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What changed in Credo Technology Group Holding Ltd's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Credo Technology Group Holding Ltd'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.

+429 added−465 removedSource: 10-K (2023-06-23) vs 10-K (2022-06-08)

Top changes in Credo Technology Group Holding Ltd's 2023 10-K

429 paragraphs added · 465 removed · 320 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

52 edited+16 added−39 removed38 unchanged
Biggest changeIntended for rack-to-rack connectivity, these cables support up to 7-meter reach, consume up to 50% less power than AOCs, cost up to 50% less than AOCs and offer a 10-year service life. • Credo’s HiWire SHIFT AECs are a lower power, lower cost replacement to optical transceivers for high-speed interconnects that provides connectivity between PAM4 (a modulation scheme that doubles a network’s data rate by combining two bits into a single symbol with four amplitude levels) and non-return-to-zero (NRZ) ports with speed shifting and forward error correction (FEC) termination in-cable. • Credo HiWire CLOS AECs are specifically designed for high density in-rack or HPC rack-to-rack interconnect to support CLOS architectures, a type of non-blocking, multistage switching architecture that reduces the number of ports required in an interconnected fabric.
Biggest changeIn some cases, this involves speed shifting functionality where lane speeds are changed (e.g., one lane of 112G becomes 2 lanes of 56G), modulation 11 schemes are changes (e.g., PAM4 symbol becomes two non-return-to-zero (NRZ) symbols) and forward error correction is terminated and/or generated to ensure a plug and play bridge between two different speed hosts. • Credo HiWire CLOS AECs are specifically designed for high density in-rack or HPC rack-to-rack interconnect to support CLOS architectures, a type of non-blocking, multistage switching architecture that reduces the number of ports required in an interconnected fabric.
Our direct sales force is supported by marketing, business development and Field Application Engineer teams across our regions. These teams are organized to align with our product verticals. Manufacturing & Suppliers We utilize a fabless business model, working with a network of third parties to manufacture, assemble, and test our connectivity products.
Our direct sales force is supported by marketing, business development and Field Application Engineer teams across our regions. These teams are organized to align with our product verticals. Manufacturing and Suppliers We utilize a fabless business model, working with a network of third parties to manufacture, assemble and test our connectivity products.
We rely on third parties to manufacture our products and require our suppliers to maintain a safe work environment, as described in further detail under “—Manufacturing & Suppliers.” Facilities We lease 87,608 square feet of office space in San Jose, California under a lease expiring on October 31, 2030.
We rely on third parties to manufacture our products and require our suppliers to maintain a safe work environment, as described in further detail under “—Manufacturing and Suppliers.” Facilities We lease 87,608 square feet of office space in San Jose, California under a lease expiring on October 31, 2030.
The principal competitive factors in our market include: • success in identifying new and emerging markets, applications and technologies; • product performance, power efficiency and cost-effectiveness; • ability to provide a broad range of connectivity products and solutions; • ability to deliver products in large volume on a timely basis at a competitive price; • ability to offer products and features previously not available in the marketplace; and • extent of IP protection and enforcement of rights.
The principal competitive factors in our market include: • success in identifying new and emerging markets, applications and technologies; • product performance, power efficiency and cost-effectiveness; 14 • ability to provide a broad range of connectivity products and solutions; • ability to deliver products in large volume on a timely basis at a competitive price; • ability to offer products and features previously not available in the marketplace; and • extent of IP protection and enforcement of rights.
Intellectual Property (“IP”) Our commercial success depends in part on our ability to obtain and maintain intellectual property protection for our brand and technology, defend and enforce our intellectual property rights, preserve the confidentiality of our trade secrets, operate our business without infringing, misappropriating or otherwise violating the intellectual property or proprietary rights of third parties and prevent third parties from infringing, misappropriating or otherwise violating our intellectual property rights.
Intellectual Property Our commercial success depends in part on our ability to obtain and maintain intellectual property protection for our brand and technology, defend and enforce our intellectual property rights, preserve the confidentiality of our trade secrets, operate our business without infringing, misappropriating or otherwise violating the intellectual property or proprietary rights of third parties and prevent third parties from infringing, misappropriating or otherwise violating our intellectual property rights.
This 14 enables the simplicity of a single NIC-ToR connector for the server and user with reliability and convergence times that are superior to legacy link aggregation structures. • Credo HiWire SPAN AECs are a plug and play replacement of AOC for high-speed interconnects.
This enables the simplicity of a single NIC-ToR connector for the server and user with reliability and convergence times that are superior to legacy link aggregation structures. • Credo HiWire SPAN AECs are a plug and play replacement of AOC for high-speed interconnects.
We designed our SerDes IP to optimally balance performance, power and manufacturing process costs and risks. Our patented mixed signal and DSP architectures are the foundation of our high-performance 15 and low-power SerDes technology.
We designed our SerDes IP to optimally balance performance, power and manufacturing process costs and risks. Our patented mixed signal and DSP architectures are the foundation of our high-performance and low-power SerDes technology.
With up to 50% less power than optical solutions and up to 75% less volume than DACs, these AECs enable CLOS cabling densities up to 1,000 cables per rack. Optical DSPs: We provide high-performance, low-power and cost-effective 50G to 400G PAM4 optical DSPs across a broad spectrum of use cases, speeds and bandwidths.
With up to 50% less power than optical solutions and up to 75% less volume than DACs, these AECs enable CLOS cabling densities up to 1,000 cables per rack. Optical DSPs: We provide high-performance, low-power and cost-effective 50G to 800G PAM4 optical DSPs across a broad spectrum of use cases, speeds and bandwidths.
Our patent and patent application portfolio primarily relates to four main areas: Ethernet standard, network cable technology, chip manufacturing and MCM and SerDes cores. These issued patents, and any patents granted from such applications, are expected to expire between 2029 and 2042, without taking potential patent term extensions or adjustments into account.
Our patent and patent application portfolio primarily relates to four main areas: Ethernet standard, network cable technology, chip manufacturing and MCM and SerDes cores. These issued patents, and any patents granted from such applications, are expected to expire between 2029 and 2043, without taking potential patent term extensions or adjustments into account.
Our product families include integrated circuits (ICs), Active Electrical Cables (AECs) and SerDes Chiplets. Our IP solutions consist primarily of SerDes IP licensing. Data generation has increased dramatically over the past ten years, creating new and complicated challenges in both circuit and system design.
Our product families include integrated circuits (ICs), Active Electrical Cables (AECs) and SerDes Chiplets. Our intellectual property (IP) solutions consist primarily of SerDes IP licensing. Data generation has increased dramatically over the past ten years, creating new and complicated challenges in both circuit and system design.
Culture of Continuous Innovation: We have a history of innovation and pioneering new technologies including: • Early demonstration and productization of 112G SerDes for Optical and Electrical links • Pioneer in 100G, 200G and 400G AEC market, establishing a new product category • Industry-leading low-power gearbox for 56G and 112G per lane applications • Delivering 112G XSR IP for MCM solutions • Production shipments of SerDes Chiplets, including two versions of 3.2Tbps Chiplets • Shipping industrial temperature (iTemp) PAM4 DSP for 5G market • First to deliver 40G PAM3 SerDes • Created HiWire Switch cable and open-sourced implementation with Microsoft in order to help realize their vision for a highly reliable network-managed dual-ToR architecture 13 We believe our culture of continuous innovation positions us as a market leader with best-in-class products and IP solutions.
Culture of Continuous Innovation: We have a history of innovation and pioneering new technologies including: • Early demonstration and productization of 112G SerDes for Optical and Electrical links • Pioneer in 100G, 200G, 400G, 800G and emerging 1.6T AEC market, establishing a new product category • Industry-leading low-power gearbox for 56G and 112G per lane applications • Delivering 112G XSR IP for MCM solutions • Production shipments of SerDes Chiplets, including two versions of 3.2Tbps Chiplets • Shipping industrial temperature (iTemp) PAM4 DSP for 5G market • First to deliver 40G PAM3 SerDes • Created HiWire Switch cable and open-sourced implementation with Microsoft in order to help realize their vision for a highly reliable network-managed dual-ToR architecture We believe our culture of continuous innovation positions us as a market leader with best-in-class products and IP solutions.
