcontractors in the infrastructure, high-end consumer and industrial end markets. Our products are typically purchased by these customers for their performance, price and/or technical support, as compared to our competitors.
Sharp Corporation Nokia Corporation Sonova International Samsung Electronics Co., Ltd. Sony Corp Sumitomo Electric Symmetry Electronics ZTE Corporation Our customers include major OEMs and their subcontractors in the infrastructure, high-end consumer and industrial end markets. Our products are typically purchased by these customers for their performance, price and/or technical support, as compared to our competitors.
The information on our website is not incorporated by reference into this Annual Report on Form 10-K and should not be considered part of this or any other report filed with the SEC.
The information on our website is for informational purposes only and should not be relied on for investment purposes. The information on our website is not incorporated by reference into this Annual Report on Form 10-K and should not be considered part of this or any other report filed with the SEC.
Sales and Marketing Net sales made directly to custome rs during fiscal years 2022, 2021 and 2020, were approximately 13%, 18% and 28% of total net sales, respectively. The remaining 87%, 82% and 72% of net sales, respectively, were made through independent distributors.
Sales and Marketing Net sales made directly to custome rs during fiscal years 2023, 2022 and 2021, were approximately 15%, 13% and 18% of total net sales, respectively. The remaining 85%, 87% and 82% of net sales, respectively, were made through independent distributors.
Concentration of Accounts Receivable - Significant Customers The following table shows customers that had an outstanding receivable balance that represented at least 10% of our total net receivables as of one or more of the dates indicated: (percentage of net receivables) January 30, 2022 January 31, 2021 Frontek Technology Corporation (and affiliates) 17 % 10 % CEAC International Ltd.
(and affiliates) 11 % 11 % 11 % Arrow Electronics (and affiliates) 8 % 10 % 9 % Concentration of Accounts Receivable - Significant Customers The following table shows customers that had an outstanding receivable balance that represented at least 10% of our total net receivables as of one or more of the dates indicated: (percentage of net receivables) January 29, 2023 January 30, 2022 Frontek Technology Corporation (and affiliates) 8 % 17 % CEAC International Ltd.
Most of these engineers have many years of experience in the design, development, and layout of circuits targeted for use in protection, advanced communications and power management, multimedia and data communications, and wireless and sensing applications.
The majority of our engineers fit into one of these categories. Most of these engineers have many years of experience in the design, development, and layout of circuits targeted for use in protection, advanced communications and power management, multimedia and data communications, and wireless and sensing applications.
Concentration of Net Sales - Significant Customers The following table sets forth the concentration of sales among the customers that accounted for more than 10% of our net sales in at least one of the fiscal years 2022, 2021 and 2020: Fiscal Years (percentage of net sales) 2022 2021 2020 Frontek Technology Corporation (and affiliates) 18 % 16 % 11 % Trend-tek Technology Ltd.
Concentration of Net Sales - Significant Customers The following table sets forth the concentration of sales among the customers that accounted for more than 10% of our net sales in at least one of the fiscal years 2023, 2022 and 2021: Fiscal Years (percentage of net sales) 2023 2022 2021 Trend-tek Technology Ltd.
Intellectual Property and Licenses We have been granted 199 U.S. patents and 239 foreign patents and have numerous patent applications pending with respect to our products and to technologies associated with our business. The expiration dates of issued patents range from 2022 to 2040.
Intellectual Property and Licenses We have been granted 306 U.S. patents and 440 foreign patents and have numerous patent applications pending with respect to our products and to technologies associated with our business. The expiration dates of issued patents range from 2023 to 2041.
We believe our offerings provide flexible choices to meet the diverse needs of our employees and their families globally. Each year, we review our benefits programs to ensure they are appropriately resourced and deliver value.
We believe our offerings provide flexible choices to meet the diverse needs of our employees and their families globally. Each year, we review our benefits programs to ensure they are appropriately resourced and deliver value. We also offer a financial well-being program for our employees.
Semtech (International) AG also maintains branch offices, either directly or through one of its wholly-owned subsidiaries, in multiple countries or territories including China, Taiwan and South Korea. Semtech Canada Corporation serves the Canadian market for most of the products from our Signal Integrity Products Group from its headquarters in Burlington, Ontario.
Semtech (International) AG and other certain foreign subsidiaries also maintain branch offices, either directly or through one of their wholly-owned subsidiaries, in multiple countries or territories. Semtech Canada Corporation serves the Canadian market for most of the products from our Signal Integrity Products Group from its headquarters in Burlington, Ontario.
Diversity and Inclusion We are committed in our efforts to increase diversity and foster an inclusive work environment that supports our global workforce and helps us provide innovative solutions for our customers. In fiscal year 2022, we launched the Semtech Women's Leadership Council that elevates and empowers our female employees through collaboration, education, inspiration and peer support.
Diversity and Inclusion We are committed in our efforts to increase diversity and foster an inclusive work environment that supports our global workforce and helps us provide innovative solutions for our customers. Our Semtech Women's Leadership Council provides a forum to elevate and empower our female employees through collaboration, education, inspiration and peer support.
In fiscal years 2022, 2021 and 2020, sales in the U.S. represented 10%, 10% and 9% of our sales, r espectively, while foreign sales represented 90%, 90% and 91% of our sales, respectively . Sales to customers located in China (including Hong Kong) and South Korea comprised 60% and 6% of our sales, respectively, in fiscal year 2022.
In fiscal years 2023, 2022 and 2021, sales in the U.S. represented 13%, 10% and 10% of our sales, r espectively, while foreign sales represented 87%, 90% and 90% of our sales, respectively . Sales to customers located in China (including Hong Kong) and South Korea comprised 53% and 5% of our sales, respectively, in fiscal year 2023.
Our protection products can be found in a broad range of applications including smart phones, LCD and organic light-emitting diode TVs and displays, set-top boxes, monitors and displays, tablets, computers, notebooks, base stations, routers, automobile and industrial systems.
Our protection products can be found in a broad range of applications including smart phones, LCD and organic light-emitting diode TVs and displays, set-top boxes, monitors and displays, tablets, computers, notebooks, base stations, routers, automobile and industrial systems. Our unique sensing technology enables proximity sensing and advanced user interface solutions for our mobile and consumer products. IoT System.
(and affiliates) 10 % 14 % Trend-tek Technology Ltd. (and affiliates) 7 % 14 % 8 Backlog Our backlog of orders as of the end of fiscal years 2022, 2021 and 2020 was approximately $250.1 million, $161.4 million and $93.0 million, respectivel y. The majority of our backlog is typically requested for delivery within six months.
(and affiliates) 2 % 10 % 11 Backlog Our backlog of orders as of the end of fiscal years 2023, 2022 and 2021 was approximately $182.3 million, $250.1 million and $161.4 million, respectivel y. The majority of our backlog is typically requested for delivery within six months.
In addition, Semtech offers a comprehensive annual and new hire compliance training that focuses on diversity, anti-harassment and code of conduct, among others. Compensation Our pay-for-performance philosophy incentivizes individual and team performance that directly contributes to the achievement of company objectives. We provide compensation packages that include a competitive base salary, annual incentive bonuses, and long-term equity awards, as appropriate.
Compensation Our pay-for-performance philosophy incentivizes individual and team performance that directly contributes to the achievement of company objectives. We provide compensation packages that include a competitive base salary, annual incentive bonuses, and long-term equity awards, as appropriate.
Our portfolio of protection solutions include filter and termination devices that are integrated with the TVS device. Our products provide robust protection while preserving signal integrity in high-speed communications, networking and video interfaces. These products also operate at very low voltage.
Our products provide robust protection while preserving signal integrity in high-speed communications, networking and video interfaces. These products also operate at very low voltage.
Representative Customers by End Markets: Infrastructure High-End Consumer Industrial Alibaba Group Holding, Ltd. LG Electronics Inc. Helium Alphabet Inc. Quanta Computer Honeywell Inc. Cisco Systems, Inc. Samsung Electronics Co., Ltd. Itron, Inc. Ericsson Sharp Corporation Panasonic Corp Hewlett-Packard Vivo Technology Co., Ltd. Raytheon Company Lumentum Holdings Inc. Rockwell Automation Nokia Corporation Sharp Corporation Samsung Electronics Co., Ltd.
Arrow Electronics Inc. Alibaba Group Holding, Ltd. LG Electronics Inc. Digi-Key Electronics Alphabet Inc. Quanta Computer Future Electronics Inc. Dipper Optics Technology, Ltd. Samsung Electronics Co., Ltd. Helium Cisco Systems, Inc. Sharp Corporation Honeywell Inc. Ericsson Vivo Technology Co., Ltd. Itron, Inc. Hewlett-Packard Panasonic Corp HGGenuine Optics Tech Co.,Ltd Raytheon Company Hisense Co., Ltd. Rockwell Automation Lumentum Holdings Inc.
Almost all of our other products are packaged and tested by outside subcontractors. In keeping with our mostly "fabless" business model, we have no wafer fabrication facilities except for our operation in Reynosa, Mexico.
A majority of our very small form factor protection devices are packaged at our facilities in Colorado Springs, Colorado. Almost all of our other products are packaged and tested by outside subcontractors. In keeping with our mostly "fabless" business model, we have no wafer fabrication facilities.
Certain of our customers and suppliers also have divisions that produce products competitive with ours, and other customers may seek to vertically integrate competitive solutions in the future.
Certain of our customers and suppliers also have divisions that produce products competitive with ours, and other customers may seek to vertically integrate competitive solutions in the future. IoT Industry The IoT industry, including the market for IoT devices and solutions, is growing and we expect that it will continue to attract significant competition.
We design, develop, manufacture and market a portfolio of specialized radio frequency products used in a wide variety of industrial, medical and communications applications, and specialized sensing products used in industrial and consumer applications.
We design, develop, manufacture and market a portfolio of optical data communications and video transport products used in a wide variety of infrastructure and industrial applications.
We believe that outsourcing our manufacturing provides us numerous benefits, including capital efficiency, the flexibility to adopt and leverage emerging process technologies without significant investment risk, and a more variable cost of goods, all of which provide us with greater operating flexibility. Products and Technology We design, develop, manufacture and market high-performance analog and mixed-signal semiconductors and advanced algorithms.
We believe that outsourcing our manufacturing provides us numerous benefits, including capital efficiency, the flexibility to adopt and leverage emerging process technologies without significant investment risk, and a more variable cost of goods, all of which provide us with greater operating flexibility. 7 Build new IoT solutions that combine Cellular and LoRa® technology Our strategy is to bring the best of LoRa® and cellular connectivity together.
Our video products offer advanced solutions for next generation high-definition broadcast applications, as well as highly differentiated video-over-IP technology for professional audio video ("Pro AV") applications. Wireless and Sensing.
Our video products offer advanced solutions for next generation high-definition broadcast applications, as well as highly differentiated video-over-IP technology for professional audio video ("Pro AV") applications. Advanced Protection and Sensing. We design, develop, manufacture and market high-performance protection devices, which are often referred to as transient voltage suppressors ("TVS") and specialized sensing products.
Our wireless products, which include our LoRa® devices and wireless radio frequency technology ("LoRa Technology"), feature industry leading and longest range industrial, scientific and medical radio, enabling a lower total cost of ownership and increased reliability in all environments. These features make these products particularly suitable for machine-to-machine and IoT applications.
We design, develop, manufacture and market a portfolio of specialized radio frequency products used in a wide variety of industrial, medical and communications applications. Our wireless products, which include our LoRa® devices and wireless radio frequency technology ("LoRa Technology"), feature industry leading and longest range industrial, scientific and medical radio, enabling a lower total cost of ownership and increased reliability.
Independent representatives and distributors are also used to serve customers throughout the world. Some of our distributors and sales representatives also offer products from our competitors, as is customary in the industry. 7 Customers, Sales Data and Backlog As a result of the breadth of our products and markets, we have a broad and balanced range of customers.
Some of our distributors and sales representatives also offer products from our competitors, as is customary in the industry. 10 Customers, Sales Data and Backlog As a result of the breadth of our products and markets, we have a broad and balanced range of customers. Representative Customers by End Markets: Infrastructure High-End Consumer Industrial Accelink Technologies Corporation Future Electronics Inc.
We design, develop, manufacture and market high-performance protection devices, which are often referred to as transient voltage suppressors ("TVS"). TVS devices provide protection for electronic systems where voltage spikes (called transients), such as electrostatic discharge, electrical over stress or secondary lightning surge energy, can permanently damage sensitive ICs.
TVS devices provide protection for electronic systems where voltage spikes (called transients), such as electrostatic discharge, electrical over stress or secondary lightning surge energy, can permanently damage sensitive ICs. Our portfolio of protection solutions include filter and termination devices that are integrated with the TVS device.
We believe that the diversity of our applications allows us to take advantage of areas of relative market strength and reduces our vulnerability to competitive pressure in any one area. Business Strategy Our objective is to be a leading supplier of high-performance analog and mixed-signal semiconductors and advanced algorithms to the fastest growing segments of our target markets.
We believe that the diversity of our applications allows us to take advantage of areas of relative market strength and reduces our vulnerability to competitive pressure in any one area.
Risk Factors - Risks Relating to Production Operations - We rely on a limited number of suppliers and subcontractors, many of which are foreign-based entities, for many essential components and materials and certain critical manufacturing services and any interruption or loss of supplies or services from these entities could significantly interrupt our business operations and the production of our products.” Our arrangements with both third-party wafer foundries and package and test subcontractors are designed to provide some assurance of capacity but are not expected to assure access to all the manufacturing capacity we may need in the future. 9 Competition The analog and mixed-signal semiconductor and advanced algorithms industries are highly competitive, and we expect competitive pressures to continue.
Risk Factors - Risks Relating to Production Operations and Services - We rely on a limited number of suppliers and subcontractors, many of which are foreign-based entities, for many essential components and materials and certain critical manufacturing services and any interruption or loss of supplies or services from these entities could significantly interrupt our business operations and the production of our products.” and "Item 1A.
The remaining employees support operational activities, including product and test engineering, assembly, manufacturing, distribution and quality functions. Our focus on innovation gives us a unique appreciation to the importance of recruitment, retention and the professional development of our employees.
There were 1,064 employees in research and development, 314 employees in operations, and 870 employees in selling, general and administrative, including functions that support operational activities. Our focus on innovation gives us a unique appreciation to the importance of recruitment, retention and the professional development of our employees.
As new employees continue to join Semtech, we expect their contributions to bring fresh ideas to help drive innovation and continuous improvement. Our recruiting efforts leverage both internal and external resources to recruit and attract highly skilled and talented workers across the globe, and we encourage our employees to provide referrals for open positions.
Our recruiting efforts leverage both internal and external resources to recruit and attract highly skilled and talented workers across the globe, and we encourage our employees to provide referrals for open positions. We enhanced our performance management framework, strengthening our goal setting and calibration processes.
Despite our use of third-party wafer foundries for sourcing a majority of our silicon needs, we do maintain internal process development capabilities. Our process engineers work closely with our third-party foundries on the improvement and development of process capabilities. In fiscal year 2022, we used various manufacturing processes, including Bipolar, CMOS, RF-CMOS and Silicon Germanium ("SiGe") BiCMOS processes.
Our end products were supported with finished silicon wafers purchased from third-party wafer foundries primarily located in the U.S., Taiwan and China . Despite our use of third-party wafer foundries for sourcing our silicon needs, we do maintain internal process development capabilities. Our process engineers work closely with our third-party foundries on the improvement and development of process capabilities.
We also employ a number of software engineers and systems engineers that specialize in the development of software and systems architecture, who enable us to develop systems oriented products in select markets. 10 We occasionally enter into agreements with customers that allow us to recover certain costs associated with product design and engineering services.