Our innovations ease system bandwidth bottlenecks while simultaneously improving on power, security and reliability. Our connectivity solutions are optimized for optical and electrical Ethernet applications, including the emerging 100G (or Gigabits per second), 200G, 400G and 800G markets. Our products are based on our Serializer/Deserializer (SerDes) and Digital Signal Processor (DSP) technologies.
Our innovations ease system bandwidth bottlenecks while simultaneously improving on power, security and reliability. Our connectivity solutions are optimized for optical and electrical Ethernet applications, including the 100G (or Gigabits per second), 200G, 400G, 800G and emerging 1.6T (or Terabits per second) markets. Our products are based on our Serializer/Deserializer (SerDes) and Digital Signal Processor (DSP) technologies.
We make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports, available free of charge at our website as soon as reasonably practicable after they have been filed with the SEC. 19
We make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports, available free of charge at our website as soon as reasonably practicable after they have been filed with, or furnished to, the SEC.
Top Industry Talent and Experienced Leadership Team: We employ an engineering-focused workforce as well as a highly technical management team with deep industry experience and connectivity expertise. Our global team included 310 engineers as of April 30, 2022, while our international footprint allows us to continue attracting talent needed to support our business.
Top Industry Talent and Experienced Leadership Team: We employ an engineering-focused workforce as well as a highly technical management team with deep industry experience and connectivity expertise. Our global team included 353 engineers as of April 29, 2023, while our international footprint allows us to continue attracting talent needed to support our business.
A recent example is the announcement of our HiWire Switch AEC and open-source implementation with Microsoft that helps realize Microsoft’s vision for a highly reliable network-managed dual-Top-of-Rack (ToR) architecture (a network architecture design in which computing equipment located within the same or an adjacent rack are, for redundancy, connected to two in-rack network switches, which are, in turn, connected to aggregation switches via fiber optic cables), overcoming complex and slow legacy enterprise approaches, simplifying deployment and improving connection reliability in the datacenter.
We partner with Microsoft on our HiWire Switch AEC and open-source implementation that helps realize Microsoft’s vision for a highly reliable network-managed dual-Top-of-Rack (ToR) architecture (a network architecture design in which computing equipment located within the same or an adjacent rack are, for redundancy, connected to two in-rack network switches, which are, in turn, connected to aggregation switches via fiber optic cables), overcoming complex and slow legacy enterprise approaches, simplifying deployment and improving connection reliability in the data center.
Hyperscalers, which are companies with the ability to seamlessly provision and add compute, memory, networking, and storage resources to a given node or set of nodes that make up a larger computing, distributed computing or grid computing environment, are one of the primary drivers of demand for high-speed, low-power connectivity solutions.
Hyperscalers, which have the ability to seamlessly provision and add compute, memory, networking, and storage resources to a given node or set of nodes that make up a larger computing, distributed computing, or grid computing environment, drive demand for high-speed, low-power connectivity solutions.
HiWire AECs: HiWire AECs are copper interconnect cables designed for affordable, low-power operation at 100G, 200G, 400G, and 800G data speeds. HiWire AECs enable hyperscalers and 5G architects to accelerate the transition to DDC by offering a high-performance alternative to short, thick DACs and high-power, high-cost AOCs.
HiWire AECs: HiWire AECs are copper interconnect cables designed for affordable, low-power operation at 100G, 200G, 400G, 800G and emerging 1.6T data speeds. HiWire AECs enable hyperscalers and 5G architects to accelerate the transition to Distributed, Disaggregated Chassis (DDC) by offering a high-performance alternative to short, thick Direct Attach Cables (DACs) and high-power, high-cost Active Optical Cables (AOCs).
Geographically, 36% and 75% of our total revenue in fiscal 2022 and 2021, respectively, was generated from customers in North America, and 64% and 25% of our total revenue in fiscal 2022 and 2021, respectively, was generated from customers in the rest of the world, primarily in Asia.
Geographically, 31% and 36% of our total revenue in fiscal 2023 and 2022, respectively, was generated from customers in North America, and 69% and 64% of our total revenue in fiscal 2023 and 2022, respectively, was generated from customers in the rest of the world, primarily in Asia.
Our extensive optical product portfolio comprising our Dove and Seagull product families includes PAM4 DSPs for 50G, 100G, 200G, 400G and 800G PAM4 optical interconnects. Our proprietary DSP technology and equalization techniques help compensate for optical impairments to achieve optimal overall system performance, signal integrity and power efficiency.
They utilize our industry-leading transmitters and are optimized for cost-effective production. Our extensive optical product portfolio comprising our Dove and Seagull product families includes PAM4 DSPs for 50G, 100G, 200G, 400G and 800G PAM4 optical interconnects. Our proprietary DSP technology and equalization techniques help compensate for optical impairments to achieve optimal overall system performance, signal integrity and power efficiency.
During fiscal 2022 and 2021, we generated $22.2 million and $27.5 million in net loss, respectively.
During fiscal 2023 and 2022, we generated $16.5 million and $22.2 million in net loss, respectively.
We intend to continue investing in research and development in our SerDes design to expand our technology leadership. • Broaden our portfolio of products and IP solutions.
Our proprietary SerDes architectures have underpinned our products and IP solutions since our inception. We intend to continue investing in research and development in our SerDes design to expand our technology leadership. • Broaden our portfolio of products and IP solutions.
We also lease approximately 56,348 square feet of office space in Shanghai, mainland China under leases expiring November 30, 2024 (with an option to extend), and approximately 18,537 square feet of office space in Zhubei City, Taiwan, under a lease expiring June 30, 2023. We lease additional small spaces in mainland China and the United States to support local staff.
We also lease approximately 56,348 square feet of office space in Shanghai, mainland 15 China under leases expiring November 30, 2024 (with an option to extend), and approximately 18,537 square feet of office space in Zhubei City, Taiwan, under a lease expiring June 30, 2023.
We rely on a combination of intellectual property rights, including patents, trade secrets, copyrights and trademarks, and contractual protections, to protect our core technology. As of April 30, 2022, we owned 51 issued patents and 24 pending patent applications in the United States, and 17 issued patents and 37 pending patent applications in mainland China.
We rely on a combination of intellectual property rights, including patents, trade secrets, copyrights and trademarks, and contractual protections, to protect our core technology. As of April 29, 2023, we owned 62 issued patents and 18 pending patent applications in the United States, and 22 issued patents and 40 pending patent applications in mainland China.
Research and Development We view our technology as a competitive advantage and devote substantial resources to the research and development of new products and the improvement of existing products. We have committed, and plan to continue to commit significant resources to technology and product innovation and development.
Research and Development We view our technology as a competitive advantage and devote substantial resources to the research and development of new products and the improvement of existing products.
Our principal competitors with respect to our products include Broadcom and Marvell, as well 17 as various DAC suppliers. Our principal competitors with respect to IP licensing include Synopsys, Cadence and Alphawave.
Our principal competitors with respect to our products include Broadcom Ltd. (Broadcom) and Marvell Technology, Inc. (Marvell), as well as various DAC suppliers. Our principal competitors with respect to IP licensing include Synopsys, Inc. (Synopsys), Cadence Design Systems, Inc. (Cadence) and Alphawave IP Group plc (Alphawave).
Nevertheless, as part of our commitment to long-term innovation, we continuously develop technology in cutting-edge fabrication processes such as 5nm in order to enhance our competitive position, and to serve the market of IP licensing customers whose logic requires cutting-edge fabrication processes.