We also employ a number of software engineers and systems engineers that specialize in the development of software and systems architecture, who enable us to develop systems oriented products in select markets. Our IoT business also employs specialized engineering teams skilled in the areas of radio design, hardware design, embedded software design cloud-based application development and cellular network design.
We enhanced our performance management framework, strengthening our goal setting and calibration processes. This framework ensures that feedback provided in these performance discussions supports leadership growth and long-term development. Our development programs include a library suite of professional third party trainings spanning more than 16,000 courses.
This framework ensures that feedback provided in these performance discussions supports leadership growth and long-term development. Our development programs include an extensive library suite of professional third party trainings and courses. In addition, Semtech offers a comprehensive annual and new hire compliance training that focuses on diversity, anti-harassment and code of conduct, among others.
Human Capital As of January 30, 2022, our year-over-year headcount increased from 1,394 to 1,439 full-time employees worldwide, of whom 1,043 employees were based outside of the U.S. There were 577 employees in research and development, 291 employees in sales, marketing and field services, and 190 employees in general and administrative functions.
Human Capital As of January 29, 2023, our year-over-year headcount increased from 1,439 to 2,248 full-time employees worldwide, of whom 1,685 employees were based outside of the U.S. The increase in headcount was primarily related to the acquisition of Sierra Wireless in January 2023.
We also design, develop, and market power product devices that control, alter, regulate, and condition the power within electronic systems focused on the LoRa and IoT infrastructure segment. The highest volume product types within this category are switching voltage regulators, combination switching and linear regulators, smart regulators, isolated switches, and wireless charging. 5 Protection.
These features make these products particularly suitable for machine-to-machine and IoT applications. We also design, develop, and market power product devices that control, alter, regulate, and condition the power within electronic systems focused on the LoRa® and IoT infrastructure segment.
We are monitoring the impact of the COVID-19 pandemic on our suppliers and third-party subcontractors and cannot determine the extent of the impact it may continue to have on our operations. See “Item 1A.
We are monitoring general economic conditions, including recessions or inflationary pressures, bank failures and uncertainty in the banking system, geopolitical turmoil and supply chain disruptions, on our suppliers and third-party subcontractors and cannot determine the extent of the impact they may have on our operations. See “Item 1A.
Industrial: Internet of Things ("IoT") applications, analog and digital video broadcast equipment, video-over-IP solutions, automated meter reading, smart grid, wireless charging, military and aerospace, medical, security systems, automotive, industrial and home automation and other industrial equipment. Our end customers are primarily original equipment manufacturers ("OEMs") that produce and sell electronics.
High-End Consumer: smartphones, tablets, wearables, desktops, notebooks, and other handheld products, wireless charging, set-top boxes, digital televisions, monitors and displays, digital video recorders and other consumer equipment. Industrial: IoT applications, analog and digital video broadcast equipment, video-over-IP solutions, automated meter reading, smart grid, wireless charging, medical, security systems, automotive, industrial and home automation and other industrial equipment.
Talent Our talent strategy involves our efforts to achieve an optimal balance of internal development, supplemented by external hires. This approach contributes to and enhances our employee loyalty and commitment. As of the end of fiscal year 2022, our average employee tenure is 8.6 years, reflecting the strong engagement of our employees.
We continue to benchmark and enhance our total compensation and benefits packages across the 16 countries in which our offices are located. Talent Our talent strategy involves our efforts to achieve an optimal balance of internal development, supplemented by external hires. This approach contributes to and enhances our employee loyalty and commitment.
The decline in direct sales is due to customers electing to leverage the value of distribution to better manage their supply chain. We have direct sales personnel located throughout the U.S., Europe, and Asia who manage the sales activities of independent sales representative firms and independent distributors. We expense our advertising costs as they are incurred.
We have direct sales personnel located throughout North America, Europe, and Asia-Pacific who manage the sales activities of independent sales representative firms and independent distributors. We expense our advertising costs as they are incurred. We operate internationally through our foreign subsidiaries. Semtech (International) AG and certain other foreign subsidiaries serve the European and Asian markets.
Infrastructure: data centers, passive optical networks ("PON"), base stations, optical networks, servers, carrier networks, switches and routers, cable modems, wireless local area network ("LAN") and other communication infrastructure equipment. High-End Consumer: smartphones, tablets, wearables, desktops, notebooks, and other handheld products, wireless charging, set-top boxes, digital televisions, monitors and displays, digital video recorders and other consumer equipment.
We design, develop, manufacture and market a wide range of products for commercial applications, the majority of which are sold into the infrastructure, high-end consumer and industrial end markets. Infrastructure: data centers, passive optical networks ("PON"), base stations, optical networks, servers, carrier networks, switches and routers, cable modems, wireless local area network ("LAN") and other communication infrastructure equipment.
The health and wellbeing of our employees and their families remains our highest priority, and supporting and improving the local communities in which our employees are located is an important part of our culture. We continue to benchmark and enhance our total compensation and benefits packages across the 19 countries in which we are located.
Our talent acquisition processes focus on the increasingly complex talent market and building our pipeline for an even more diverse and inclusive workforce. The health and well-being of our employees and their families remains our highest priority, and supporting and improving the local communities in which our employees are located is an important part of our culture.
These activities accommodate situations in which tight coupling with product design is desirable or where there are unique requirements. A majority of our very small form factor protection devices are packaged at our facilities in Colorado Springs, Colorado. Our packaged discrete rectifier products are packaged and tested in-house in Reynosa, Mexico.
We perform a limited amount of internal probe and final test activities at our facilities in Camarillo, Irvine and San Diego in California, and Neuchâtel in Switzerland. These activities accommodate situations in which tight coupling with product design is desirable or where there are unique requirements.
We believe this outsourcing permits us to take advantage of the best available technology, leverage the capital investment of others and reduce our operating costs associated with manufacturing assets. We perform a limited amount of internal probe and final test activities at our facilities in Camarillo, Irvine and San Diego in California, Neuchâtel in Switzerland, and Reynosa in Mexico.
The EMS partners manufacture our IoT System products from surface-mount technology ("SMT") assembly to product assembly, which includes product testing and configuration. We believe this outsourcing permits us to take advantage of the best available technology, leverage the capital investment of others and reduce our operating costs associated with manufacturing assets.
We offer our employees the opportunity to give back to their local communities, contribute to charities and participate in corporate-sponsored initiatives. Government Regulations We are required to comply, and it is our policy to comply, with numerous government regulations that are normal and customary to businesses in our industry and that operate in our markets and operating locations.
We offer our employees the opportunity to give back to their local communities, contribute to charities and participate in corporate-sponsored initiatives. Government Regulations As a global company, we market and sell our products both inside and outside the U.S. Certain products are subject to the Export Administration Regulations, administered by the U.S.
We operate and account for results in two reportable segments—the High-Performance Analog Group and the System Protection Group. The High-Performance Analog Group is comprised of our Signal Integrity and Wireless and Sensing product lines, which represent two operating segments.
We operate and account for results in four reportable segments—Signal Integrity, Advanced Protection and Sensing, IoT System, and IoT Connected Services—that represent four separate operating segments (see Note 16, Segment Information, to our Consolidated Financial Statements). Signal Integrity.
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Item 1. Business General We are a leading global supplier of high-performance analog and mixed-signal semiconductors and advanced algorithms and were incorporated in Delaware in 1960. We design, develop, manufacture and market a wide range of products for commercial applications, the majority of which are sold into the infrastructure, high-end consumer and industrial end markets.
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Item 1. Business Completion of Acquisition On January 12, 2023, we, through one of our wholly-owned subsidiaries, completed the acquisition of all the issued and outstanding common shares of Sierra Wireless, Inc., a corporation existing under the Canada Business Corporations Act ("Sierra Wireless"), in an all-cash transaction representing a total purchase consideration of approximately $1.3 billion.
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The System Protection Group is comprised of our Protection product line, which represents a separate operating segment (see Note 15 on segment information). Signal Integrity. We design, develop, manufacture and market a portfolio of optical data communications and video transport products used in a wide variety of infrastructure and industrial applications.
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We believe that through the acquisition of Sierra Wireless we have brought together the ultra-low power benefits of LoRa® with higher bandwidth capabilities of cellular to create a new Internet of things ("IoT") Cloud-to-Chip system leader. General We are a high-performance semiconductor, IoT systems and Cloud connectivity service provider and were incorporated in Delaware in 1960.
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Our unique sensing technology enables proximity sensing and advanced user interface solutions for our mobile and consumer products. Our wireless and sensing products can be found in a broad range of applications in the industrial, medical, and consumer markets.
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Our end customers for our silicon solutions are primarily original equipment manufacturers ("OEMs") that produce and sell technology solutions. Our IoT module, router, gateways and managed connectivity solutions ship to IoT device makers and enterprises to provide IoT connectivity to end devices.
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Our net sales by product line were as follows: Fiscal Years (in thousands) 2022 2021 2020 Signal Integrity $ 291,114 $ 255,640 $ 222,846 Wireless and Sensing 246,174 177,534 167,454 Protection 203,570 161,943 157,212 Total $ 740,858 $ 595,117 $ 547,512 S emtech End Markets Our products are sold primarily to customers in the infrastructure, high-end consumer and industrial end markets.
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The IoT industry is rapidly evolving and has seen significant growth in recent years, driven by advancements in connectivity technologies, and the increasing demand for connected devices across a wide range of vertical markets within IoT.
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We operate internationally through our foreign subsidiaries. Semtech (International) AG serves the European and Asian markets from its headquarters in Rapperswil, Switzerland, and through its wholly-owned subsidiaries based in the United Kingdom ("U.K.") and Japan.
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Current key trends in IoT include: (i) the increasing adoption of edge computing, spurred by the need for real-time data processing and the desire to reduce latency and improve access to information; and (ii) the focus on security and data privacy as more devices become connected, the risk of cyber-attacks and data breaches increases, resulting in needed implementation of robust security measures across the entire IoT ecosystem.
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(and affiliates) 17 % 17 % 13 % CEAC International Ltd. (and affiliates) 11 % 11 % 8 % Arrow Electronics (and affiliates) 10 % 9 % 9 % Premier Technical Sales Korea, Inc.
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IoT interoperability and standardization are important as the number of connected devices continues to grow, and it is essential that these devices are able to communicate with each other seamlessly, regardless of the underlying technology or platform. 6 We see enormous potential in the IoT market, particularly in verticals such as metering, connected places and asset tracking.
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(and affiliates) (1) 6 % 6 % 7 % Samsung Electronics (and affiliates) 2 % 2 % 4 % (1) Premier is a distributor with a concentration of sales to Samsung Electronics (and affiliates). The above percentages represent our estimate of the sales activity related to Samsung Electronics (and affiliates) that is passing through this distributor.
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With our extensive portfolio of IoT solutions, including modules, routers, gateways and connected services, we believe we are well positioned to capitalize on the growing demand for connected devices and to help our customers navigate the complex IoT landscape.
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In fiscal year 2022, the Reynosa facility provided approximately 14% of the silicon for our packaged discrete rectifier products, which were approxim ately 2% of our end product net sales in fiscal year 2022 .

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWhile we cannot predict the ultimate impact of the COVID-19 virus on our business at this time, the pandemic and related efforts to mitigate the pandemic have impacted and could in the future impact our business in a number of ways, including but not limited to the following: decreasing demand and pricing for our products as a result of any negative economic impact of the pandemic; disrupting our manufacturing processes, as has already occurred with the temporary reductions or closures of our facilities, third-party foundries and contractors, and the delay of supplies being received; disrupting freight infrastructure, thereby delaying shipments from vendors to assembly and test sites and shipments of our final product to customers; disrupting the manufacturing process of our customers that use our components in their products, thereby impacting demand for our products; adversely impacting the business of our suppliers, which have resulted in, among other things, price increases and delays for delivery of raw materials and components needed for the production of our products; impacting our ability to maintain our workforce during this uncertain time; increasing employee absenteeism due to infection or the fear of infection; possible lawsuits or additional regulatory actions due to the spread of COVID-19 in the workplace and potential increases in costs to implement health safety measures; suffering from reputational risk if we experience a COVID-19 outbreak in our workplace; and adversely impacting the productivity of management and our employees that are working remotely.
Biggest changeRisks to our business that have been associated with the COVID-19 pandemic, and may be associated with future COVID-19 outbreaks or other public health crises, include: decrease in demand and pricing for our products as a result of any negative economic impact of disease outbreak and government actions in response thereto; disruption of our manufacturing processes due to temporary reductions or closures of our facilities, third-party foundries and contractors, and the delay of supplies being received; disruption of freight infrastructure, thereby delaying shipments from vendors to assembly and test sites and shipments of our final product to customers; disruption of the manufacturing process of our customers that use our components in their products, thereby impacting demand for our products; adverse impacts on the business of our suppliers, which may result in, among other things, price increases and delays for delivery of raw materials and components needed for the production of our products; impacts on our ability to maintain our workforce; increased employee absenteeism due to infection or the fear of infection; possible lawsuits or additional regulatory actions due to the spread of disease in the workplace and potential increases in costs to implement health safety measures; reputational risk if we experience an outbreak in our workplace; and adverse impacts on the productivity of management and our employees that are working remotely.
Such incentives include tax rebates, reduced tax rates, favorable lending policies and other measures, some or all of which may be available to our manufacturing partners and to us with respect to our facilities in China. Any of these incentives could be reduced or eliminated by governmental authorities at any time.
Such incentives may include tax rebates, reduced tax rates, favorable lending policies and other measures, some or all of which may be available to our manufacturing partners and to us with respect to our facilities in China. Any of these incentives could be reduced or eliminated by governmental authorities at any time.
These risks include the ability of the U.S. government or related contractors to unilaterally: 23 terminate contracts at its convenience; terminate, modify or reduce the value of existing contracts, if there are budgetary constraints or needed changes; cancel multi-year contracts and related orders, if funds become unavailable; adjust contract costs and fees on the basis of audits performed by U.S. government agencies; control and potentially prohibit the export of our products; require that we continue to supply products despite the expiration of a contract under certain circumstances; require that we fill certain types of rated orders for the U.S. government prior to filling any orders for other customers; and suspend us from receiving new contracts pending resolution of any alleged violations of procurement laws or regulations.
These risks include the ability of the U.S. government or related contractors to unilaterally: terminate contracts at its convenience; terminate, modify or reduce the value of existing contracts, if there are budgetary constraints or needed changes; cancel multi-year contracts and related orders, if funds become unavailable; adjust contract costs and fees on the basis of audits performed by U.S. government agencies; control and potentially prohibit the export of our products; require that we continue to supply products despite the expiration of a contract under certain circumstances; require that we fill certain types of rated orders for the U.S. government prior to filling any orders for other customers; and suspend us from receiving new contracts pending resolution of any alleged violations of procurement laws or regulations.
In addition, there are risks that the Chinese government may, among other things, require the use of local suppliers, compel companies that do business in China to partner with local companies to conduct business, or provide incentives to government-backed local customers to buy from local suppliers rather than companies like ours, all of which could adversely impact our business, operating results and financial condition.
In addition, there are risks that the Chinese government may, among other things, require the use of local suppliers, compel 24 companies that do business in China to partner with local companies to conduct business, or provide incentives to government-backed local customers to buy from local suppliers rather than companies like ours, all of which could adversely impact our business, operating results and financial condition.
In addition, some customers 15 restrict how far back the date of manufacture for our products can be, which can render our products obsolete. In addition, certain customers may stop ordering products from us and go out of business due to adverse economic conditions or otherwise, thereby causing some of our product inventory to become obsolete.
In addition, some customers restrict how far back the date of manufacture for our products can be, which can render our products obsolete. In addition, certain customers may stop ordering products from us and go out of business due to adverse economic conditions or otherwise, thereby causing some of our product inventory to become obsolete.
The loss of a major customer, a reduction in sales to any 20 major customer or our inability to attract new significant customers could seriously impact our revenue and materially and adversely affect our business, financial condition and results of operations. The volatility of customer demand limits our ability to predict future levels of sales and profitability.
The loss of a major customer, a reduction in sales to any major customer or our inability to attract new significant customers could seriously impact our revenue and materially and adversely affect our business, financial condition and results of operations. The volatility of customer demand limits our ability to predict future levels of sales and profitability.
We are also subject to the examination of our tax returns and other tax matters by the Internal Revenue Service of the U.S. ("IRS") and other tax authorities and governmental bodies. We regularly assess the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of our provision for taxes.
We are 29 also subject to the examination of our tax returns and other tax matters by the Internal Revenue Service of the U.S. ("IRS") and other tax authorities and governmental bodies. We regularly assess the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of our provision for taxes.
Sales to our customers are generally made on open account, subject to credit limits we may impose, and the receivables are subject to the risk of being uncollectible. We believe that our operating results for the foreseeable future will continue to depend on sales to a relatively small number of customers and end customers.
Sales to our customers are generally made on open account, subject to credit limits we may impose, and the receivables are subject to the risk of being uncollectible. 25 We believe that our operating results for the foreseeable future will continue to depend on sales to a relatively small number of customers and end customers.
We may need to transition to smaller geometry process technologies and achieve higher levels of design integration to remain competitive and may experience delays in this transition or fail to efficiently implement this transition. In order to remain competitive, we have transitioned and expect to continue to transition our products to increasingly smaller geometries.
We may need to transition to smaller geometry process technologies and achieve higher levels of design integration to remain competitive and may experience delays in this transition or fail to efficiently implement this transition. In order to remain competitive, we have transitioned and expect to continue to transition certain of our products to increasingly smaller geometries.
If our foundries or we experience significant delays in this transition or fail to efficiently implement this transition, we could experience reduced manufacturing yields, delays in 18 product deliveries and increased expenses, all of which could materially and adversely affect our business, financial condition and results of operations.
If our foundries or we experience significant delays in this transition or fail to efficiently implement this transition, we could experience reduced manufacturing yields, delays in product deliveries and increased expenses, all of which could materially and adversely affect our business, financial condition and results of operations.
These information systems are subject to attacks, failures, and access denials from a number of potential sources including viruses, 25 destructive or inadequate code, insider threats, power failures, and physical damage to computers, hard drives, communication lines and networking equipment.
These information systems are subject to attacks, failures, and access denials from a number of potential sources including viruses, destructive or inadequate code, insider threats, power failures, and physical damage to computers, hard drives, communication lines and networking equipment.
Our business could also be harmed if natural disasters, acts of violence, national or international crises or other calamities or emergencies interrupt the production of wafers by our suppliers, the assembly and testing of products by our subcontractors, or the operations of our distributors and direct customers.
Our business could also be harmed if natural disasters, acts of violence, national or international crises or other calamities or emergencies interrupt the production of wafers, components or products by our suppliers, the assembly and testing of products by our subcontractors, or the operations of our distributors and direct customers.
There can be no assurance that the steps we take will be adequate to protect our proprietary rights, that our patent applications will lead to issued patents, that others will not develop or patent similar or superior products or technologies, or 17 that our patents will not be challenged, invalidated, or circumvented by others.
There can be no assurance that the steps we take will be adequate to protect our proprietary rights, that our patent applications will lead to issued patents, that others will not develop or patent similar or superior products or technologies, or that our patents will not be challenged, invalidated, or circumvented by others.
Our products may be found to be defective, product liability claims may be asserted against us and we may not have sufficient liability insurance. Manufacturing semiconductors is a highly complex and precise process, requiring production in a tightly controlled, clean environment.
Our products may be found to be defective, liability claims may be asserted against us and we may not have sufficient liability insurance. Manufacturing semiconductors is a highly complex and precise process, requiring production in a tightly controlled, clean environment.
There is a risk that open source licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to commercialize our solutions, which could adversely affect our business, operating results and financial condition.
There is a risk that open source licenses could be construed in a way that 23 could impose unanticipated conditions or restrictions on our ability to commercialize our solutions, which could adversely affect our business, operating results and financial condition.
Semiconductor suppliers can rapidly increase production output in response to slight increases in demand, leading to a sudden oversupply situation and a subsequent reduction in order rates and revenues as customers adjust their inventories to account for shorter lead times.
Suppliers can rapidly increase production output in response to slight increases in demand, leading to a sudden oversupply situation and a subsequent reduction in order rates and revenues as customers adjust their inventories to account for shorter lead times.
Certain organizations that provide corporate governance and other corporate risk information to investors and shareholders have developed, and others may in the future develop, scores and ratings to evaluate companies and investment funds based upon ESG or “sustainability” metrics.
Certain organizations that provide corporate governance and other corporate risk information to investors and shareholders have developed, and others may in the future develop, scores and ratings to evaluate companies and investment funds based upon 30 ESG or “sustainability” metrics.
Our reliance on distributors also subjects us to a number of additional risks, including: write-downs in inventories associated with stock rotation rights and increases in provisions for price adjustments granted to certain distributors; potential reduction or discontinuation of sales of our products by distributors; failure to devote resources necessary to sell our products at the prices, in the volumes and within the time frames that we expect; dependence upon the continued viability and financial resources of these distributors, some of which are small organizations with limited working capital and all of which depend on general economic conditions and conditions within the semiconductor industry; dependence on the timeliness and accuracy of shipment forecasts and resale reports from our distributors; and management of relationships with distributors, which can deteriorate as a result of conflicts with efforts to sell directly to our end customers.
Our reliance on distributors also subjects us to a number of additional risks, including: write-downs in inventories associated with stock rotation rights and increases in provisions for price adjustments granted to certain distributors; potential reduction or discontinuation of sales of our products by distributors; failure to devote resources necessary to sell our products at the prices, in the volumes and within the time frames that we expect; dependence upon the continued viability and financial resources of these distributors, some of which are small organizations with limited working capital and all of which depend on general economic conditions and conditions within the semiconductor and IoT industries; dependence on the timeliness and accuracy of shipment forecasts and resale reports from our distributors; and management of relationships with distributors, which can deteriorate as a result of conflicts with efforts to sell directly to our end customers.
Our reliance on a limited number of subcontractors and suppliers for wafers, packaging, testing and certain other processes involves several risks, including potential inability to obtain an adequate supply of required components and reduced control over the price, timely delivery, reliability and quality of components.
Our reliance on a limited number of subcontractors and suppliers for wafers, chipsets and other electronic components, packaging, testing and certain other processes involves several risks, including potential inability to obtain an adequate supply of required components and reduced control over the price, timely delivery, reliability and quality of components.
Demand for our products could be different from our expectations due to many factors including: changes in business and economic conditions; conditions in the credit market that affect consumer confidence; customer acceptance of our products; changes in customer order patterns; including order cancellations; and changes in the level of inventory held by vendors.
Demand for our products could be different from our expectations due to many factors including: changes in business and macroeconomic conditions; conditions in the credit market that affect consumer confidence; customer acceptance of our products; changes in customer order patterns; including order cancellations; and changes in the level of inventory held by vendors.
For fiscal year 2022, our largest distributors were based in Asia. The termination of any of our distributor relationships could impact our net sales and limit our access to certain end-customers. It could also result in the return of excess inventory of our product held by that distributor.
For fiscal year 2023, our largest distributors were based in Asia. The termination of any of our distributor relationships could impact our net sales and limit our access to certain end-customers. It could also result in the return of excess inventory of our product held by that distributor.
Additionally, in the event that our products fail to perform as expected, our reputation may be damaged, which could make it more difficult for us to sell our products to existing and prospective customers and could adversely affect our business, operating results and financial condition.
Additionally, in the event that our products or services fail to perform as expected, our reputation may be damaged, which could make it more difficult for us to sell our products and services to existing and prospective customers and could adversely affect our business, operating results and financial condition.
Our customers require our products to undergo a lengthy and expensive qualification process without any assurance of product sales. Prior to purchasing our products, many of our customers require that our products undergo an extensive qualification process, which involves testing of the products in the customer's system as well as rigorous reliability testing.
Our customers require our products to undergo a lengthy and expensive qualification process without any assurance of product sales. Prior to purchasing our products, certain of our customers require that our products undergo an extensive qualification process, which involves testing of the products in the customer's system as well as rigorous reliability testing.
For example, the E.U. and China are two among a growing number of jurisdictions that have enacted in recent years restrictions on the use of lead, among other chemicals, in electronic products. These regulations affect semiconductor packaging.
For example, the E.U. and China are two among a growing number of jurisdictions that have enacted restrictions on the use of lead, among other chemicals, in electronic products. These regulations affect semiconductor packaging.
Our ability to increase product sales and revenue may be constrained by the manufacturing capacity of our suppliers. Although we provide our suppliers with rolling forecasts of our production requirements, their ability to provide wafers to us is limited by their available capacity.
Our ability to increase product sales and revenue may be constrained by the manufacturing capacity of our suppliers. Although we provide our suppliers with rolling forecasts of our production requirements, their ability to provide products to us is limited by their available capacity.
Huawei and other foreign customers affected by future U.S. government export control measures or sanctions or threats of export control measures or sanctions may respond by developing their own solutions to replace our products or by adopting our foreign competitors’ solutions.
Chinese and other foreign customers affected by future U.S. government export control measures or sanctions or threats of export control measures or sanctions may respond by developing their own solutions to replace our products or by adopting our foreign competitors’ solutions.
Some contracts require that we maintain inventories of certain products at levels above the anticipated needs of our customers. As a result, we must commit resources to the production of products without binding purchase commitments from customers. Our inability to sell products after we devote significant resources to them could harm our business.
Some contracts require that we maintain inventories of certain products at levels above the anticipated needs of our customers. As a result, we must commit resources to the production of products and the procurement of components without binding purchase commitments from customers. Our inability to sell products after we devote significant resources to them could harm our business.
During fiscal years 2022, 2021 and 2020, we recorded $1.3 million, $6.8 million and $1.2 million of non-cash impairment charges and credit loss reserves on certain of our investments.
During fiscal years 2023, 2022 and 2021, we recorded $1.2 million, $1.3 million and $6.8 million of non-cash impairment charges and credit loss reserves on certain of our investments.
The average selling prices of products in our markets have historically decreased rapidly and will likely do so in the future, which could harm our revenue and gross margins. As is typical in the semiconductor industry, the average selling price of a particular product has historically declined significantly over the life of the product.
The average selling prices of products in our markets have historically decreased rapidly and will likely do so in the future, which could harm our revenue and gross margins. As is typical in the semiconductor and IoT industries, the average selling price of a particular product has historically declined significantly over the life of the product.
Since a defect or failure in our product could give rise to failures in the goods that incorporate them (and consequential claims for damages against our customers from their customers), we may face claims for damages that are disproportionate to the revenues and profits we receive from the products involved.
Since a defect or failure in our products or services could give rise to failures in the goods or services that incorporate or use them (and consequential claims for damages against our customers from their customers), we may face claims for damages that are disproportionate to the revenues and profits we receive from the products or services involved.
Further, following an event of default under the Credit Facility, the lenders will have the right to proceed against the collateral granted to them to secure that debt.
Further, following an event of default under the Credit Agreement, the lenders will have the right to proceed against the collateral granted to them to secure that debt.
The termination of a distributor could negatively impact our business, including net sales and accounts receivable. In fiscal year 2022, authorized distributors accounted for approximately 87% of our net sales. We generally do not have long-term contracts with our distributors and most can terminate their agreement with us with little or no notice.
The termination of a distributor could negatively impact our business, including net sales and accounts receivable. In fiscal year 2023, authorized distributors accounted for approximately 85% of our net sales. We generally do not have long-term contracts with our distributors and most can terminate their agreement with us with little or no notice.
Item 1A. Risk Factors You should carefully consider and evaluate all of the information in this Annual Report on Form 10-K, including the risk factors listed below. If any of these risks actually occur, our business could be materially harmed. If our business is harmed, the trading price of our common stock could decline.
Item 1A. Risk Factors Please carefully consider and evaluate all of the information in this Annual Report on Form 10-K and the risk factors listed below. If any of these risks actually occur, our business could be materially harmed. If our business is harmed, the trading price of our common stock could decline.
Any such reputational harm could result in the loss of investors, suppliers or customers, which could harm our business, financial condition, operating results or prospects. We sell and trade with foreign customers, which subjects our business to increased risks. Sales to foreign customers accounted for approximately 90% of net sales for fiscal year 2022.
Any such reputational harm could result in the loss of investors, suppliers or customers, which could harm our business, financial condition, operating results or prospects. We sell and trade with foreign customers, which subjects our business to increased risks. Sales to foreign customers accounted for approximately 87% of net sales for fiscal year 2023.
We may not prevail in the competitive selection process. If a customer initially chooses a competitor's product during the selection process, it becomes significantly more difficult for us to sell our products for use in that customer's system because changing suppliers can involve significant cost, time, effort and risk for our customers.
If a customer initially chooses a competitor's product during the selection process, it becomes significantly more difficult for us to sell our products for use in that customer's system because changing suppliers can involve significant cost, time, effort and risk for our customers.
Our distributors have experienced, and may continue to experience from time to time, disruptions to their operations due to the pandemic, including temporary reductions or closures during which they have diminished ability or are unable to sell our products.
Our distributors have experienced, and may continue to experience from time to time, disruptions to their operations due to the pandemic or future public health crises, including temporary reductions or closures during which they have diminished ability or are unable to sell our products.
Our results and related ratios, such as gross margin, operating income percentage and effective tax rate may fluctuate for a variety of reasons beyond our control, including: general economic conditions in the countries where we sell our products, including recessions or inflationary pressures; geopolitical turmoil, such as the conflict between Russia and Ukraine and any sanctions, export controls or other retaliatory actions against, or restrictions on doing business with Russia, as well as any resulting disruption, instability or volatility in the global markets and industries resulting from such conflict; the availability of adequate supply commitments from our outside suppliers; the timing of new product introductions by us, our customers and our competitors; seasonality and variability in the computer market and our other end markets; product obsolescence; the scheduling, rescheduling or cancellation of orders by our customers; the cyclical nature of demand for our customers’ products; our ability to predict and meet evolving industry standards and consumer preferences; our ability to develop new process technologies and achieve volume production; changes in manufacturing yields; capacity utilization; product mix and pricing; movements in exchange rates, interest rates or tax rates; our ability to integrate and realize synergies from acquisitions; the manufacturing and delivery capabilities of our subcontractors and litigation and regulatory matters.
Our results and related ratios, such as gross margin, operating income percentage and effective tax rate may fluctuate for a variety of reasons beyond our control, including: general economic conditions in the countries where we sell our products, including recessions or inflationary pressures; financial market instability or disruptions to the banking system due to bank failures, particularly in light of the recent events that have occurred with respect to SVB; geopolitical turmoil, such as the conflict between Russia and Ukraine and any sanctions, export controls or other retaliatory actions against, or restrictions on doing business with Russia, as well as any resulting disruption, instability or volatility in the global markets and industries resulting from such conflict; the availability of adequate supply commitments from our outside suppliers; the timing of new product introductions by us, our customers and our competitors; seasonality and variability in the computer market and our other end markets; product obsolescence; the scheduling, rescheduling or cancellation of orders by our customers; the cyclical nature of demand for our customers’ products; our ability to predict and meet evolving industry standards and consumer preferences; our ability to develop new process technologies and achieve volume production; changes in manufacturing yields; capacity utilization; product mix and pricing; movements in exchange rates, interest rates or tax rates; our ability to integrate and realize synergies from acquisitions; the 17 manufacturing and delivery capabilities of our subcontractors and litigation and regulatory matters.