Nevertheless, as part of our commitment to long-term innovation, we continuously develop technology in cutting-edge fabrication processes such as 5nm in order to enhance our competitive position, and to serve the market of IP licensing customers whose logic requires cutting-edge fabrication processes. 12 Our Customers We sell our products to hyperscalers, OEMs, ODMs and optical module manufacturers, as well as into the enterprise and HPC markets.
This strategy has enabled us to become the preferred vendor to a number of our customers across the world who, in turn, require their suppliers, OEMs, ODMs and optical module manufacturers, to utilize our solutions.
This strategy has enabled us to become the preferred vendor to a number of our customers across the world who, in turn, require their suppliers, OEMs, ODMs and optical module manufacturers to utilize our solutions. We sell our solutions worldwide through our direct sales force. We have a sales presence in North America, Asia and Europe.
Our registered mailing address is c/o Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. Our principal website is www.credosemi.com. The information contained on, or that can be accessed through, our website is not a part of this prospectus or the registration statement of which it forms a part.
Our registered mailing address is c/o Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. Our principal website is www.credosemi.com. The information contained on, or that can be accessed through, our website is not incorporated by reference into this Annual Report on Form 10-K.
Employees and Human Capital Resources As of April 30, 2022, approximately 81% of our 382 full-time equivalent employees were engineers. Of our employees, 147 are located in North America and 235 are located in Asia.
Employees and Human Capital Resources As of April 29, 2023, approximately 81% of our 438 full-time equivalent employees were engineers. Of our employees, 174 were located in North America and 264 were located in Asia.
For all of our products, we use TSMC for semiconductor wafer production. • Package, Assembly and Testing : Upon the completion of processing at the foundry, we use third-party contractors for packaging, assembly and testing, including Amkor and ASE for 16 packaging our IC products, KYEC and TeraPower for testing our IC products and BizLink and Foxlink for manufacturing our AEC products.
For all of our products, we use Taiwan Semiconductor Manufacturing Company Limited (TSMC) for semiconductor wafer production. • Package, Assembly and Testing : Upon the completion of processing at the foundry, we use third-party contractors for packaging, assembly and testing, including Amkor Technology Inc. (Amkor) and Advanced Semiconductor Engineering, Inc.
We also comply with applicable laws and regulations regarding workplace safety and are subject to audits by entities such as the Occupational Safety and Health Administration in the United States.
We believe that this fosters harmony within the company, as all teams are working together towards the same goals. We also comply with applicable laws and regulations regarding workplace safety and are subject to audits by entities such as the Occupational Safety and Health Administration in the United States.
Sales and Marketing We employ a two-pronged sales strategy targeting both the end users of our products, as well as the suppliers of our end users. By engaging directly with the end user, we are able to better understand the needs of our customers and cater our solutions to their most pressing connectivity requirements.
By engaging directly with the end user, we are able to better understand the needs of our customers and cater our solutions to their most pressing connectivity requirements.
The DSPs enable optical interconnect for cloud-scale, hyperscale and enterprise data center build-outs with 100G to 800G PAM4 optical modules and build-outs for 5G wireless service providers with 50G optical modules . These full-featured DSPs utilize our industry-leading transmitters and low bit error rate (BER) receivers, and are optimized for cost-effective production .
The DSPs enable optical interconnect for cloud-scale, hyperscale and enterprise data center build-outs with 100G to 800G PAM4 optical modules and build-outs for 5G wireless service providers with 50G optical modules . These full-featured DSPs provide high-performance sensitivity and a low bit error rate (BER), allowing margin for optical alignment and crosstalk.
Our purpose-built mixed-signal and DSP architectures are the foundation of our high-performance, power-efficient and cost-effective connectivity solutions. We believe this IP portfolio provides us with a significant competitive advantage.
Our purpose-built mixed-signal and DSP architectures are the foundation of our high-performance, power-efficient and cost-effective connectivity solutions. We believe this IP portfolio provides us with a significant competitive advantage. Comprehensive Family of Connectivity Solutions: Our extensive solutions portfolio includes HiWire AECs, Optical PAM4 DSPs, Line Card PHYs, SerDes Chiplets for Multi-Chip Module (MCM) package integration and SerDes IP licensing.
During fiscal 2022 and 2021, we generated $106.5 million and $58.7 million in total revenue, respectively. Product sales and product engineering services revenue comprised 77% and 63% of our total revenue in fiscal 2022 and 2021, respectively, and IP license and IP license engineering services revenue represented 23% and 37% of our total revenue in fiscal 2022 and 2021, respectively.
Product sales and product engineering services revenue comprised 83% and 77% of our total revenue in fiscal 2023 and 2022, respectively, and IP license and IP license engineering services revenue represented 17% and 23% of our total revenue in fiscal 2023 and 2022, respectively.
We develop standard solutions we can sell broadly to our end markets and also develop tailored solutions designed to address specific customer needs. Once developed, these tailored solutions can generally be broadly leveraged across our portfolio and we are able to sell the part or license the IP into the broader market.
Once developed, these tailored solutions can generally be broadly leveraged across our portfolio and we are able to sell the part or license the IP into the broader market. We have global sales, marketing and business development teams responsible for identifying and building our customer relationships.
We believe that our existing facilities are sufficient for our current needs. We intend to add new facilities and expand our existing facilities as we continue to add employees and grow our business. We believe that new spaces will be available at reasonable terms in the future in order to meet our needs.
We lease additional small spaces in mainland China and the United States to support local staff. We believe that our existing facilities are sufficient for our current needs. We intend to add new facilities and expand our existing facilities as we continue to add employees and grow our business.
We have global sales, marketing and business development teams responsible for identifying and building our customer relationships. We sell our products to hyperscalers and cloud infrastructure providers, as well as 5G wireless, enterprise networking and HPC customers.
We sell our products to hyperscalers and cloud infrastructure providers, as well as MNO, MSO, 5G wireless, enterprise networking and HPC customers.
We are engaged with five of the top seven hyperscalers (measured by their total capital expenditures across all vendors for the twelve months ended April 30, 2022), and our customer base includes over 20 blue chip clients, including more than 10 original equipment manufacturers (OEMs) and original design manufacturers (ODMs), over 10 optical module manufacturers, and other leading enterprises.
We are engaged with all of the major hyperscalers, and our customer base includes over 20 blue chip clients, including more than 10 original equipment manufacturers (OEMs) and original design manufacturers (ODMs), over 10 optical module manufacturers and other leading enterprises. 8 During fiscal 2023 and 2022, we generated $184.2 million and $106.5 million in total revenue, respectively.
Our Customers We sell our products to hyperscalers, OEMs, ODMs and optical module manufacturers, as well as into the enterprise and HPC markets. We work closely and have engagements with industry-leading companies across these segments. We currently rely and expect to continue to rely on a limited number of customers for a significant part of our revenue.
We work closely and have engagements with industry-leading companies across these segments. We currently rely and expect to continue to rely on a limited number of customers for a significant part of our revenue. In fiscal 2023, sales to our top 10 customers accounted for approximately 90% of our total revenue.
Our Growth Strategy To further our mission of providing secure, high-speed connectivity solutions, we intend to focus on the following strategic areas: • Extend our leadership in SerDes technologies. Our proprietary SerDes architectures have underpinned our products and IP solutions since our inception.
Many of our executives have more than 20 years of semiconductor innovation experience and an extensive track record of successful leadership across multiple semiconductor companies. 10 Our Growth Strategy To further our mission of providing secure, high-speed connectivity solutions, we intend to focus on the following strategic areas: • Extend our leadership in SerDes technologies.
Our Retimers, Gearboxes and MACsec / IPSEC devices support PAM4 / NRZ backplane and line card connectivity up to 112G per lane, supporting platforms up to 25.6 Terabits per second (Tbps) with 800G ports. Dedicated and multi-mode Retimers, Gearboxes and MACsecs, built around our low-power, high-performance SerDes IP, enable our customers to meet performance, power and price objectives.