Our direct customers have also experienced, and may continue to or again experience, reductions or closures of their manufacturing facilities or an inability to obtain other components, either of which could negatively impact demand for our products that are incorporated into our customers' devices and solutions.
Our direct customers have also experienced, and may in the future experience, reductions or closures of their manufacturing facilities or an inability to obtain other components, either of which could negatively impact demand for our products that are incorporated into our customers' devices and solutions.
Our ability to compete in the future will depend in part on our ability to anticipate, identify and ensure compatibility or compliance with these evolving industry standards. The emergence of new industry standards could render our products incompatible with products developed by our customers and potential customers.
Many of our products are based on industry standards that are continually evolving. Our ability to compete in the future will depend in part on our ability to anticipate, identify and ensure compatibility or compliance with these evolving industry standards. The emergence of new industry standards could render our products incompatible with products developed by our customers and potential customers.
Our suppliers may also require us to pay amounts in excess of contracted or anticipated amounts for wafer deliveries or require us to make other concessions in order to acquire the wafer supply necessary to meet our customer requirements.
Our suppliers may also require us to pay amounts in excess of contracted or anticipated amounts for product deliveries or require us to make other concessions in order to acquire the supplies necessary to meet our customer requirements.
The short-term and volatile nature of customer demand makes it extremely difficult to accurately predict near term revenues and profits. Most of our authorized distributors, which collectively represent more than half of our net sales, can terminate their contract with us with little or no notice.
The short-term and volatile nature of customer demand makes it extremely difficult to accurately predict near term revenues and profits. Most of our authorized distributors, which collectively represent a significant portion of our net sales, can terminate their contract with us with little or no notice.
We maintain some business interruption insurance to help reduce the effect of business interruptions, but we are not fully insured against such risks. Also as a result of these events, insurance premiums for businesses may increase and the scope of coverage may be decreased. Consequently, we may not be able to obtain adequate insurance coverage for our business and properties.
We maintain some business interruption insurance to help reduce the effect of business interruptions, but we are not fully insured against such risks. Also as a result of these events, insurance premiums for businesses may increase and the scope of coverage may be decreased.
In fiscal year 2022, sales to customers in China comprised 60% of our net sales. The economic slowdown in China could adversely affect our sales to customers in China and consequently, our business, operating results and financial condition.
In fiscal year 2023, sales to customers in China comprised 53% of our net sales. The economic slowdown in China could adversely affect our sales to customers in China and consequently, our business, operating results and financial condition.
Any significant disruption of such freight business globally or in certain parts of the world, particularly where our operations are concentrated, whether due to COVID-19 or otherwise, could materially and adversely affect our ability to generate revenues.
Any significant disruption of such freight business globally or in certain parts of the world, particularly where our operations are concentrated could materially and adversely affect our ability to generate revenues.
We also have a significant number of employees that are paid in foreign currency, the largest groups being United Kingdom-based employees who are paid in Great British Pound, Switzerland-based employees who are paid in Swiss Francs, Canada-based employees who are paid in Canadian Dollars, China-based employees who are paid in Chinese Renminbi and Mexican nationals who are paid in Mexican Pesos.
We also have a significant number of employees that are paid in foreign currency, the largest groups being United Kingdom-based employees who are paid in Great British Pound, Switzerland-based employees who are paid in Swiss Francs, Canada-based employees who are paid in Canadian Dollars, China-based employees who are paid in Chinese Renminbi, Mexican nationals who are paid in Mexican Pesos, France-based employees who are paid in Euros, India-based employees who are paid in Indian Rupees and Taiwan-based employees who are paid in New Taiwan Dollars.
Historically, we have had significant customers that individually accounted for 10% or more of consolidated revenues in certain quarters or years or represented 10% or more of net accounts receivables at any given date.
Our largest customers have varied from year to year. Historically, we have had significant customers that individually accounted for 10% or more of consolidated revenues in certain quarters or years or represented 10% or more of net accounts receivables at any given date.
While we intend to continue to invest in research and development, we may be unable to make the substantial investments that are required to remain competitive in our business. The semiconductor industry requires substantial investment in research and development in order to bring to market new and enhanced solutions.
While we intend to continue to invest in research and development, we may be unable to make the substantial investments that are required to remain competitive in our business. The industries in which we operate require substantial investment in research and development in order to bring to market new and enhanced solutions.
Sales to our customers located in China (including Hong Kong) and South Korea constituted 60% and 6%, respectively, of net sales for fiscal year 2022. Sales to customers located in Russia accounted for less than 1% of net sales for fiscal year 2022.
Sales to our customers located in China (including Hong Kong) and South Korea constituted 53% and 5%, respectively, of net sales for fiscal year 2023. Sales to customers located in Russia accounted for less than 1% of net sales for fiscal year 2023.
The Credit Agreement includes covenants restricting, among other things, our and our subsidiaries’ ability to: incur or guarantee additional debt or issue certain preferred stock; pay dividends or make distributions on our capital stock or redeem, repurchase or retire our capital stock; make certain investments and acquisitions; create liens on our or our subsidiaries’ assets; enter into transactions with affiliates; merge or consolidate with another person or sell or otherwise dispose of substantially all of our assets; make certain payments in respect of other material indebtedness; alter the business that we conduct; and make certain capital expenditures.
The Credit Agreement includes covenants restricting, among other things, our and our subsidiaries’ ability to: incur or guarantee additional debt or issue certain preferred stock; pay dividends or make distributions on our capital stock or redeem, repurchase or retire our capital stock; make certain investments and acquisitions; create liens on our or our subsidiaries’ assets; enter into transactions with affiliates; merge or consolidate with another person or sell or otherwise dispose of substantially all of our assets; make certain payments in respect of other material indebtedness; and alter the business that we conduct. 34 Under the Credit Agreement, we are required to maintain a maximum consolidated leverage ratio and a minimum interest expense coverage ratio.
See also “Special Note Regarding Forward Looking and Cautionary Statements” at the beginning of this Annual Report on Form 10-K.
See also “Special Note Regarding Forward Looking and Cautionary Statements and Summary Risk Factors” at the beginning of this Annual Report on Form 10-K.
Legislation and related regulations in the U.K. under that country’s Bribery Act could have extra-territorial application of compliance standards that may be inconsistent with comparable U.S. law, requiring us to re-evaluate and amend our compliance programs, policies and initiatives.
Legislation and related regulations in the U.K. under that country’s Bribery Act could have extra-territorial application of compliance standards that may be inconsistent with comparable U.S. law, requiring us to re-evaluate and amend our compliance programs, policies and initiatives. The SEC and The Nasdaq Stock Market LLC ("Nasdaq") have revised, and continue to revise, their regulations and listing standards.
These developments also may make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage.
These developments have increased, and may continue to increase, our legal compliance and financial reporting costs. These developments also may make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage.
If we are unsuccessful or delayed in qualifying any of our products with a customer, such failure or delay would preclude or delay sales of such product to the customer, which may impede our growth and cause our business to suffer.
If we are unsuccessful or delayed in qualifying any of our products with a customer, such failure or delay would preclude or delay sales of such product to the customer, which may impede our growth and cause our business to suffer. 21 Our products may fail to meet new industry standards or requirements and the efforts to meet such industry standards or requirements could be costly .
Risks Relating to Production Operations We rely on a limited number of suppliers and subcontractors, many of which are foreign-based entities, for many essential components and materials and certain critical manufacturing services and any interruption or loss of supplies or services from these entities could significantly interrupt our business operations and the production of our products.
Additionally, disruptions in U.S. government operations may negatively impact regulatory approvals and guidance that are important to our operations. 18 Risks Relating to Production Operations and Services We rely on a limited number of suppliers and subcontractors, many of which are foreign-based entities, for many essential components and materials and certain critical manufacturing services and any interruption or loss of supplies or services from these entities could significantly interrupt our business operations and the production of our products.
If our distributors suffer material economic harm during the pandemic, the distributors may no longer be able to continue in business or may continue in a reduced capacity.
If our distributors suffer material economic harm as a result of the pandemic or future public health crises, the distributors may no longer be able to continue in business or may continue in a reduced capacity.
In addition, work from home, quarantines, self-isolations, home schooling, continuing macroeconomic related uncertainty or caring for family members due to the current COVID-19 pandemic may result in significant psychological, emotional or financial burdens for some of our employees, which may impact their productivity and morale and may lead to higher employee absences and higher attrition rates.
In addition, work from home or continuing macroeconomic related uncertainty may result in significant psychological, emotional or financial burdens for some of our employees, which may impact their productivity and morale and may lead to higher employee absences and higher attrition rates.
Depending on future circumstances, we may never realize the full value of intangible assets. Any future determination or impairment of a significant portion of our goodwill and other intangibles could have an adverse effect on our financial condition and operating results. Restrictive covenants in the Credit Agreement governing the Credit Facility may restrict our ability to pursue our business strategies.
Depending on future circumstances, we may never realize the full value of intangible assets. Any future determination or impairment of a significant portion of our goodwill and other intangibles could have an adverse effect on our financial condition and operating results.
In the normal course of our business, we indemnify other parties, including customers, distributors, and lessors, with respect to certain matters.
The costs associated with our indemnification of certain customers, distributors, and other parties could be higher in future periods. In the normal course of our business, we indemnify other parties, including customers, distributors, and lessors, with respect to certain matters.
The success of a new product depends on accurate forecasts of long-term market demand and future technological developments, as well as on a variety of specific implementation factors, including: timely and efficient completion of technology, product and process design and development; timely and efficient implementation of manufacturing, assembly, and test processes; the ability to secure and effectively utilize fabrication capacity in different geometries; product performance; product quality and reliability; and effective marketing, sales and service. 16 The efforts to achieve design wins typically are lengthy and can require us to both incur design and development costs and dedicate scarce engineering resources in pursuit of a single customer opportunity.
The success of a new product depends on accurate forecasts of long-term market demand and future technological developments, as well as on a variety of specific implementation factors, including: timely and efficient completion of technology, product and process design and development; timely and efficient implementation of manufacturing, assembly, and test processes; the ability to secure and effectively utilize fabrication capacity in different geometries; product performance, quality and reliability; and effective marketing, sales and service.
Markets for 5G infrastructure may not develop in the manner or in the time periods we anticipate. If domestic and global economic conditions worsen, particularly in light of the impacts of the COVID-19 pandemic and potential global recession resulting therefrom, overall spending on 5G infrastructure may be reduced, which would adversely impact demand for our products in these markets.
If domestic and global economic conditions worsen, particularly in light of potential global recession, uncertainty in the banking system, and the direct and indirect impacts of the COVID-19 pandemic, overall spending on 5G infrastructure may be reduced, which would adversely impact demand for our products in these markets.
Our competitiveness and future success depend on our ability to predict and adapt to these changes in a timely and cost-effective manner by designing, developing, manufacturing, marketing and providing support for our own new products and technologies.
We operate in a dynamic environment characterized by price erosion, rapid technological change, and design and other technological obsolescence. Our competitiveness and future success depend on our ability to predict and adapt to these changes in a timely and cost-effective manner by designing, developing, manufacturing, marketing and providing support for our own new products and technologies.
The amended and restated credit agreement (the "Credit Agreement") governing our secured first lien credit facility (the "Credit Facility") contains a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interests.
Restrictive covenants in the Credit Agreement governing our credit facilities may restrict our ability to pursue our business strategies. The Credit Agreement (as defined below) contains a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interests.
We intend to continue protecting our proprietary technology, including through trademark and copyright registrations and patents. Despite this intention, we may not be successful in achieving adequate protection. Our failure to adequately protect our material know-how and processes could harm our business.
Despite this intention, we may not be successful in achieving adequate protection. Our failure to adequately protect our material know-how and processes could harm our business.
We pursue patents for some of our new products and unique technologies, but we rely primarily on trade secret protections through a combination of nondisclosure agreements and other contractual provisions, as well as our employees’ commitment to confidentiality and loyalty, to protect our know-how and processes.
We pursue patents for select products and unique technologies, and we also rely on trade secret protections through a combination of nondisclosure agreements and other contractual provisions, as well as our employees’ commitment to confidentiality and loyalty, to protect our know-how and processes. We intend to continue protecting our proprietary technology, including through trademark and copyright registrations and patents.
We are required to comply with rules regarding value-added taxes and other sales-type taxes in various jurisdictions. If these taxes are not properly collected and paid, our operating results could be materially adversely affected. We have limited experience with government contracting, which entails differentiated business risks.
If these taxes are not properly collected and paid, our operating results could be materially adversely affected. We have limited experience with government contracting, which entails differentiated business risks.
The U.S. government has also taken actions targeting exports of certain 21 technologies to China which could lead to additional restrictions on the export of products that include or enable certain technologies, including products we provide to China-based customers.
The U.S. government has also taken actions targeting exports of certain technologies to China which could lead to additional restrictions on the export of products that include or enable certain technologies, including products we provide to China-based customers. In addition, the geopolitical headwinds driven by export restrictions and tariffs imposed by the U.S. government may weaken demand for our products.
There can be no assurance that we will be able to retain key employees or that we will be successful in attracting, integrating or retaining other highly qualified personnel in the 24 future. If we are unable to retain the services of key employees or are unsuccessful in attracting new highly qualified employees, our business could be harmed.
There can be no assurance that we will be able to retain key employees or that we will be successful in attracting, integrating or retaining other highly qualified personnel in the future.
Risks Relating to Sales, Marketing and Competition We receive a significant portion of our revenues from a small number of customers and the loss of any one of these customers or failure to collect a receivable from them could adversely affect our business. Our largest customers have varied from year to year.
Determination of the amount of the unrecognized deferred tax liability on these unremitted earnings is not practicable. Risks Relating to Sales, Marketing and Competition We receive a significant portion of our revenues from a small number of customers and the loss of any one of these customers or failure to collect a receivable from them could adversely affect our business.
Further, changes in U.S. and global social, political, regulatory and economic conditions or in laws and policies governing trade with China could adversely affect our business. 19 We and our manufacturing partners are or will be subject to extensive Chinese government regulation, and the benefit of various incentives from Chinese governments that we and our manufacturing partners receive may be reduced or eliminated, which could increase our costs or limit our ability to sell products and conduct activities in China.
We and our manufacturing partners are or will be subject to extensive Chinese government regulation, and the benefit of various incentives from Chinese governments that we and our manufacturing partners receive may be reduced or eliminated, which could increase our costs or limit our ability to sell products and conduct activities in China.
We face an inherent business risk of exposure to warranty and product liability claims in the event that our products fail to perform as expected or such failure of our products results, or is alleged to result, in bodily injury or property damage (or both).
Similarly, our service offerings are highly complicated and involve the use of numerous systems, networks and technologies, any of which could cause our service offerings to fail or malfunction. 19 We face an inherent business risk of exposure to warranty and product liability claims in the event that our products or services fail to perform as expected or such failure of our products or services results, or is alleged to result, in bodily injury or property damage (or both).
We face risks associated with companies we have acquired in the past and may acquire in the future. We have expanded our operations through strategic acquisitions, and we may continue to expand and diversify our operations with additional acquisitions. Acquisitions may divert management attention and resources from other business objectives.
We have expanded our operations through the Sierra Wireless Acquisition, and we may continue to expand and diversify our operations with additional acquisitions. Acquisitions may divert management attention and resources from other business objectives.