Line Card PHYs: We are enabling data connectivity and security in hyperscale and enterprise data centers with leading edge, low-power line card PHY solutions. Our Retimers, Gearboxes and MACsec/IPSEC devices support PAM4/NRZ backplane and line card connectivity up to 112G per lane, supporting platforms up to 25.6 Terabits per second (Tbps) with 800G ports.
As the bandwidth of interconnects increase, the complexity of the design for signal transmission increases.
SerDes Chiplets: SerDes technology enables data transmission at high rates while minimizing the number of interconnects required. As the bandwidth of interconnects increase, the complexity of the design for signal transmission increases.
We have assembled a team of highly skilled engineers with deep signal processing expertise who are located in San Jose, California, mainland China and Taiwan. As of April 30, 2022, we employed 310 engineers. Research and development expenses for fiscal 2022 and 2021 were $47.9 million and $34.8 million, respectively.
We have committed, and plan to continue to commit, significant resources to technology and product innovation and development. 13 We have assembled a team of highly skilled engineers with deep signal processing expertise who are located in San Jose, California, mainland China and Taiwan. As of April 29, 2023, we employed 353 engineers.
Beyond hyperscalers and 5G networking, the evolution of connectivity standards for servers such as Peripheral Component Interconnect Express and consumer devices such as Universal Serial Bus (USB) present an additional long-term opportunity. As these connectivity standards move to higher-speed data rates and higher order modulation, innovation in power efficiency and cost efficiency will be required to deliver competitive connectivity solutions.
As these connectivity standards move to higher-speed data rates and higher order modulation, innovation in power efficiency and cost efficiency will be required to deliver competitive connectivity solutions.
Our Line Card PHY product families include our Black Hawk and Bald Eagle products for Retimers and Gearboxes, as well as our Owl series for MACsec / IPSEC applications. SerDes Chiplets: SerDes technology enables data transmission at high rates while minimizing the number of interconnects required.
Dedicated and multi-mode Retimers, Gearboxes and MACsecs, each built around our low-power, high-performance SerDes IP, enable our customers to meet performance, power and price objectives. Our Line Card PHY product families include our Black Hawk and Bald Eagle products for Retimers and Gearboxes, as well as our Owl series for MACsec/IPSEC applications.
The multibillion dollar data infrastructure market that we serve is driven largely by hyperscale data centers (hyperscalers), high performance computing (HPC) and 5G infrastructure. The demands for increased bandwidth, improved power and cost efficiency and heightened security have simultaneously and dramatically expanded as work, education and entertainment have rapidly digitized across myriad endpoint users.
The demands for increased bandwidth, improved power and cost efficiency and heightened security have simultaneously and dramatically expanded as work, education and entertainment have rapidly digitized across myriad endpoint users. We design, market and sell both product and IP solutions. We help define industry conventions and standards within the markets we target by collaborating with technology leaders and standards bodies.
In fiscal 2022, we had four customers that each accounted for 10% or more of our total revenue. Each of the four customers accounted for 30%, 18%, 11% and 10%, respectively, of our fiscal 2022 revenue.
Furthermore, we had three customers that each accounted for 10% or more of our total fiscal 2023 revenue with the three customers accounting for 46%, 13% and 12%, respectively. In fiscal 2023, 31% of our revenue was derived from customers based in North America, and 69% was derived from customers based in Asia and other regions.
In fiscal 2022, 36% of our revenue was derived from customers based in North America, and 64% was derived from customers based in Asia and other regions. The percentages in the preceding sentence are calculated based on destination of shipment and location of contracting entity, which may differ from the end customer’s principal offices.
The percentages in the preceding sentence are calculated based on destination of shipment for products, and location of contracting entity for IP and engineer services, which may differ from the end customer’s principal offices. Sales and Marketing We employ a two-pronged sales strategy targeting both the end users of our products, as well as the suppliers of our end users.
We are led by a team of seasoned semiconductor and connectivity experts. Many of our executives have more than 20 years of semiconductor innovation experience and an extensive track record of successful leadership across multiple semiconductor companies.
We are led by a team of seasoned semiconductor and connectivity experts.
Additionally, we intend to continue to develop 3 Gartner, Inc., Semiconductor Forecast Database, Worldwide, 2Q21 Update - June 2021 11 new offerings that will expand the capabilities of our portfolio and address a broader section of the total wired connectivity market. 12 Our Competitive Strengths We believe our key competitive strengths include the following: Foundational Intellectual Property: We believe our technology leadership is based on our strong SerDes IP portfolio.
We expect that demand for increasingly sophisticated connectivity solutions will grow alongside the evolution of these standards. 9 Our Competitive Strengths We believe our key competitive strengths include the following: Foundational Intellectual Property: We believe our technology leadership is based on our strong SerDes IP portfolio.
Industry Overview We believe we are well positioned to benefit from the strong secular tailwinds driving the data infrastructure market, which is being driven by several factors, including: Explosion of Data Generation and Network Traffic: Cloud workloads, already vast and expanding, the proliferation of streaming video, 5G wireless deployment, expansion of the Internet of Things (IoT) and growing adoption of artificial intelligence are creating an explosion of data, which is straining existing data infrastructure and forcing paradigm shifts from transistor to system level.
Industry Overview We believe we are well positioned to benefit from the strong secular tailwinds driving the data infrastructure market, which is being driven by several factors, including: AI/ML Drives an Explosion in Network Traffic: Our hyperscale customers are increasingly pursuing AI/ML infrastructure that requires rack scale interconnectivity densities that are significantly higher than their general compute infrastructure.
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Our proprietary SerDes and DSP technologies enable us to disrupt competition in existing markets, lead the way into emerging markets and innovate to create new market opportunities. While many others in the data infrastructure industry struggle to meet customers’ increasing performance and energy efficiency requirements, we continue to innovate to deliver groundbreaking solutions.
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Our proprietary SerDes and DSP technologies enable us to achieve similar performance to leading competitors’ products but in a lower cost, more highly available legacy node (n-1 advantage). Beyond power and performance, Credo continues to innovate to solve customers’ system level requirements.
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Within the data infrastructure ecosystem, we target the wired connectivity market as it relates to communication electronics, which Gartner forecasts will grow from $12 billion in 2020 to $17 billion in 2025. 1 650 Group forecasts that within this market, hyperscalers will be one of the primary drivers of growth for connectivity solutions and that higher speed 400G and 800G ports in the datacenter in particular will grow at a 49% compound annual growth rate (CAGR) from 2020 to 2025.
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The multibillion-dollar data infrastructure market that we serve is driven largely by hyperscale data centers (hyperscalers), as well as general compute, Artificial Intelligence and Machine Learning (AI/ML) infrastructure, multi-service operators (MSOs), and mobile network operators (MNOs).
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Additionally, we estimate that the market for high-speed connectivity products will grow from $2 billion in 2022 to $5 billion in 2025. Our core technology is standard-agnostic, and any high-speed connectivity environment, such as the enterprise, HPC or consumer environment, could be a target for our disruptive solutions.
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We contract with a variety of manufacturing partners to build our products based on our proprietary SerDes and DSP technologies. We develop standard solutions we can sell broadly to our end markets and also develop tailored solutions designed to address specific customer needs.
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We believe our market opportunity will continue to grow as the technical challenges of delivering higher speeds create increasingly challenging technical or cost hurdles for incumbent providers. We design, market and sell both product and IP solutions.
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The growth of AI/ML model sizes is driving an explosion in interconnectivity traffic which enables multiple physical devices to work on the same model at high speed and low latency.
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We help define industry conventions and standards within the markets we target by collaborating with technology leaders and standards bodies. 1 Gartner, Inc., Semiconductor Forecast Database, Worldwide, 2Q21 Update - June 2021 7 We contract with a variety of manufacturing partners to build our products based on our proprietary SerDes and DSP technologies.
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Credo provides Ethernet solutions to support this type of interconnectivity, and we believe that as this market matures, it will migrate away from proprietary solutions and towards Ethernet as the standard solution.