We are dependent on a relatively small group of key technical personnel with analog and mixed-signal expertise. Personnel with highly skilled managerial capabilities, and analog and mixed-signal design expertise, are scarce and competition for personnel with these skills is intense.
In addition our future success depends upon our ability to attract and retain highly qualified technical, marketing and managerial personnel. We are dependent on a relatively small group of key technical personnel with relevant expertise, including analog and mixed-signal expertise. Personnel with highly skilled managerial capabilities, and relevant expertise, are scarce and competition for personnel with these skills is intense.
We attempt to limit our liability through our standard terms and conditions and negotiation of sale and other customer contracts, but there is no assurance that such limitations will be accepted or effective.
However, in certain instances, we have agreed to other terms, including some indemnification provisions, which could prove to be significantly more costly than our standard remedies. We attempt to limit our liability through our standard terms and conditions and negotiation of sale and other customer contracts, but there is no assurance that such limitations will be accepted or effective.
Risks Relating to Macroeconomic and Industry Conditions The COVID-19 pandemic has adversely affected and may in the future adversely affect, our operations, and those of our customers, distributors, suppliers, third-party foundries and subcontractors thereby adversely affecting our business, financial condition and results of operations.
Risks Relating to Macroeconomic and Industry Conditions Our operations, and those of our customers, distributors, suppliers, third-party foundries and subcontractors are subject to risks from the COVID-19 pandemic and other pandemics, epidemics and infectious diseases, which could adversely affect our business, financial condition and results of operations.
Future environmental legal requirements may become more stringent or costly and our compliance costs and potential liabilities arising from past and future releases of, or exposure to, hazardous substances may harm our business and our reputation. 22 Certain of our customers and suppliers require us to comply with their codes of conduct, which may include certain restrictions that may substantially increase our cost of doing business as well as have an adverse effect on our operating efficiencies, operating results and financial condition .
Certain of our customers and suppliers require us to comply with their codes of conduct, which may include certain restrictions that may substantially increase our cost of doing business as well as have an adverse effect on our operating efficiencies, operating results and financial condition .
As a global organization, we may be subject to a variety of transfer pricing or permanent establishment challenges by taxing authorities in various jurisdictions. If certain of our non-U.S. activities were treated as carrying on business as a permanent establishment and therefore, subject to income tax in such jurisdiction, our operating results could be materially adversely affected.
If certain of our non-U.S. activities were treated as carrying on business as a permanent establishment and therefore, subject to income tax in such jurisdiction, our operating results could be materially adversely affected. We are required to comply with rules regarding value-added taxes and other sales-type taxes in various jurisdictions.
If the debt under the Credit Facility were to be accelerated, our assets may not be sufficient to repay in full that debt that may become due as a result of that acceleration.
If the debt under the Credit Agreement were to be accelerated, our assets may not be sufficient to repay in full that debt that may become due as a result of that acceleration. Risks Relating to the Convertible Notes The accounting method for the Notes could adversely affect our financial condition and results.
In addition, our inability to control gray market activities could result in customer satisfaction issues because when products are purchased outside of our authorized distribution channels there is a risk that our customers are buying products that may have been altered, mishandled or damaged, or are used products represented as new.
In addition, our inability to control gray market activities could result in customer satisfaction issues because when products are purchased outside of our authorized distribution channels there is a risk that our customers are buying products that may have been altered, mishandled or damaged, or are used products represented as new. 26 Competition from new or established IoT, cloud services and wireless services companies, or from those with greater resources, may prevent us from increasing or maintaining our market and could result in price reductions and/or loss of business, resulting in reduced revenues and gross margins.
In addition, unfavorable developments with evolving laws and regulations worldwide related to 5G or 5G suppliers may limit global adoption, impede our strategy, and negatively impact our long-term expectations in this area.
In addition, as regulatory and private sector stakeholders have expressed concerns about the negative effects and dangers posed to others by the deployment of 5G technology, unfavorable developments with evolving laws and regulations worldwide related to 5G or 5G suppliers may limit global adoption, impede our strategy, and negatively impact our long-term expectations in this area.
If we needed to remit all or a portion of our historical undistributed earnings to the U.S. for investment in our domestic operations, any such remittance could result in increased tax liabilities and a higher effective tax rate. Determination of the amount of the unrecognized deferred tax liability on these unremitted earnings is not practicable.
Notwithstanding the U.S. taxation of these amounts, we have determined that none of our current foreign earnings will be permanently reinvested. If we needed to remit all or a portion of our historical undistributed earnings to the U.S. for investment in our domestic operations, any such remittance could result in increased tax liabilities and a higher effective tax rate.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties Our corporate headquarters is located in Camarillo, California where we own an approximately 88,000 square foot facility. The parcel on which our headquarters is located can accommodate substantial expansion. As of January 30, 2022, we owned or leased multiple properties.
Biggest changeItem 2. Properties Our corporate headquarters is located in Camarillo, California where we own an approximately 88,000 square foot facility. The parcel on which our headquarters is located can accommodate substantial expansion. As of January 29, 2023, we owned or leased multiple properties.
Our leases expire at various dates through 2030. We believe that our existing leased and owned space is more than adequate for our current operations, and that suitable replacement and additional space will be available in the future on commercially reasonable terms as circumstances warrant.
Our leases expire at various dates through 2031. We believe that our existing leased and owned space is more than adequate for our current operations, and that suitable replacement and additional space will be available in the future on commercially reasonable terms as circumstances warrant.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeOur repurchases may be made through Rule 10b5-1 and/or Rule 10b-18 or other trading plans, open market purchases, privately negotiated transactions, block purchases or other transactions. We intend to fund repurchases under the program from cash on hand and borrowings on our Credit Facility.
Biggest changeUnder the program, we may repurchase our common stock at any time or from time to time, without prior notice, subject to market conditions and other considerations. Our repurchases may be made through Rule 10b5-1 and/or Rule 10b-18 or other trading plans, open market purchases, privately negotiated transactions, block purchases or other transactions.
Currently, we intend to retain earnings to finance the growth of our business. We did not pay cash dividends on our common stock during fiscal years 2022, 2021 or 2020, and our Board of Directors has not indicated an intent to declare a cash dividend on our common stock in the foreseeable future.
Currently, we intend to retain earnings to finance the growth of our business. We did not pay cash dividends on our common stock during fiscal years 2023, 2022 or 2021, and our Board of Directors has not indicated an intent to declare a cash dividend on our common stock in the foreseeable future.
Performance Graph This chart and graph show the value of a $100 cash investment on the last day of fiscal year 2017 in (i) the Company’s common stock, (ii) the Nasdaq Composite Index, and (iii) the Philadelphia ("PHLX") Semiconductor Index. Note that historic stock price performance is not necessarily indicative of future stock price performance.
Performance Graph This chart and graph show the value of a $100 cash investment on the last day of fiscal year 2018 in (i) our common stock, (ii) the Nasdaq Composite Index, and (iii) the Philadelphia ("PHLX") Semiconductor Index. Note that historic stock price performance is not necessarily indicative of future stock price performance.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock is traded on The Nasdaq Global Select Market under the symbol "SMTC." Holders As of March 11, 2022, we had 165 hold ers of record of our common stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock is traded on The Nasdaq Global Select Market under the symbol "SMTC." Holders As of March 24, 2023, we had 171 hold ers of record of our common stock.
Fiscal Year 2017 2018 2019 2020 2021 2022 Semtech $100 $108 $148 $156 $211 $201 Nasdaq Composite $100 $133 $127 $165 $231 $243 PHLX SEMICONDUCTOR SECTOR $100 $144 $133 $200 $300 $343 The information contained in this Item 5 under the heading "Performance Graph" (i) is being furnished and shall not be deemed "filed" for the purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, and (ii) shall not be incorporated by reference into any registration statement or other document pursuant to the Exchange Act, or the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing to this Item 5 Performance Graph information.
Fiscal Year 2018 2019 2020 2021 2022 2023 Semtech $100 $137 $144 $195 $186 $91 Nasdaq Composite $100 $95 $124 $174 $183 $155 PHLX SEMICONDUCTOR SECTOR $100 $93 $139 $209 $239 $213 The information contained in this Item 5 under the heading "Performance Graph" (i) is being furnished and shall not be deemed "filed" for the purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, and (ii) shall not be incorporated by reference into any registration statement or other document pursuant to the Exchange Act, or the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing to this Item 5 Performance Graph information.
On March 11, 2021, our Board of Directors approved the expansion of the stock repurchase program by an additional $350.0 million. During fiscal year 2022, we repurchased $129.7 million of our common stock.
On March 11, 2021, our Board of Directors approved the expansion of the stock repurchase program by an additional $350.0 million. During fiscal year 2023, we repurchased $50.0 million of our common stock. As of January 29, 2023, the remaining authorization under our stock repurchase program was $209.4 million.
We have no obligation to repurchase any shares under the program and may suspend or discontinue it at any time.
We intend to fund repurchases under the program from cash on hand and borrowings on our Revolving Credit Facility (as defined below). We have no obligation to repurchase any shares under the program and may suspend or discontinue it at any time. The Company did not repurchase any shares under the program during the fourth quarter of fiscal year 2023.
Removed
As of January 30, 2022, we have repurchased $539.0 million of our common stock under the program since its inception and the remaining authorization under our stock repurchase program was $259.4 million. Under the program, we may repurchase our common stock at any time or from time to time, without prior notice, subject to market conditions and other considerations.
Added
Sales of Unregistered Securities We did not make any sales of unregistered securities during fiscal year 2023 that have not been previously reported.
Removed
Purchases by the Company of our common stock during the fourth quarter of fiscal year 2022 were as follows: Fiscal Month/Year Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Program Approximate Dollar Value of Shares That May Yet Be Purchased Under The Program November 2021 (11/1/21-11/28/21) — $ — — $ 292.2 million December 2021 (11/29/21-12/26/21) 200,167 $ 87.42 200,167 $ 274.7 million January 2022 (12/27/21-01/30/22) 180,981 $ 84.25 180,981 $ 259.4 million Total fourth quarter activity 381,148 $ 85.92 381,148 Sales of Unregistered Securities We did not make any sales of unregistered securities during fiscal year 2022 that have not been previously reported.

Item 7. Management's Discussion & Analysis

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

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Biggest changeIn addition, we must comply with financial covenants, including maintaining a maximum consolidated leverage ratio, determined as of the last day of each fiscal quarter, of 3.50 to 1.00 or less, provided that, such maximum consolidated leverage ratio may be increased to 4.00 to 1.00 for the four consecutive fiscal quarters ending on or after the date of consummation of a permitted acquisition that constitutes a "Material Acquisition" under the Credit Agreement, subject to the satisfaction of certain conditions.
Biggest changeIn addition, we must comply with financial covenants, including: • maintaining a maximum consolidated leverage ratio, determined as of the last day of each fiscal quarter, of (i) 4.75 to 1.00, for the fiscal quarter ending on or around April 30, 2023, (ii) 5.75 to 1.00, unless the financial covenant relief period (the “Relief Period”) has been terminated, in which case 4.75 to 1.00, for the fiscal quarter ending on or around July 31, 2023, (iii) 5.75 to 1.00, unless the Relief Period has been terminated, in which case 4.75 to 1.00, for the fiscal quarter ending on or around October 31, 2023, (iv) 5.50 to 1.00, unless the Relief Period has been terminated, in which case 4.75 to 1.00, for the fiscal quarter ending on or around January 31, 2024, (v) 4.75 to 1.00, unless the Relief Period has been terminated, in which case 4.50 to 1.00, for the fiscal quarter ending on or around April 30, 2024, (vi) 4.50 to 1.00, for the fiscal quarter ending on or around July 31, 2024, and (vii) 3.75 to 1.00, for the fiscal quarter ending on or around October 31, 2024 and each fiscal quarter thereafter subject to increase to 4.25 to 1.00 for the four full consecutive fiscal quarters ending on or after the date of consummation of a permitted acquisition that constitutes a "Material Acquisition" under the Credit Agreement, subject to the satisfaction of certain conditions; and • maintaining a minimum consolidated interest expense coverage ratio, determined as of the last day of each fiscal quarter, of (i) 2.50 to 1.00, unless the Relief Period has been terminated, in which case 3.50 to 1.00, for the fiscal quarter ending on or around April 30, 2023, (ii) 2.25 to 1.00, unless the Relief Period has been terminated, in which case 3.50 to 1.00, for the fiscal quarter ending on or around July 31, 2023, (iii) 2.00 to 1.00, unless the Relief Period has been terminated, in which case 3.50 to 1.00, for the fiscal quarter ending on or around October 31, 2023, (iv) 2.25 to 1.00, unless the Relief Period has been terminated, in which case 3.50 to 1.00, for the fiscal quarter ending on or around January 31, 2024, (v) 2.50 to 1.00, unless the Relief Period has been terminated, in which case 3.50:1.00, for the fiscal quarter ending on or around April 30, 2024, and (vi) 3.50 to 1.00, for the fiscal quarter ending on or around July 31, 2024 and each fiscal quarter thereafter. 48 The Credit Agreement also contains customary provisions pertaining to events of default.
We intend to continue to focus on those areas that have shown potential for viable and profitable market opportunities, which may require additional investment in equipment and the hiring of additional design and application engineers aimed at developing new products. Certain of these expenditures, particularly the addition of design engineers, do not generate significant payback in the short-term.
We intend to continue to focus on those areas that have shown potential for viable and profitable market opportunities, which may require additional investment in equipment and the hiring of additional design and application engineers aimed at developing new products. Certain of these expenditures, particularly the addition of design engineers, do not generate significant payback in the 49 short-term.
While we have not had issues securing favorable financing historically, there is no assurance that we will be able to refinance or secure additional capital at favorable terms, or at all in the future. A meaningful portion of our capital resources, and the liquidity they represent, are held by our foreign subsidiaries.
While we have not had issues securing favorable financing historically, there is no assurance that we will be able to refinance or secure additional capital at favorable terms, or at all in the future. 46 A meaningful portion of our capital resources, and the liquidity they represent, are held by our foreign subsidiaries.
Gross Profit Gross profit is equal to our net sales less our cost of sales. Our cost of sales includes materials, depreciation on fixed assets used in the manufacturing process, shipping costs, direct labor and overhead. The majority of the Company's manufacturing is outsourced, resulting in relatively low fixed manufacturing costs and variable costs that highly correlate with volume.
Gross Profit Gross profit is equal to our net sales less our cost of sales. Our cost of sales includes materials, depreciation on fixed assets used in the manufacturing process, shipping costs, direct labor and overhead. The majority of our manufacturing is outsourced, resulting in relatively low fixed manufacturing costs and variable costs that highly correlate with volume.
We do not directly control the timing of the exercise of stock options. Such exercises are independent decisions made by grantees and are influenced most directly by the stock price and the expiration dates of stock option awards. Such proceeds are difficult to forecast, resulting from several factors which are outside our control.
We do not directly control the 51 timing of the exercise of stock options. Such exercises are independent decisions made by grantees and are influenced most directly by the stock price and the expiration dates of stock option awards. Such proceeds are difficult to forecast, resulting from several factors which are outside our control.
The disruption 29 experienced during such closures has resulted in reduced production of our products, delays for delivery of our products to our customers, and reduced ability to receive supplies, which have had and may continue to have, individually and in the aggregate, an adverse effect on our results.
The disruption experienced during such closures has resulted in reduced production of our products, delays for delivery of our products to our customers, and reduced ability to receive supplies, which have had and may continue to have, individually and in the aggregate, an adverse effect on our results.
A significant increase in inflation would affect our future performance if we were unable to pass these higher costs on to our customers. Revenue We derive our revenue primarily from the sale of semiconductor products into various end markets.