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According to International Data Corporation, the amount of data created, captured, copied and consumed in the world is expected to increase by approximately 2.8 times, from 64 Zettabytes (ZB) 2 in 2020 to more than 179ZB in 2025, reflecting a projected CAGR of 23%.
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Hyperscaler General Compute Traffic Doubles Every 2-3 Years: Our hyperscale customers are beginning to deploy Network Interface Card (NIC) speeds of 200G in 2023 with 400G on roadmaps for 2024.
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This rapid growth in data and the related data traffic across networks is leading to bandwidth barriers and bottlenecks, creating the need for solutions that can enable faster connectivity speeds while addressing power constraints and security requirements. Demand from All Corners of Digital Infrastructure: Increased data traffic requires increased data bandwidth.
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As NIC speeds double, there is a need for higher speed east-west traffic infrastructure to support applications such as Remote Direct Memory Access (RDMA), Nonvolative Memory Express (NVMe) and other high bandwidth applications, while maintaining high reliability and observability within the power and cost constraints of a modern data center.
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Participants across the data infrastructure ecosystem require higher performance connectivity solutions. We see this demand led by hyperscalers, whose position at the nexus of data infrastructure aggregates the incremental increases at the network edge, quickly followed by demand from 5G carriers.
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Our hyperscale customers are deploying 50G per lane electrical PAM4 data rates today and expect to begin deployments of 100G per lane electrical PAM4 solutions in 2024. Energy efficiency is becoming a key concern for customers as increased data transfer speeds require more energy to power and cool their systems.
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Furthermore, as the industry develops and bandwidth requirements proliferate, we expect to see these same dynamics extend more broadly, driving increased adoption in enterprise, HPC and consumer applications.
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Credo’s new low-power Screaming Eagle 112G/lane retimers and Dove800 DSPs are enabling our customers to achieve their technical objectives, as well as supporting the important ESG goals of our customers.
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By 2025, 650 Group forecasts that hyperscalers will purchase 39% of the Ethernet switches sold to the data center market, up from approximately 25% today.
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Similarly, with the global deployment of high-speed fixed-line and wireless networks, carriers are also increasingly seeking higher performance connectivity solutions to address their substantial growth in traffic. 5G wireless infrastructure has proliferated in some countries but still has much room for growth, and low earth orbit satellite IP solutions such as Starlink offer disruptive performance and cost for users who cannot access existing infrastructure.
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We expect hyperscalers to increase their bandwidth requirements as technological advances enable single-lane data rates to accelerate from 25G to 50G to 100G and beyond, powering link speeds of 100G, 200G/400G and 800G+. 650 Group estimates that total Ethernet 2 One Zettabyte is equal to one trillion Gigabytes. 8 ports in the datacenter will grow at a 6% CAGR from 2020 to 2025 with higher speed switches capturing a greater share of overall ports. 650 Group further estimates that 400G and 800G switches together are expected to grow at a 49% CAGR over the same period.
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Fixed-line infrastructure speeds continue to grow, with the recent announcement of CableLabs DOCSIS 4.0 10Gb standards and proliferation of fiber-to-the-home. Beyond hyperscalers and 5G networking, the evolution of connectivity standards for servers such as Peripheral Component Interconnect Express (PCIe) and consumer devices such as Universal Serial Bus (USB) present an additional long-term opportunity.
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The following chart from the industry research group LightCounting illustrates the projected Ethernet IC chipset shipments by speed, illustrating the evolution of data transmission rates and the resulting bandwidth.
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Intended for rack-to-rack connectivity, these cables support up to 7-meter reach, consume up to 50% less power than AOCs, cost less than AOCs and offer a 10-year service life. • Credo’s HiWire SHIFT AECs provide breakout functionality to enable a single high-speed port to connect to two or four lower-speed ports.
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According to LightCounting, shipments of 50G or slower Ethernet IC chipsets is expected to decline from 36.2 million shipments in 2020 to 23.9 million shipments in 2025, a CAGR of (8%), while shipments of 100G Ethernet IC chipsets is expected to grow from 11.5 million shipments in 2020 to 25.6 million shipments in 2025, a CAGR of 17%.
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(ASE) for packaging our IC products, King Yuan Electronics Company (KYEC) and TeraPower Technology Inc. (TeraPower) for testing our IC products and BizLink Technology, Inc. (BizLink) and Cheng Ui Precision Industry (Foxlink) for manufacturing our AEC products.
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Projected growth for the fastest chips is even higher. 9 LightCounting projects that shipments of 200G or faster Ethernet IC chipsets will grow from 1.1 million in 2020 to 20.2 million in 2025, a CAGR of 78%. As data transfer speeds increase, there are other implications for hyperscaler infrastructure.
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Research and development expenses for fiscal 2023 and 2022 were $76.8 million and $47.9 million, respectively.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIf the PRC government were to enact laws and regulations in the future that resulted in significant oversight or other restrictions on the conduct of the business of our Hong Kong subsidiaries, it could materially and adversely affect our business and results of operations. 43 Although the audit report included in this filing is issued by an independent registered public accounting firm that is subject to inspections by the PCAOB, there is no guarantee that future audit reports will be prepared by auditors or their international affiliates in jurisdictions where the PCAOB is able to fully inspect their work, and as such, future investors may be deprived of such inspections, which could result in limitations or restrictions on our access of the U.S. capital markets.
Biggest changeIf the PRC government were to enact laws and regulations in the future that resulted in significant oversight or other restrictions on the conduct of the business of our Hong Kong subsidiaries, it could materially and adversely affect our business and results of operations.
We have in the past been subject to delays and project cancellations as a result of design flaws in the products developed by our customers, changing market requirements, such as the customer adding a new feature, or because a customer’s product fails their end customer’s evaluation or field trial.
We have in the past been subject to delays and project cancellations as a result of design flaws in the products developed by our customers, changing market requirements, such as a customer adding a new feature, or because a customer’s product fails their end customer’s evaluation or field trial.
Due to the interdependence of various components in the systems within which our products and the products of our competitors operate, customers are unlikely to change to another design, once adopted, until the next generation of a technology.
Due to the interdependence of various components in the systems within which our products and the products of our competitors operate, customers are unlikely to change to another design, once adopted, until the next generation of a technology.
We are subject to economic sanctions, export control and similar laws. Non-compliance with such laws can subject us to criminal or civil liability and harm our business, financial condition and results of operations.
We are subject to economic sanctions, export control and similar laws[, and non-compliance with such laws can subject us to criminal or civil liability and harm our business, financial condition and results of operations].
We face significant political risks associated with doing business in Taiwan, particularly due to the tense relationship between Taiwan and mainland China, that could negatively affect the trading price of the ordinary shares. We conduct a portion of our business in Taiwan, and our Taiwanese suppliers are critical within our supply chain.
We face significant political risks associated with doing business in Taiwan, particularly due to the tense relationship between Taiwan and mainland China, that could negatively affect the trading price of our ordinary shares. We conduct a portion of our business in Taiwan, and our Taiwanese suppliers are critical within our supply chain.
If any pending or future proceedings result in an adverse outcome, we could be required to: • cease the manufacture, use or sale of the infringing products, processes or technology; • pay substantial damages for infringement, misappropriation or other violation; • expend significant resources to develop non-infringing products, processes or technology, which may not be successful; • license technology from the third-party claiming infringement, which license may not be available on commercially reasonable terms, or at all; 51 • cross-license our technology to a competitor to resolve an infringement claim, which could weaken our ability to compete with that competitor; or • pay substantial damages to our customers or end-users to discontinue their use of or to replace infringing technology sold to them with non-infringing technology, if available.
If any pending or future proceedings result in an adverse outcome, we could be required to: • cease the manufacture, use or sale of the infringing products, processes or technology; • pay substantial damages for infringement, misappropriation or other violation; • expend significant resources to develop non-infringing products, processes or technology, which may not be successful; • license technology from the third-party claiming infringement, which license may not be available on commercially reasonable terms, or at all; • cross-license our technology to a competitor to resolve an infringement claim, which could weaken our ability to compete with that competitor; or • pay substantial damages to our customers or end-users to discontinue their use of or to replace infringing technology sold to them with non-infringing technology, if available.