A significant increase in inflation would affect our future performance if we were unable to pass these higher costs on to our customers. Revenue We derive our revenue primarily from the sale of our products into various end markets.
We determine the cost of inventory by the first-in, first-out method. Operating Costs Our operating costs and expenses generally consist of selling, general and administrative, product development and engineering costs, costs associated with acquisitions, restructuring charges, and other operating related charges.
We determine the cost of inventory by the first-in, first-out method. Operating Costs and expenses, net Our operating costs and expenses generally consist of selling, general and administrative, product development and engineering costs, costs associated with acquisitions, restructuring charges, and other operating related charges.
We determine revenue recognition through the following five steps: • Identification of the contract, or contracts, with a customer • Identification of the performance obligations in the contract • Determination of the transaction price • Allocation of the transaction price to the performance obligations in the contract • Recognition of revenue when, or as, performance obligations are satisfied 30 We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.
We determine revenue recognition through the following five steps: • Identification of the contract, or contracts, with a customer • Identification of the performance obligations in the contract • Determination of the transaction price • Allocation of the transaction price to the performance obligations in the contract 41 • Recognition of revenue when, or as, performance obligations are satisfied We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.
With the exception of net sales and gross profit, which are discussed below to reflect the changes to our reportable segments, a discussion of our results of operations for the fiscal year ended January 26, 2020 and year-over-year comparisons between fiscal years 2021 and 2020 have been omitted from this Annual Report on Form 10-K, but may be found in “Item 7.
With the exception of net sales and gross profit, which are discussed below to reflect the changes to our reportable segments, a discussion of our results of operations for the fiscal year ended January 31, 2021 and year-over-year comparisons between fiscal years 2022 and 2021 have been omitted from this Annual Report on Form 10-K, but may be found in “Item 7.
If variable consideration were estimated to be one percent higher, fiscal year 2022 revenue would have decreased by $7.6 million. • Income taxes - The identification and measurement of deferred tax assets and liabilities and the provisional estimates associated with applicable tax laws require a high degree of judgment and interpretation of tax laws in the U.S. and several other foreign jurisdictions.
If variable consideration were estimated to be one percent higher, fiscal year 2023 revenue would have decreased by $7.8 million. • Income taxes - The identification and measurement of deferred tax assets and liabilities and the provisional estimates associated with applicable tax laws require a high degree of judgment and interpretation of tax laws in the U.S. and several other foreign jurisdictions.
Despite the challenges of the pandemic, we remained focused on furthering our role as a leading provider of disruptive platforms that enable our customers to deliver solutions to create a smarter planet. We continued to invest in secular trends that enable a smarter, more sustainable planet; enable higher bandwidth; and enable greater mobility.
Despite various macroeconomic challenges, we remained focused on furthering our role as a leading provider of disruptive platforms that enable our customers to deliver solutions to create a smarter planet. We continued to invest in secular trends that enable a smarter, more sustainable planet; enable higher bandwidth; and enable greater mobility.
During the fiscal year ended January 30, 2022 , we also maintained our strategy of smaller, targeted investments focused mainly on minority positions in support of the developing LoRa ecosystem and the many new IoT solutions we are introducing.
During the fiscal year ended January 29, 2023 , we also maintained our strategy of smaller, targeted investments focused mainly on minority positions in support of the developing LoRa ecosystem and the many new IoT solutions we are introducing.
Net Sales Fiscal Year 2022 Compared with Fiscal Year 2021 The following table summarizes our net sales by major end market: Fiscal Years (in thousands, except percentages) 2022 2021 Net Sales % Net Sales Net Sales % Net Sales Change Infrastructure $ 264,464 35 % $ 245,549 42 % 8 % High-End Consumer 220,380 30 % 162,342 27 % 36 % Industrial 256,014 35 % 187,226 31 % 37 % Total $ 740,858 100 % $ 595,117 100 % 24 % Net sales for fiscal year 2022 were $740.9 million, an increase of 24% compared to $595.1 million for fiscal year 2021, which had benefited from an additional week.
Fiscal Year 2022 Compared with Fiscal Year 2021 Fiscal Years (in thousands, except percentages) 2022 2021 Net Sales % Net Sales Net Sales % Net Sales Change Infrastructure $ 264,464 35 % $ 245,549 42 % 8 % High-End Consumer 220,380 30 % 162,342 27 % 36 % Industrial 256,014 35 % 187,226 31 % 37 % Total $ 740,858 100 % $ 595,117 100 % 24 % Net sales for fiscal year 2022 were $740.9 million, an increase of 24% compared to $595.1 million for fiscal year 2021, which had benefited from an additional week.
Operating Leases We have operating leases for real estate, vehicles, and office equipment with remaining lease terms of up to eight years, some of which include options to extend the leases for up to three years, and some of which include options to terminate the leases within one year.
Operating Leases We have operating leases for real estate, vehicles, and office equipment with remaining lease terms of up to nine years, some of which include options to extend the leases for up to five years, and some of which include options to terminate the leases within one year.
Based on fiscal year 2022 ending inventory, an increase in the write-down by one percent of gross inventory would decrease net inventory and increase cost of goods sold by $1.6 million. • Revenue recognition - Net sales reflect the transaction prices for contracts, which include units shipped at selling prices reduced by variable consideration.
Based on fiscal year 2023 ending inventory, an increase in the write-down by one percent of gross inventory would decrease net inventory and increase cost of goods sold by $2.8 million. • Revenue recognition - Net sales reflect the transaction prices for contracts, which include units shipped at selling prices reduced by variable consideration.
The estimation of customer demand requires management to evaluate and make assumptions of the impact of changes in demand or changes in product life cycles on current sales levels. Our write-down to net realizable value at the end of fiscal year 2022 and 2021 represented 27.5% and 26.3% of gross inventory, respectively.
The estimation of customer demand requires management to evaluate and make assumptions of the impact of changes in demand or changes in product life cycles on current sales levels. Our write-down to net realizable value at the end of fiscal year 2023 and 2022 represented 25.8% and 27.5% of gross inventory, respectively.
Industrial end market includes IoT applications, analog and digital video broadcast equipment, video-over-IP solutions, automated meter reading, smart grid, wireless charging, military and aerospace, medical, security systems, automotive, industrial and home automation and other industrial equipment. Our end customers are primarily OEMs that produce and sell electronics.
Industrial end market includes IoT applications, analog and digital video broadcast equipment, video-over-IP solutions, automated meter reading, smart grid, wireless charging, medical, security systems, automotive, industrial and home automation and other industrial equipment. Our end customers for our silicon solutions are primarily OEMs that produce and sell technology solutions.
Many of our third-party subcontractors and suppliers, including third-party foundries that supply silicon waf ers, are located in foreign countries or territories including Taiwan and China. Foreign sales for fiscal years 2022, 2021 and 2020 constituted appro ximately 90%, 90% and 91%, respectively, of our net sales.
Many of our third-party subcontractors and suppliers, including third-party foundries that supply silicon waf ers, are located in foreign countries or territories including Taiwan, China, Vietnam and Malaysia . Foreign sales for fiscal years 2023, 2022 and 2021 constituted appro ximately 87%, 90% and 90%, respectively, of our net sales.
In fiscal year 2022 , net sales were reduced by $21.0 million in estimated variable consideration, or 2.8% of gross revenue. In fiscal year 2021 , net sales were reduced by $18.1 million in estimated variable consideration, or 3.0% of gross revenue.
In fiscal year 2023 , net sales were reduced by $24.2 million in estimated variable consideration, or 3.1% of gross revenue. In fiscal year 2022 , net sales were reduced by $21.0 million in estimated variable consideration, or 2.8% of gross revenue.
Investment Impairments and Credit Loss Reserves In fiscal year 2022, investment impairments and credit loss reserves totaled a loss of $1.3 million as we increased our credit loss reserves by $1.1 million for our available-for-sale ("AFS") debt securities consisting of our convertible debt investments in privately-held companies and recorded a $0.2 million impairment on one of our non-marketable equity investments.
Investment Impairments and Credit Loss Reserves In fiscal year 2023, investment impairments and credit loss reserves totaled a loss of $1.2 million as we had $0.3 million of recoveries on our credit loss reserves for our available-for-sale ("AFS") debt securities, consisting of our convertible debt investments in privately-held companies and recorded a $1.5 million impairment on one of our non-marketable equity investments.
Results of Operations A discussion of our results of operations for the fiscal years ended January 30, 2022 and January 31, 2021 and year-over-year comparisons between these fiscal years appears below .
Results of Operations A discussion of our results of operations for the fiscal years ended January 29, 2023 and January 30, 2022 and year-over-year comparisons between these fiscal years appears below .
Provision for Income Taxes We recorded income tax expense of $15.5 million for fiscal year 2022 compared to income tax expense of $3.4 million for fiscal year 2021. The effective tax rates for fiscal years 2022 and 2021 were provision rates of 11.0% and 5.4%, respectively.
Provision for Income Taxes We recorded income tax expense of $17.3 million for fiscal year 2023 compared to income tax expense of $15.5 million for fiscal year 2022. The effective tax rates for fiscal years 2023 and 2022 were provision rates of 22.0% and 11.0%, respectively.
Investing Activities Net cash used in investing activities is primarily attributable to capital expenditures, purchases of investments and premiums paid for corporate-owned life insurance, net of proceeds from sales of property, plant and equipment and proceeds from sales of investments. Investing activities are also impacted by acquisitions, net of any cash received, if applicable.
Investing Activities Net cash used in investing activities is primarily attributable to acquisitions, net of any cash received, capital expenditures, purchases of investments and premiums paid for corporate-owned life insurance, net of proceeds from sales of property, plant and equipment and proceeds from sales of investments.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended January 31, 2021 , filed with the SEC on March 24, 2021 and is incorporated herein by reference.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended January 30, 2022 , filed with the SEC on March 16, 2022 and is incorporated herein by reference.
Capital expenditures were $26.2 million and $32.7 million in fiscal years 2022 and 2021, respectively, as we made significant investments to update and expand our production capabilities. In fiscal years 2022 and 2021 we paid $8.2 million and $10.9 million, respectively, for strategic investments, including investments in companies that are enabling the LoRa and LoRaWAN®-based ecosystem.
Capital expenditures were $28.3 million and $26.2 million in fiscal years 2023 and 2022, respectively, as we made significant investments to update and expand our production capabilities. In fiscal years 2023 and 2022 we paid $6.7 million and $8.2 million, respectively, for strategic investments, including investments in companies that are enabling the LoRa and LoRaWAN®-based ecosystem.
Liquidity and Capital Resources Our capital requirements depend on a variety of factors including, but not limited to, the rate of increase or decrease in our existing business base; the success, timing and amount of investment required to bring new products to market; sales growth or decline; potential acquisitions; the general economic environment in which we operate; and our ability to generate cash flow from operations, which are more uncertain as a result of the COVID-19 pandemic and its impact on the general economy.
Liquidity and Capital Resources Our capital requirements depend on a variety of factors including, but not limited to, the rate of increase or decrease in our existing business base; the success, timing and amount of investment required to bring new products to market; sales growth or decline; potential acquisitions; the general economic environment in which we operate; and our ability to generate cash flow from operations.
The liability associated with vested, but unsettled restricted stock awards that are to be settled in cash totaled $11.5 million and $14.0 million as of January 30, 2022 and January 31, 2021 , respectively, and was included in "Other long-term liabilities" in the Balance Sheets.
The liability associated with vested, but unsettled restricted stock awards that are to be settled in cash totaled $6.1 million and $11.5 million as of January 29, 2023 and January 30, 2022 , respectively, and was included in "Other long-term liabilities" in the Balance Sheets.
We design, develop, manufacture and market a broad range of products that are sold principally into applications within the infrastructure, high-end consumer and industrial end markets. Infrastructure end market includes data centers, PON, base stations, optical networks, servers, carrier networks, switches and routers, cable modems, wireless LAN and other communication infrastructure equipment.
We design, develop, manufacture and market a wide range of products for commercial applications, the majority of which are sold into the infrastructure, high-end consumer and industrial end markets. Infrastructure end market includes data centers, PON, base stations, optical networks, servers, carrier networks, switches and routers, cable modems, wireless LAN and other communication infrastructure equipment.
Our liability for deferred compensation under this plan was $45.2 million and $41.0 million as of January 30, 2022 and January 31, 2021, respectively, and is included in accrued liabilities and other long-term liabilities in the Consolidated Balance Sheets.
Our liability for deferred compensation under this plan was $42.3 million and $45.2 million as of January 29, 2023 and January 30, 2022, respectively, and is included in accrued liabilities and other long-term liabilities in the Consolidated Balance Sheets.
In fiscal year 2022 , we paid $19.4 million for employee share-based compensation payroll taxes and received $5.3 million in proceeds from the exercise of stock options, compared to payments of $21.5 million for employee share-based compensation payroll taxes and proceeds of $8.5 million from the exercise of stock options in fiscal year 2021 .
In fiscal year 2023 , we paid $14.2 million for employee share-based compensation payroll taxes and received $0.6 million in proceeds from the exercise of stock options, compared to payments of $19.4 million for employee share-based compensation payroll taxes and proceeds of $5.3 million from the exercise of stock options in fiscal year 2022 .
Net sales from our System Protection Group increased $41.6 million in fiscal year 2022 versus fiscal year 2021 primarily driven by an approximately $23 million increase in consumer product sales, including wearables, mobile computers and smartphones, and an approximately $19 million increase in industrial automation and automotive sales.
Net sales from our Advanced Protection and Sensing Group increased $63.8 million in fiscal year 2022 versus fiscal year 2021 primarily driven by an approximately $23 million increase in consumer product sales, including wearables, mobile computers and smartphones, an approximately $22 million increase in proximity sensing sales and an approximately $19 million increase in industrial automation and automotive sales.
The cash surrender value of our corporate-owned life insurance was $35.2 million and $27.6 million as of January 30, 2022 and January 31, 2021, respectively, and is included in other assets in the Consolidated Balance Sheets.
The cash surrender value of our corporate-owned life insurance was $33.7 million and $35.2 million as of January 29, 2023 and January 30, 2022, respectively, and is included in other assets in the Consolidated Balance Sheets.
For further information on the effective tax rate and Tax Act’s impact, see Note 11 to the Consolidated Financial Statements.
For further information on the effective tax rate and the Tax Act’s impact, see Note 12, Income Taxes, to our Consolidated Financial Statements.
During fiscal year 2021, we entered into an interest rate swap agreement to hedge the variability of interest payments on the first $150.0 million of debt outstanding under our Credit Facility.
In fiscal year 2021, we entered into an interest rate swap agreement with a three-year term to hedge the variability of interest payments on the first $150.0 million of debt outstanding under the Revolving Credit Facility.
Our operating lease liabilities totaled $20.6 million and $17.1 million as of January 30, 2022 and January 31, 2021, respectively. 36 Purchase Commitments Capital purchase commitments and other open purchase commitments are for the purchase of plant, equipment, raw materials, supplies and services.
Our operating lease liabilities totaled $32.7 million and $20.6 million as of January 29, 2023 and January 30, 2022, respectively. Purchase Commitments Capital purchase commitments and other open purchase commitments are for the purchase of plant, equipment, raw materials, supplies and services.
Approximately 79%, 80% and 77% of net sales in fiscal years 2022, 2021 and 2020 , respectively, were to customers located in the Asia-Pacific region. The remaining foreign sales were primarily to customers in Europe, Canada and Mexico.
Approximately 72%, 79% and 80% of net sales in fiscal years 2023, 2022 and 2021 , respectively, were to customers located in the Asia-Pacific region. The remaining foreign sales were primarily to customers in Europe and North America.