SAFE Circular 37 requires PRC residents (including PRC citizens and other persons that are deemed PRC residents) to register with SAFE or its local branches in connection with their direct or indirect offshore investment activities before making a contribution to an enterprise directly established or indirectly controlled by the PRC residents outside of the PRC for the purpose of overseas investment or financing with their legally owned domestic or offshore assets or equity interests, referred to in SAFE Circular 37 as a “special purpose vehicle,” and also requires the foreign invested enterprise that is established through round-trip investment to truthfully disclose its controller(s).
SAFE Circular 37 requires PRC residents (including PRC citizens and other persons that are deemed PRC residents) to register with SAFE or its local branches in connection with their direct or indirect offshore investment activities before making a contribution to an enterprise directly established or indirectly controlled by the PRC residents 44 outside of the PRC for the purpose of overseas investment or financing with their legally owned domestic or offshore assets or equity interests, referred to in SAFE Circular 37 as a “special purpose vehicle,” and also requires the foreign invested enterprise that is established through round-trip investment to truthfully disclose its controller(s).
Our ability to compete successfully will depend on a number of factors, including: • our ability to define, design and regularly introduce new products and solutions that anticipate the functionality and integration needs of our customers’ next-generation products and applications; • our ability to build strong and long-lasting relationships with our customers and other industry participants; • our ability to capitalize on, and prevent losses due to, vertical integration by significant customers; • our products’ performance, power efficiency and cost-effectiveness relative to those of competing products; • our ability to achieve design wins; • the effectiveness and success of our customers’ products utilizing our products or solutions within their competitive end markets; 23 • our research and development capabilities to provide innovative products and solutions and maintain our product roadmap; • the strength of our sales and marketing efforts and our brand awareness and reputation; • our ability to deliver products in large volume on a timely basis at competitive prices; • our ability to withstand or respond to significant price competition; • our ability to grow and maintain international operations in a cost-effective manner; • our ability to obtain, maintain, protect and enforce our intellectual property rights, including obtaining intellectual property rights from third parties that may be necessary to meet the evolving demands of the market; • our ability to defend against potential patent infringement claims from third parties; • our ability to promote and support our customers’ incorporation of our products or solutions into their products; and • our ability to retain high-level talent, including our management team and engineers.
Our ability to compete successfully will depend on a number of factors, including: • our ability to define, design and regularly introduce new products and solutions that anticipate the functionality and integration needs of our customers’ next-generation products and applications; • our ability to build strong and long-lasting relationships with our customers and other industry participants; • our ability to capitalize on, and prevent losses due to, vertical integration by significant customers; • our products’ performance, power efficiency and cost-effectiveness relative to those of competing products; • our ability to achieve design wins; • the effectiveness and success of our customers’ products utilizing our products or solutions within their competitive end markets; • our research and development capabilities to provide innovative products and solutions and maintain our product roadmap; • the strength of our sales and marketing efforts and our brand awareness and reputation; • our ability to deliver products in large volume on a timely basis at competitive prices; • our ability to withstand or respond to significant price competition; • our ability to grow and maintain international operations in a cost-effective manner; 21 • our ability to obtain, maintain, protect and enforce our intellectual property rights, including obtaining intellectual property rights from third parties that may be necessary to meet the evolving demands of the market; • our ability to defend against potential patent infringement claims from third parties; • our ability to promote and support our customers’ incorporation of our products or solutions into their products; and • our ability to retain high-level talent, including our management team and engineers.
Any acquisition involves a number of risks, many of which could harm our business, including: • difficulty in integrating the operations, technologies, products, existing contracts, accounting and personnel of the acquired company or business; • not realizing the anticipated benefits of any acquisition; • difficulty in transitioning and supporting customers of the acquired company; 64 • difficulty in transitioning and collaborating with suppliers of the acquired company; • diversion of financial and management resources from existing operations; • the risk that the price we pay or other resources that we devote to the acquisition may exceed the value we realize, or the value we could have realized if we had allocated the purchase price or other resources to another opportunity; • potential loss of key employees, customers and strategic alliances from either our current business or the acquired company’s business; • inability to successfully bring newly acquired products to market or achieve design wins with such products; • fluctuations in industry trends that change the demand or purchasing volume of newly acquired products; • assumption of unanticipated problems or latent liabilities, such as problems with the quality of the acquired products; • inability to generate sufficient revenue to offset acquisition costs; • the dilutive effect on our ordinary shares as a result of any acquisitions financed through the issuance of equity; • inability to successfully complete transactions with a suitable acquisition candidate; and • in the event of international acquisitions, risks associated with accounting and business practices or regulatory requirements that are different from applicable U.S. practices and requirements.
Any acquisition involves a number of risks, many of which could harm our business, including: • difficulty in integrating the operations, technologies, products, existing contracts, accounting and personnel of the acquired company or business; • not realizing the anticipated benefits of any acquisition; • difficulty in transitioning and supporting customers of the acquired company; • difficulty in transitioning and collaborating with suppliers of the acquired company; • diversion of financial and management resources from existing operations; • the risk that the price we pay or other resources that we devote to the acquisition may exceed the value we realize, or the value we could have realized if we had allocated the purchase price or other resources to another opportunity; • potential loss of key employees, customers and strategic alliances from either our current business or the acquired company’s business; • inability to successfully bring newly acquired products to market or achieve design wins with such products; • fluctuations in industry trends that change the demand or purchasing volume of newly acquired products; • assumption of unanticipated problems or latent liabilities, such as problems with the quality of the acquired products; • inability to generate sufficient revenue to offset acquisition costs; 60 • the dilutive effect on our ordinary shares as a result of any acquisitions financed through the issuance of equity; • inability to successfully complete transactions with a suitable acquisition candidate; and • in the event of international acquisitions, risks associated with accounting and business practices or regulatory requirements that are different from applicable U.S. practices and requirements.
Further, under the Circular on Relevant Issues Concerning the Foreign Exchange Administration over Involvement of Domestic Individuals in Equity Incentive Plans of Overseas Listed Companies, issued by SAFE in February 2012 and other SAFE regulations, PRC citizens and certain PRC residents who participate in share incentive plans in overseas listed companies are required to register with the SAFE 48 through a domestic qualified agent, which could be the PRC subsidiaries of such overseas listed company, and complete certain other procedures.
Further, under the Circular on Relevant Issues Concerning the Foreign Exchange Administration over Involvement of Domestic Individuals in Equity Incentive Plans of Overseas Listed Companies, issued by SAFE in February 2012 and other SAFE regulations, PRC citizens and certain PRC residents who participate in share incentive plans in overseas listed companies are required to register with the SAFE through a domestic qualified agent, which could be the PRC subsidiaries of such overseas listed company, and complete certain other procedures.
We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as described in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the results of which form the basis for making judgments about the carrying values of assets, liabilities, equity, revenue and expenses that are not readily apparent from other sources.
We base our 58 estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as described in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the results of which form the basis for making judgments about the carrying values of assets, liabilities, equity, revenue and expenses that are not readily apparent from other sources.
In the future, our customers may decide to purchase fewer units than they have in the past, may alter their purchasing patterns at any time with limited notice, may change the terms on which they are prepared to do business with us or may decide not to continue to purchase our products at all, any of which could cause our revenue to decline materially and materially harm our business, financial condition and results of operations.
Our customers may decide to purchase fewer units than they have in the past, alter their purchasing patterns at any time with limited notice, change the terms on which they are prepared to do business with us or decide not to continue to purchase our products at all, any of which could cause our revenue to decline materially and materially harm our business, financial condition and results of operations.
The United States Internal Revenue Service has provided limited guidance on situations in which investors may rely on publicly available information to comply with their reporting and 36 tax paying obligations with respect to foreign-controlled CFCs. A United States investor should consult its advisors regarding the potential application of these rules to an investment in our ordinary shares.
The United States Internal Revenue Service has provided limited guidance on situations in which investors may rely on publicly available information to comply with their reporting and tax paying obligations with respect to foreign-controlled CFCs. A United States investor should consult its advisors regarding the potential application of these rules to an investment in our ordinary shares.
As a result, if we fail to introduce new or enhanced products that meet prevailing industry standards and the needs of our customers or penetrate new markets in a timely fashion, and our designs do not gain acceptance, we will lose market share and our competitive position, potentially on an extended basis, and our operating results will be adversely affected.
As a result, if we fail to introduce new or enhanced products that meet prevailing industry standards and the needs of our customers or penetrate new markets in a timely fashion, and our designs do not gain acceptance, we will lose market share and our competitive position, potentially on an extended basis, and our operating 26 results will be adversely affected.
Based on our understanding of the current PRC laws and regulations and the proposed drafts of the Administration Provisions and the Measures, our company and PRC subsidiaries are not required to obtain any prior permission under the M&A Rules or the Opinions from any PRC governmental authorities including the CSRC (either under its current rules or the proposed drafts of the Administration Provisions and the Measures, if enacted as currently drafted) for the listing of the securities on the Nasdaq.
Based on our understanding of the current PRC laws and regulations and the proposed drafts of the Administration Provisions and the Measures, our company and PRC subsidiaries are not required to obtain any prior permission under the M&A Rules or the Opinions from any PRC governmental authorities including the CSRC (either under its current rules or the proposed drafts of the Administration Provisions and the Measures, if enacted as currently drafted) for the continued listing of our securities on the Nasdaq.
For example, if that manufacturing capacity is reduced or eliminated at one or more facilities, including as a response to a general decline in the semiconductor or electrical cable industry, or any of those facilities are unable to keep pace with the growth of our business, we could have difficulties fulfilling our customer orders and our revenue could decline.
For example, if that manufacturing capacity is reduced or eliminated at one or more facilities, including as a response to a general decline in the semiconductor or electrical cable industry, or any of those facilities are unable or unwilling to keep pace with the growth of our business, we could have difficulties fulfilling our customer orders and our revenue could decline.
For example, the Data Security Law introduces a data classification and hierarchical protection system based on the importance of data in economic and social development, as well as the degree of harm it will cause to national security, public interests, or legitimate rights and interests of individuals or organizations when such data is tampered with, destroyed, leaked, or illegally acquired or used.
For example, the Data Security Law introduces a data classification and hierarchical protection system based on the importance of data in economic and social development, as well as the 52 degree of harm it will cause to national security, public interests, or legitimate rights and interests of individuals or organizations when such data is tampered with, destroyed, leaked, or illegally acquired or used.
Furthermore, if certain procedural requirements are satisfied, the payment of current account items, as defined in the relevant PRC laws and regulations, including profit distributions and trade and service related foreign exchange transactions, can be made in foreign currencies without prior approval from the 50 PRC’s State Administration of Foreign Exchange (SAFE) or its local branches.
Furthermore, if certain procedural requirements are satisfied, the payment of current account items, as defined in the relevant PRC laws and regulations, including profit distributions and trade and service related foreign exchange transactions, can be made in foreign currencies without prior approval from the PRC’s State Administration of Foreign Exchange (SAFE) or its local branches.
In addition, each of our PRC subsidiaries is required to set aside at least 10% of its accumulated after-tax profits each year, if any, to fund a statutory reserve fund, until the aggregate amount of such fund reaches 50% of its registered capital. Such reserve funds cannot be distributed to us as dividends.
In addition, each of our PRC subsidiaries is required to set aside at 46 least 10% of its accumulated after-tax profits each year, if any, to fund a statutory reserve fund, until the aggregate amount of such fund reaches 50% of its registered capital. Such reserve funds cannot be distributed to us as dividends.
Additionally, if these new systems, controls or standards and the associated process changes do not give rise to the benefits that we expect or do not operate as intended, it could adversely affect our financial reporting systems and processes, our ability to produce timely and accurate financial reports or the effectiveness of internal control over financial reporting.
If these new systems, controls or standards and the associated process changes do not give rise to the benefits that we expect or do not operate as intended, it could adversely affect our financial reporting systems and processes, our ability to produce timely and accurate financial reports or the effectiveness of internal control over financial reporting.
While we take measures to protect the security of, and prevent unauthorized access to, our systems and personal and proprietary information, the security controls for our systems, as well as other security practices we follow, may not prevent unauthorized access to, damage to, disablement or encryption of, use or misuse of, disclosure of, modification of, destruction of or loss of our data or the data of others (including personally identifiable information and proprietary information).
While we take measures to protect the security of, and prevent unauthorized access to, our systems and personal and proprietary information, the security controls for our systems, as well as other security practices we follow, may not prevent unauthorized access to, damage to, disablement or encryption of, use or misuse of, disclosure of, modification of, destruction of or loss of our data or the data of others 51 (including personally identifiable information and proprietary information).
In addition, any significant future cancellations or deferrals of product orders or the return of previously sold products due to manufacturing defects could materially and adversely impact our profit margins, increase our write-offs due to product obsolescence and restrict our ability to fund our operations. We face intense competition and expect competition to increase in the future.
In addition, any significant future cancellations or deferrals of product orders or the return of previously sold products due to manufacturing defects could materially and adversely impact our profit margins, increase our write-offs due to product obsolescence and restrict our ability to fund our operations. 20 We face intense competition and expect competition to increase in the future.
The process of identifying a defective or potentially defective product in systems that have been widely distributed may be lengthy and require significant resources, and may divert the attention of our engineering personnel from our product development efforts. We may test the affected product to determine the root cause of the problem and to determine appropriate solutions.
The 25 process of identifying a defective or potentially defective product in systems that have been widely distributed may be lengthy and require significant resources, and may divert the attention of our engineering personnel from our product development efforts. We may test the affected product to determine the root cause of the problem and to determine appropriate solutions.
Moreover, even if we are able to secure committed foundry capacity, we may be obligated to use all of 29 that capacity or incur penalties. These penalties may be expensive and could harm our financial results. To date, we have not entered into such arrangements with TSMC or our assembly and test suppliers.
Moreover, even if we are able to secure committed foundry capacity, we may be obligated to use all of that capacity or incur penalties. These penalties may be expensive and could harm our financial results. To date, we have not entered into such arrangements with TSMC or our assembly and test suppliers.
If one or more analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets 61 which in turn could cause our share price or trading volume to decline. In addition, if our operating results fail to meet the expectations created by securities analysts’ reports, our share price could decline.
If one or more analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets which in turn could cause our share price or trading volume to decline. In addition, if our operating results fail to meet the expectations created by securities analysts’ reports, our share price could decline.
These selection processes typically are lengthy and can require us to incur significant design and development expenditures and dedicate limited engineering resources in pursuit of a single customer opportunity. We may not win the competitive selection process and may never generate any revenue despite incurring significant design and development expenditures.
These selection processes typically are lengthy and can require us to incur significant design and development expenditures and dedicate our limited engineering resources in pursuit of a single customer opportunity. We may not win the competitive selection process and may never generate any revenue despite incurring significant design and development expenditures.
Further, changes in immigration policies may negatively impact our ability to attract and retain personnel, including personnel with specialized technical expertise. If we fail to attract new personnel or fail to retain or motivate our current personnel, our business, financial condition and results of operations could be adversely affected. Catastrophic events may disrupt our business.
Further, changes in immigration policies may negatively impact our ability to attract and retain personnel, including personnel with specialized technical expertise. If we fail to attract new personnel or fail to retain or motivate our current personnel, our business, financial condition and results of operations could be adversely affected. 61 Catastrophic events may disrupt our business.
The complexity of our products could result in undetected defects and we may be subject to warranty claims and product liability, which could result in a decrease in customers and revenue, unexpected expenses and loss of market share. In addition, our product liability insurance may not adequately cover our costs arising from product defects or otherwise.