We maintain defined benefit pension plans for the employees of our Swiss subsidiaries and French subsidiary. Expected future payments under these plans totaled $23.3 million as of January 30, 2022.
We maintain defined benefit pension plans for the employees of our Swiss subsidiaries and French subsidiary. Expected future payments under these plans totaled $27.0 million as of January 29, 2023.
As of January 30, 2022, we had $279.6 million in cash and cash equivalents and $427.0 million of undrawn capacity on our Credit Facility (as defined below). Over the longer-term, we believe our strong cash generating business model will continue to provide adequate liquidity to fund our normal operations, which have minimal capital intensity.
As of January 29, 2023, we had $235.5 million in cash and cash equivalents and $450.0 million of undrawn capacity on our Revolving Credit Facility. Over the longer-term, we believe our strong cash-generating business model will continue to provide adequate liquidity to fund our normal operations, which have minimal capital intensity.
They are not recorded liabilities in our Consolidated Balance Sheets as of January 30, 2022, as we have not yet received the related goods or taken title to the goods or received services. As of January 30, 2022, we had $3.7 million in open capital purchase commitments and $97.9 million in other open purchase commitments.
They are not recorded liabilities in our Consolidated Balance Sheets as of January 29, 2023, as we have not yet received the related goods or taken title to the goods or received services. As of January 29, 2023, we had $12.0 million in open capital purchase commitments and $202.0 million in other open purchase commitments.
If any event of default occurs, the obligations under the Credit Agreement may be declared due and payable, terminated upon written notice to us and existing letters of credit may be required to be cash collateralized.
If any event of default occurs, the obligations under the Credit Agreement may be declared due and payable, terminated upon written notice to us and existing letters of credit may be required to be cash collateralized. As of January 29, 2023 , we were in compliance with the financial covenants in our Credit Agreement.
In summary, our cash flows for each period were as follows: Fiscal Years (in thousands) 2022 2021 Net cash provided by operating activities $ 203,123 $ 118,930 Net cash used in investing activities (40,316) (42,909) Net cash used in financing activities (152,097) (100,454) Net increase (decrease) in cash and cash equivalents $ 10,710 $ (24,433) Operating Activities Net cash provided by operating activities is driven by net income, adjusted for non-cash items and fluctuations in operating assets and liabilities.
In summary, our cash flows for each period were as follows: Fiscal Years (in thousands) 2023 2022 Net cash provided by operating activities $ 126,711 $ 203,123 Net cash used in investing activities (1,247,322) (40,316) Net cash provided by (used in) financing activities 1,076,520 (152,097) Net (decrease) increase in cash and cash equivalents $ (44,091) $ 10,710 Operating Activities Net cash provided by operating activities is driven by net income, adjusted for non-cash items and fluctuations in operating assets and liabilities.
We believe our investments in fiscal year 2022 position us well to support our expectations of future growth. Impact of COVID-19 The COVID-19 pandemic has significantly affected health and economic conditions throughout the U.S. and the rest of the world including Asia, where a significant percentage of our customers, suppliers, third party foundries and subcontractors are located.
Impact of COVID-19 The COVID-19 pandemic has significantly affected health and economic conditions throughout the U.S. and the rest of the world including Asia, where a significant percentage of our customers, suppliers, third party foundries and subcontractors are located.
The increase in the cash surrender value of the corporate-owned life insurance as of January 30, 2022 compared to January 31, 2021 was related to an overall increase in market value and $6.0 million of premiums paid in order to provide substantive coverage for the Company's deferred compensation liability.
The decrease in the cash surrender value of the corporate-owned life insurance as of January 29, 2023 compared to January 30, 2022 was related to an overall decrease in market value, partially offset by $5.1 million of premiums paid in order to provide substantive coverage for our deferred compensation liability.
Changes in the Fair Value of Contingent Earn-out Obligations The change in the fair value of contingent earn-out obligations in fiscal year 2022 compared to fiscal year 2021 reflects the difference between the final earn-out targets achieved for Cycleo SAS and the final earn-out payments made.
Changes in the Fair Value of Contingent Earn-out Obligations The change in the fair value of contingent earn-out obligations in fiscal year 2022 reflects the difference between the final earn-out targets achieved for Cycleo SAS and the final earn-out payments made. Interest Expense Interest expense was $17.6 million and $5.1 million for fiscal years 2023 and 2022, respectively.
On March 11, 2021, our Board of Directors approved the expansion of the stock repurchase program by an additional $350.0 million. This program represents one of our principal efforts to return value to our stockholders. During fiscal years 2022 and 2021, we repurchased shares of common stock under this program for $129.7 million and $71.4 million, respectively.
On March 11, 2021, our Board of Directors approved the expansion of the stock repurchase program by an additional $350.0 million. This program represents one of our principal efforts to return value to our stockholders.
All prior year information in the tables below has been revised retrospectively to reflect the change to our reportable segments. See Note 15 to the Consolidated Financial Statements for segment information.
As a result of the reorganization and the Sierra Wireless Acquisition, we have four reportable segments. All prior year information in the tables below has been revised retrospectively to reflect the change to our reportable segments. See Note 16, Segment Information, to our Consolidated Financial Statements for segment information.
To the extent that we enter into acquisitions or strategic partnerships, we may be required to raise additional capital through debt issuances or equity offerings. In addition, we expect to refinance our Credit Facility ahead of its maturity in November 2024.
To the extent that we enter into acquisitions or strategic partnerships, we may be required to raise additional capital through debt issuances or equity offerings.
The maximum benefit under this tax holiday is CHF 500.0 million of cumulative after tax profit, which equates to a maximum potential tax savings of CHF 44.0 million.
Since we met certain staffing targets, the holiday has been extended for an additional five years. The maximum benefit under this tax holiday is CHF 500.0 million of cumulative after tax profit, which equates to a maximum potential tax savings of CHF 44.0 million.
We have no obligation to repurchase any shares under the program and may suspend or discontinue it at any time.
We intend to fund repurchases under the program from cash on hand and borrowings on our Revolving Credit Facility. We have no obligation to repurchase any shares under the program and may suspend or discontinue it at any time.
Financing Activities Net cash used in financing activities is primarily attributable to repurchases of our common stock, payments related to employee share-based compensation payroll taxes and payments on our Credit Facility, offset by proceeds from our Credit Facility and proceeds from stock option exercises.
Financing Activities Net cash provided by financing activities is primarily attributable to proceeds from the Term Loan Facility, the Revolving Credit Facility, the Notes, the sale of the Warrants and stock option exercises, offset by the purchase of the Convertible Note Hedge Transactions, repurchases of outstanding common stock, payments on the Revolving Credit Facility, deferred financing costs and payments related to employee share-based compensation payroll taxes.
Based on booking trends and backlog entering the quarter, we estimate net sales for the first quarter of fiscal year 2023 to be between $195.0 million and $205.0 million.
Based on booking trends and backlog entering the quarter, we estimate net sales for the first quarter of fiscal year 2024 to be between $230.0 million and $240.0 million. The range of guidance reflects continued uncertainty regarding macro-related events.
If we needed to remit all or a portion of our historical undistributed earnings to the U.S. for investment in our domestic operations, any such remittance could result in increased tax liabilities and a higher effective tax rate. Determination of the amount of the unrecognized deferred tax liability on these unremitted earnings is not practicable.
Notwithstanding the U.S. taxation of these amounts, we have determined that none of our current foreign earnings will be permanently reinvested. If we needed to remit all or a portion of our historical undistributed earnings to the U.S. for investment in our domestic operations, any such remittance could result in increased tax liabilities and a higher effective tax rate.
See also “Special Note Regarding Forward Looking and Cautionary Statements” at the beginning of this Annual Report on Form 10-K. Overview We are a leading global supplier of high-performance analog and mixed-signal semiconductors and advanced algorithms and were incorporated in Delaware in 1960.
See also “Special Note Regarding Forward Looking and Cautionary Statements and Summary Risk Factors” at the beginning of this Annual Report on Form 10-K. Overview We are a high-performance semiconductor, IoT systems and Cloud connectivity service provider and were incorporated in Delaware in 1960.
In fiscal year 2021, investment impairments and credit loss reserves totaled a loss of $6.8 million as w e increased our credit loss reserves by $2.9 million for our AFS debt securities, in part, due to the adverse impact of COVID-19 on these early-stage companies, and recorded impairments on five of our non-marketable equity investments totaling $3.9 million.
In fiscal year 2022, investment impairments and credit loss reserves totaled a loss of $1.3 million as w e increased our credit loss reserves by $1.1 million for our AFS debt securities consisting of our convertible debt investments in privately-held companies and recorded an impairment on one of our non-marketable equity investments totaling $0.2 million.
With the enactment of the Tax Act, all post-1986 previously unremitted earnings for which no U.S. deferred tax liability had been accrued were subject to U.S. tax. Notwithstanding the U.S. taxation of these amounts, we have determined that $50.0 million of our current foreign earnings will not be permanently reinvested.
As of January 29, 2023, our historical undistributed earnings of our foreign subsidiaries are intended to be permanently reinvested outside of the U.S. With the enactment of the Tax Act, all post-1986 previously unremitted earnings for which no U.S. deferred tax liability had been accrued were subject to U.S. tax.
Our liquidity needs during this uncertain time will depend on multiple factors, including our ability to continue operations and production of our products, given the global supply constraints, the COVID-19 pandemic's effects on our customers, the availability of sufficient amounts of financing and our operating performance. 34 We believe that our cash on hand, cash available from future operations and available borrowing capacity under our Credit Facility (as defined below) are sufficient to meet liquidity requirements for at least the next 12 months, including funds needed for our material cash requirements as described below.
We believe that our cash on hand, cash available from future operations and available borrowing capacity under our Revolving Credit Facility (as defined below) are sufficient to meet liquidity requirements for at least the next 12 months, including funds needed for our material cash requirements.
In addition, the prices to obtain raw materials and convert them into the necessary inventory have increased in certain cases, and may continue to increase, including due to current inflationary pressures.
In addition, the prices to obtain raw materials and convert them into the necessary inventory have increased in certain cases due to inflationary pressures and supply chain shortages and prices may continue to increase. Factors Affecting Our Performance Most of our sales to customers are made on the basis of individual customer purchase orders.
Credit Facility On November 7, 2019, we, with certain of our domestic subsidiaries as guarantors, entered into an amended and restated credit agreement (the "Credit Agreement") with the lenders party thereto and HSBC Bank USA, National Association, as administrative agent, swing line lender and letter of credit issuer in order to provide a more flexible borrowing structure by expanding the borrowing capacity of the revolving loans under the secured first lien credit facility ("the Credit Facility") to $600.0 million, eliminating the term loans and extending the maturity to November 7, 2024.
Credit Agreement On November 7, 2019, we, with certain of our domestic subsidiaries as guarantors, entered into the Credit Agreement with the lenders party thereto and HSBC Bank USA, National Association, as administrative agent, swing line lender and letter of credit issuer.
This decision resulted in the formation of two reportable segments, including the High-Performance Analog Group, which is comprised of the Signal Integrity and Wireless and Sensing operating segments, and the System Protection Group, which is comprised of the Protection operating segment.
Historically, we had three operating segments—Signal Integrity, Wireless and Sensing, and Protection—that had been aggregated into two reportable segments identified as the High-Performance Analog Group, which was comprised of the Signal Integrity and Wireless and Sensing operating segments, and the System Protection Group, which was comprised of the Protection operating segment.
In the fourth quarter of fiscal year 2022, we made certain changes in our reportable segments based on the economic performance of our operating segments (see Note 15 on segment information).
In the fourth quarter of fiscal year 2023, we made certain changes in our reportable segments based on the Sierra Wireless Acquisition and our organizational restructuring (see Note 16, Segment Information, to our Consolidated Financial Statements for segment information).
We expect our future cash uses will be for capital expenditures, repurchases of our common stock, debt repayment and potentially, acquisitions and other investments that support achievement of our business strategies. We expect to fund those cash requirements through our cash from operations and borrowings against our Credit Facility.
Determination of the amount of the unrecognized deferred tax liability on these unremitted earnings is not practicable. We expect our future cash uses will be for capital expenditures, repurchases of our common stock, debt repayment and potentially, acquisitions and other investments that support achievement of our business strategies.
Our working capital, excluding cash and cash equivalents, was $94.3 million and $96.3 million as of January 30, 2022 and January 31, 2021, respectively. Our working capital, including cash and cash equivalents and the current portion of long-term debt, was $373.9 million and $365.2 million as of January 30, 2022 and January 31, 2021, respectively.
Our working capital, including cash and cash equivalents and the current portion of long-term debt, was $325.9 million and $373.9 million as of January 29, 2023 and January 30, 2022, respectively. 50 Cash Flows One of our primary goals is to improve the cash flows from our existing business activities.
This increase included an $80.9 million increase from our High-Performance Analog Group and a $24.0 million increase from our System Protection Group, both of which experienced higher demand and implemented price increases to offset higher manufacturing costs during fiscal year 2022. Our gross margin was 62.9% in fiscal year 2022, compared to 61.1% in fiscal year 2021.
This increase included a $28.2 million increase from our Signal Integrity Products Group, a $36.0 million increase from our Advanced Protection and Sensing Group and a $40.7 million increase from our IoT System Products Group, all of which experienced higher demand and implemented price increases to offset higher manufacturing costs during fiscal year 2022.
The following table summarizes our net sales by reportable segment: Fiscal Years (in thousands, except percentages) 2022 2021 Net Sales % Net Sales Net Sales % Net Sales Change High-Performance Analog Group $ 537,288 73 % $ 433,174 73 % 24 % System Protection Group 203,570 27 % 161,943 27 % 26 % Total $ 740,858 100 % $ 595,117 100 % 24 % Net sales from our High-Performance Analog Group increased $104.1 million in fiscal year 2022 versus fiscal year 2021 primarily due to an approximately $46 million increase in LoRa-enabled product sales led by an increase in pico gateways, an approximately $30 million increase in 10G PON sales, an approximately $22 million increase in our proximity sensing product sales, including smartphones, and an approximately $15 million increase in broadcast product sales, partially offset by an approximately $17 million decline in data center demand.
Net sales from our infrastructure end market increased $18.9 million driven by an approximately $36 million increase in PON sales, including 10G PON, partially offset by an approximately $17 million decline in data center demand. 43 The following table summarizes our net sales by reportable segment: Fiscal Years (in thousands, except percentages) 2022 2021 Net Sales % Net Sales Net Sales % Net Sales Change Signal Integrity Products Group $ 291,114 40 % $ 255,640 43 % 14 % Advanced Protection and Sensing Products Group 306,932 41 % 243,085 41 % 26 % IoT System Products Group 142,812 19 % 96,392 16 % 48 % IoT Connected Services Group — — % — — % — % Total $ 740,858 100 % $ 595,117 100 % 24 % Net sales from our Signal Integrity Products Group increased $35.5 million in fiscal year 2022 versus fiscal year 2021 primarily due to an approximately $36 million increase in PON sales, including 10G PON, an approximately $15 million increase in broadcast product sales, partially offset by an approximately $17 million decline in data center demand.
We report results on the basis of 52 and 53 week periods and our fiscal year ends on the last Sunday in January. Fiscal years 2022, 2021 and 2020 consisted of 52 weeks, 53 weeks and 52 weeks, respectively.
Our IoT module, router, gateway and managed connectivity solutions ship to IoT device makers and enterprises to provide IoT connectivity to end devices. We report results on the basis of 52 and 53 week periods and our fiscal year ends on the last Sunday in January.
As of January 30, 2022, we had repurchased $539.0 million in shares of our common stock under the program since inception and the remaining authorization under the program was $259.4 million . We intend to fund repurchases under the program from cash on hand and borrowings on our Credit Facility.
During fiscal years 2023 and 2022, we repurchased shares of common stock under this program for $50.0 million and $129.7 million, respectively. As of January 29, 2023, we had repurchased $589.0 million in shares of our common stock under the program since inception and the remaining authorization under the program was $209.4 million .
Gross margin in our High-Performance Analog Group was 67.9% in fiscal year 2022 , compared to 65.5% in fiscal year 2021 and gross margin in our System Protection Group was 51.9% in fiscal year 2022 , compared to 50.4% in fiscal year 2021 , reflecting a more favorable product mix in both of our reportable segments.
Gross margin in our Advanced Protection and Sensing Group was 53.3% in fiscal year 2022 , compared to 52.4% in fiscal year 2021. Gross margin in our IoT System Products Group was 74.6% in fiscal year 2022, compared to 68.2% in fiscal year 2021 . Gross margins in all reportable segments reflected a more favorable product mix.
The majority of the Company's manufacturing is outsourced, resulting in relatively low fixed manufacturing costs and variable costs that highly correlate with volume. Despite the capacity constraints within the industry, we expect overall gross profit for fiscal year 2023 to benefit from continued revenue growth.
Gross margin in our IoT Connected Services Group was 47.9% in fiscal year 2023. The majority of our manufacturing is outsourced, resulting in relatively low fixed manufacturing costs and variable costs that highly correlate with volume.
Operating cash flows for fiscal year 2022 compared to fiscal year 2021 were favorably impacted by a 24.5% increase in net sales and unfavorably impacted by a $12.0 million incremental increase in inventory spend, a $30.4 million increase in product development and engineering expenses due to higher staffing-related costs, increases in operating supplies and contracted 37 research, and fluctuations in the timing of development activities, and a $5.4 million increase in SG&A expenses due to higher staffing-related costs.
Operating cash flows for fiscal year 2023 compared to fiscal year 2022 were unfavorably impacted by a $7.3 million debt commitment fee, a $67.6 million increase in SG&A expenses primarily due to share-based compensation acceleration expense and other transaction costs related to the Sierra Wireless Acquisition, as well as restructuring costs, and a $19.5 million increase in product development and engineering expenses primarily due to share-based compensation acceleration expense and new product introduction expenses and fluctuations in the timing of development activities, and favorably impacted by a 2.1% increase in net sales and by a $22.8 million incremental decrease in inventory spend.
The "Base Rate" is equal to a fluctuating rate equal to the highest of (a) the prime rate of the Administrative Agent, (b) 0.50% above the federal funds effective rate published by the Federal Reserve Bank of New York and (c) one-month LIBOR (determined with respect to deposits in U.S. Dollars), plus 1.00%.
The "Base Rate" is equal to a fluctuating rate equal to the highest of (a) the Prime Rate (as defined in the Credit Agreement), (b) 0.50% above the NYFRB Rate (as defined in the Credit Agreement) and (c) one-month Adjusted Term SOFR (as defined in the Credit Agreement) plus 1.00%.
Sources of Liquidity Operating Cash Flows Operating cash flows were $203.1 million or 27.4% of net sales in fiscal year 2022 and $118.9 million or 20.0% of net sales in fiscal year 2021 .
We expect to fund those cash requirements through our cash from operations and borrowings against our Revolving Credit Facility. Sources of Liquidity Operating Cash Flows Operating cash flows were $126.7 million or 16.7% of net sales in fiscal year 2023 and $203.1 million or 27.4% of net sales in fiscal year 2022 .
We use judgment in estimating whether or not our deferred tax assets will ultimately be realized, expected outcomes of audits and likelihood of our tax positions being sustained, forecasted earnings and available tax planning strategies. 38 • Goodwill - We perform a goodwill impairment assessment on an annual basis, during the fourth quarter of each fiscal year, or more frequently if indicators of impairment exist.
We use judgment in estimating whether or not our deferred tax assets will ultimately be realized, expected outcomes of audits and likelihood of our tax positions being sustained, forecasted earnings and available tax planning strategies. • Business Combinations and Goodwill - The Sierra Wireless Acquisition was accounted for under the acquisition method by assigning the purchase price to tangible and intangible assets acquired and liabilities assumed.
Dollars accrues, at our option, at a rate per annum equal to (1) the Base Rate (as defined below) plus a margin ranging from 0.25% to 1.25% depending upon our consolidated leverage ratio or (2) LIBOR (determined with respect to deposits in U.S.
Dollars accrues, at our option, at a rate per annum equal to (1) the Base Rate (as defined below) plus a margin ranging from 0.25% to 1.25% depending upon our consolidated leverage ratio (except that, during the period that financial covenant relief pursuant to the First Amendment is in effect, the margin is deemed to be 1.50% per annum) or (2) Adjusted Term SOFR (as defined in the Credit Agreement, including certain credit spread adjustments) for an interest period to be selected by us plus a margin ranging from 1.25% to 2.25% depending upon our consolidated leverage ratio (except that, during the period that financial covenant relief pursuant to the First Amendment is in effect, the margin is deemed to be 2.50% per annum) (such margin, the "Applicable Margin").
Our effective tax rate for fiscal year 2022 differs from the statutory federal income tax rate of 21% primarily due to our regional mix of income, the impact of tax credits generated, and the recognition of excess tax benefits related to share-based compensation. We receive a tax benefit from a tax holiday that was granted in Switzerland.
Our effective tax rate for fiscal year 2023 differs from the statutory federal income tax rate of 21% primarily due to our regional mix of income, impact of global intangible low-taxed income ("GILTI") and research and development ("R&D") tax credits.
During fiscal year 2021, the infrastructure end market increased by $35.6 million driven by an approximately $20 million increase in PON sales and an approximately $17 million increase in data center demand.
Net sales from our infrastructure end market increased $22.8 million driven by an approximately $37 million increase in PON sales, partially offset by an approximately $11 million decline in data center demand and an approximately $5 million decrease in wireless infrastructure sales.
The remaining 87%, 82% and 72% of net sales, respectively, were made through independent distributors. The decline in direct sales is due to customers electing to leverage the value of distribution to better manage their supply chain. Our business relies on foreign-based entities.
Many customers include cancellation provisions in their purchase orders. Sales made directly to custome rs during fiscal years 2023, 2022 and 2021 were approximately 15%, 13% and 18% of net sales, respectively. The remaining 85%, 87% and 82% of net sales, respectively, were made through independent distributors. Our business relies on foreign-based entities.
The Company and the guarantors have also pledged substantially all of their assets to secure their obligations under the Credit Agreement. No amortization is required with respect to the revolving loans and we may voluntarily prepay borrowings at any time and from time to time, without premium or penalty, other than customary "breakage costs" and fees for LIBOR-based loans.
The Company and the guarantors have also pledged substantially all of their assets to secure their obligations under the Credit Agreement. No amortization is required with respect to the revolving loans. The Term Loans amortize in equal quarterly installments of 1.25% of the original principal amount thereof, with the balance due at maturity.
No impairment of goodwill has been recorded over the past three fiscal years. New Accounting Standards New accounting standards are discussed in Note 2 to the Consolidated Financial Statements.
New Accounting Standards New accounting standards are discussed in Note 2, Significant Accounting Policies, to our Consolidated Financial Statements.
Operating Costs and Expenses Fiscal Years (in thousands, except percentages) 2022 2021 Cost/Exp. % Net Sales Cost/Exp. % Net Sales Change Selling, general and administrative $ 168,210 23 % $ 162,832 27 % 3 % Product development and engineering 147,925 20 % 117,529 20 % 26 % Intangible amortization 4,942 1 % 8,265 1 % (40) % Changes in the fair value of contingent earn-out obligations (13) — % (33) — % (61) % Total operating costs and expenses $ 321,064 44 % $ 288,593 48 % 11 % Selling, General & Administrative Expenses SG&A expenses for fiscal year 2022 increase d by $5.4 million primarily driven by an increase of approximately $3 million in staffing-related costs, including performance-based compensation. 33 Product Development and Engineering Expenses Product development and engineering expenses for fiscal years 2022 and 2021 were $147.9 million and $117.5 million , respectively, or an increase of 26% .
Operating Costs and Expenses, net Fiscal Years (in thousands, except percentages) 2023 2022 Cost/Exp. % Net Sales Cost/Exp. % Net Sales Change Selling, general and administrative $ 235,801 31 % $ 168,210 23 % 40 % Product development and engineering 167,450 22 % 147,925 20 % 13 % Intangible amortization 821 — % — — % 100 % Gain on sale of business (18,313) (2) % — — % (100) % Changes in the fair value of contingent earn-out obligations — — % (13) — % 100 % Total operating costs and expenses, net $ 385,759 51 % $ 316,122 43 % 22 % Selling, General & Administrative Expenses SG&A expenses for fiscal year 2023 increase d by $67.6 million primarily driven by approximately $34 million of share-based compensation acceleration expense, approximately $29 million of other transaction costs related to the Sierra Wireless Acquisition and approximately $11 million in restructuring expense, partially offset by an $11 million decrease in share-based compensation caused by the impact of the lower closing stock price at year-end on the cash-settled awards.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeSee above under "Liquidity and Capital Resources - Credit Facility" for the interest rates applicable to U.S. and Alternative Currencies borrowings under our Credit Facility in excess of $150.0 million.
Biggest changeSee above under "Liquidity and Capital Resources - Credit Facility" for the interest rates applicable to U.S. and Alternative Currencies borrowings under our Revolving Credit Facility in excess of $150.0 million. Interest rates also affect our return on excess cash and investments. As of January 29, 2023, we had $235.5 million of cash and cash equivalents.
We do not enter into formal hedging arrangements to mitigate against commodity risk. Foreign Currency Risk Our foreign operations expose us to the risk of fluctuations in foreign currency exchange rates against our functional currency (the U.S. Dollar) and we may economically hedge this risk with foreign currency contracts (such as currency forward contracts).
We do not enter into formal hedging arrangements to mitigate against commodity risk. Foreign Currency Risk Our foreign operations expose us to the risk of fluctuations in foreign currency exchange rates against our functional currencies and we may economically hedge this risk with foreign currency contracts (such as currency forward contracts).
A majority of our cash and cash equivalents generate interest income based on prevailing interest rates. Investments and cash and cash equivalents generated interest income, net of reserves, of $1.5 million in fiscal year 2022. A significant change in interest rates would impact the amount of interest income generated from our cash and investments.
A majority of our cash and cash equivalents generate interest income based on prevailing interest rates. Interest income, net of reserves, generated by our investments and cash and cash equivalents was $5.8 million in fiscal year 2023. A significant change in interest rates would impact the amount of interest income generated from our cash and investments.
Gains or losses on these non-U.S.-currency balances are generally offset by corresponding losses or gains on the related hedging instruments. As of January 30, 2022 , our largest foreign currency exposures were from the Canadian Dollar, Swiss Franc, and Great British Pound.
Gains or losses on these balances are generally offset by corresponding losses or gains on the related hedging instruments. As of January 29, 2023 , our largest foreign currency exposures were from the Canadian Dollar, Swiss Franc and Great British Pound.
Interest Rate and Credit Risk We are subject to interest rate risk in connection with the portion of the outstanding debt under our Credit Facility that bears interest at a variable rate as of January 30, 2022 .
Interest Rate and Credit Risk We are subject to interest rate risk in connection with the portion of the outstanding debt under our Credit Agreement that bears interest at a variable rate as of January 29, 2023 .
These reasonably possible adverse changes were applied to our total monetary assets and liabilities denominated in currencies other than our functional currency as of January 30, 2022 , to compute the adverse impact these changes would have had (after taking into account balance sheet hedges only) on our income before taxes, to show an impact of $1.7 million.
These reasonably possible adverse changes were applied to our total monetary assets and liabilities denominated in currencies other than our functional currency as of January 29, 2023. The adverse impact these changes would have had (after taking into account balance sheet hedges only) on our income before taxes is $2.4 million.
During fiscal year 2021, we entered into an interest rate swap agreement with a three-year term to hedge the variability of interest payments on the first $150.0 million of debt outstanding under our Credit Facility.
During fiscal year 2021, we entered into an interest rate swap agreement with a three-year term to hedge the variability of interest payments on the first $150.0 million of debt outstanding under our Revolving Credit Facility at a LIBOR-referenced rate of 0.73%, plus a 53 variable margin and spread based on our consolidated leverage ratio.
Removed
Based on our current leverage ratio as of January 30, 2022 , interest payments on the first $150.0 million of our debt outstanding under our Credit Facility are fixed at 1.9775%.
Added
On January 12, 2023, we entered into an interest rate swap agreement with a five-year term to hedge the variability of interest payments on the first $450.0 million of debt outstanding on the Term Loans at a Term SOFR rate of 3.44%, plus a variable margin and spread based on our consolidated leverage ratio.
Removed
Based upon the amount of our outstanding indebtedness as of January 30, 2022 , a one percentage point increase in LIBOR would not have a material impact on our annual interest expense as only $23.0 million of our outstanding debt balance remains subject to a floating rate. The Chief Executive of the U.K.
Added
Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds, have in the past and may in the future lead to market-wide liquidity problems.
Removed
Financial Conduct Authority (the “FCA”), which regulates LIBOR, announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of LIBOR after 2021.
Added
Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of cash, cash equivalents and marketable securities. We maintain cash held in deposit at financial institutions in the U.S.
Removed
For U.S. dollar LIBOR, publication of the one-week and two-month LIBOR settings ceased on December 31, 2021, and publication of the overnight and 12-month LIBOR settings will cease after June 30, 2023. Immediately after June 30, 2023, the one-month, three-month and six-month U.S. dollar LIBOR settings will no longer be representative.
Added
These deposits are insured by the FDIC in an amount up to $250,000 for any depositor, and with respect to SVB are fully insured per recent correspondence from the FDIC.
Removed
Given these changes, the LIBOR administrator has advised that no new contracts using U.S. dollar LIBOR should be entered into after December 31, 2021. It is also possible that U.S.
Added
To the extent we hold cash deposits in amounts that exceed the FDIC insurance limitation, we may incur a loss in the event of a failure of any of the financial institutions where we maintain deposits.
Removed
LIBOR will be discontinued or modified prior to June 30, 2023. 39 Our Credit Facility provides that, if it is publicly announced that the administrator of LIBOR has ceased or will cease to provide LIBOR, if it is publicly announced by the applicable regulatory supervisor that LIBOR is no longer representative, or if either the administrative agent or lenders holding 50% of the aggregate principal amount of our revolving commitments and term loans elect, we and the administrative agent may amend our Credit Agreement to replace LIBOR with an alternate benchmark rate.
Added
Management believes we are not exposed to significant risk due to the financial position of the depository institution, but will continue to monitor regularly and adjust, if needed, to mitigate risk. We have established guidelines regarding diversification of our investments and their maturities, which are designed to maintain principal and maximize liquidity.
Removed
This alternative benchmark rate may include a forward-looking term rate that is based on the secured overnight financing rate, also known as SOFR, published by the Federal Reserve Bank of New York. Interest rates also affect our return on excess cash and investments. As of January 30, 2022, we had $279.6 million of cash and cash equivalents.
Added
To date, we have not experienced any losses associated with this credit risk and continue to believe that this exposure is not significant. 54
Removed
We evaluate the credit risk of these investments on a quarterly basis and increased our credit loss reserves by $1.1 million in fiscal year 2022, related to the credit risk on our debt securities investments, resulting in a credit loss reserve balance on our AFS debt securities and held-to-maturity debt securities of $4.5 million as of January 30, 2022. 40

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