The complexity of our products could result in undetected defects; we may be subject to warranty claims and product liability, which could result in a decrease in customers and revenue, unexpected expenses and loss of market share, and our product liability insurance may not adequately cover our costs arising from product defects or otherwise.
The introduction of new products by our competitors, the delay or cancellation of a system or platform for which any of our products are designed, the market acceptance of products based on new or alternative technologies or the emergence of new industry standards could render our existing or future products uncompetitive from a pricing standpoint, obsolete and otherwise unmarketable.
The introduction of new products by our competitors, the delay or cancellation of a system or platform for which any of our products are designed, the market acceptance of products based on new or alternative technologies or the emergence of new industry standards could render our existing or future products uncompetitive from a pricing standpoint, obsolete or otherwise unmarketable.
The industry has experienced 38 significant downturns during recent global recessions. These downturns have been characterized by diminished product demand, production overcapacity, high inventory levels and accelerated erosion of average selling prices. Any future downturns could negatively impact our business and operating results.
The industry has experienced significant downturns during recent global recessions. These downturns have been characterized by diminished product demand, production overcapacity, high inventory levels and accelerated erosion of average selling prices. Any future downturns could negatively impact our business and operating results.
Lawsuits or other proceedings that we initiate to protect or enforce our patents or other intellectual property rights could be expensive, time consuming and unsuccessful. Any claims we assert against 53 perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their intellectual property or alleging that our intellectual property is invalid or unenforceable.
Lawsuits or other proceedings that we initiate to protect or enforce our patents or other intellectual property rights could be expensive, time consuming and unsuccessful. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their intellectual property or alleging that our intellectual property is invalid or unenforceable.
These factors include: • complexity and costs of managing international operations, including manufacturing, assembly and testing of our products and associated costs; • compliance with local laws and regulations and unanticipated changes in local laws and regulations, including tax laws and regulations; • reduced protection of intellectual property rights and heightened exposure to intellectual property theft; • trade and foreign exchange restrictions and higher tariffs, including the ongoing trade tensions between the United States and the PRC that has resulted in higher tariffs on certain semiconductor products; • timing and availability of import and export licenses and other governmental approvals, permits and licenses, including export classification requirements; • restrictions imposed by the U.S. government or foreign governments on our ability to do business with certain companies or in certain countries as a result of international political conflicts or the COVID-19 pandemic, and the complexity of complying with those restrictions; • transportation delays and other consequences of limited local infrastructure, and disruptions, such as large scale outages or interruptions of service from utilities or telecommunications providers; • difficulties in staffing international operations; • changes in immigration policies which may impact our ability to hire personnel; • local business and cultural factors that differ from our normal standards and practices; • differing employment practices and labor relations; • heightened risk of wars or undeclared armed conflict, terrorist acts, civil disturbances or political instability; • regional health issues and the impact of public health epidemics on employees and the global economy, such as the worldwide COVID-19 pandemic; • power outages and natural disasters; • changes in political, regulatory legal or economic conditions; • disruptions of capital and trading markets; and • difficulty in obtaining distribution and support.
These factors include: • complexity and costs of managing international operations, including manufacturing, assembly and testing of our products and associated costs; • compliance with local laws and regulations and unanticipated changes in local laws and regulations, including tax laws and regulations; • reduced protection of intellectual property rights and heightened exposure to intellectual property theft; • trade and foreign exchange restrictions and higher tariffs, including the ongoing trade tensions between the United States and the PRC that has resulted in higher tariffs on certain semiconductor products; • timing and availability of import and export licenses and other governmental approvals, permits and licenses, including export classification requirements; • restrictions, including economic sanctions, imposed by the U.S. government or foreign governments on our ability to do business with certain companies or in certain countries as a result of international political conflicts, war, climate change or the COVID-19 pandemic, and the complexity of complying with those restrictions; • transportation delays and other consequences of limited local infrastructure, and disruptions, such as large scale outages or interruptions of service from utilities or telecommunications providers; • difficulties in staffing international operations; • changes in immigration policies which may impact our ability to hire personnel; • local business and cultural factors that differ from our normal standards and practices; • differing employment practices and labor relations; • heightened risk of wars or undeclared armed conflict, terrorist acts, civil disturbances or political instability; • regional health issues and the impact of public health epidemics on employees and the global economy, such as the worldwide COVID-19 pandemic; • power outages and natural disasters; • changes in political, regulatory legal or economic conditions; • disruptions of capital and trading markets; and • difficulty in obtaining distribution and support.
Our gross margins may fluctuate due to a number of factors, including customer and product mix, revenue mix between various offerings, market acceptance of our new products, timing and seasonality of end-market demand, yield, wafer pricing, packaging and testing costs, competitive pricing dynamics and geographic and market pricing strategies.
Our gross margins may fluctuate due to a variety of factors. Our gross margins may fluctuate due to a number of factors, including customer and product mix, revenue mix between various offerings, market acceptance of our new products, timing and seasonality of end-market demand, yield, wafer pricing, packaging and testing costs, competitive pricing dynamics and geographic and market pricing strategies.
Pursuant to the Administration Provisions and the Measures, domestic companies that apply for offerings and listings in an overseas market in the name of an offshore entity are required to, among others, file and report to the CSRC, provided that: (i) the total assets, net assets, revenues or profits of the PRC operating entity of the issuer in the most recent accounting year account for more than 50% of the corresponding figure in the issuer’s audited consolidated financial statements for the same period and (2) the senior managers in charge of business operation and management of the issuer are mostly PRC citizens or have habitual residence in the PRC, 42 and its main places of business are located in the PRC or main business activities are conducted in the PRC.
Pursuant to the Administration Provisions and the Measures, domestic companies that apply for offerings and listings in an overseas market in the name of an offshore entity are required to, among others, file and report to the CSRC, provided that: (i) the total assets, net assets, revenues or profits of the PRC operating entity of the issuer in the most recent accounting year account for more than 50% of the corresponding figure in the issuer’s audited consolidated financial statements for the same period and (2) the senior managers in charge of business operation and management of the issuer are mostly PRC citizens or have habitual residence in the PRC, 40 and its main places of business are located in the PRC or main business activities are conducted in the PRC.
Prior to purchasing our products, our customers require that both our products and our third-party contractors undergo extensive qualification processes, which involve testing of our products in the customers’ systems, as well as testing for reliability. This qualification process may continue for several months or more.
For example, prior to purchasing our products, our customers require that both our products and our third-party contractors undergo extensive qualification processes, which involve testing of our products in the customers’ systems, as well as testing for reliability. This qualification process may continue for several months or more.
We cannot assure you that future political or legal developments, including as a result of political or social unrest, will not affect Hong Kong’s status as a Special Administrative Region of the PRC or otherwise affect its current relations with foreign states and regions.
We cannot assure you that future political or legal developments, including as a result of political or social unrest, will not affect Hong Kong’s status as a 45 Special Administrative Region of the PRC or otherwise affect its current relations with foreign states and regions.
Claims that our products, processes or technology infringe, misappropriate or otherwise violate third-party intellectual property rights, regardless of their merit or resolution, could be time-consuming or costly to defend or settle and could divert the efforts and attention of our management and technical personnel.
Claims that our products, processes or technology infringe, misappropriate or otherwise violate third-party intellectual property rights, regardless of their merit or resolution, could be time-consuming or costly 47 to defend or settle and could divert the efforts and attention of our management and technical personnel.
In addition to the time and expense required for us to supply support or indemnification to our customers, any such litigation could severely disrupt or shut down the business of our customers or vendors, which in turn could hurt our relations with them and cause the sale of our products to decrease.
In addition to the time and expense required for us to supply support or indemnification to our customers, any such litigation could severely disrupt or shut down the business of our customers or vendors, which in turn could hurt our relations with them and cause the 48 sale of our products to decrease.
The loss of one or more of our executive 65 officers or other key employees could have an adverse effect on our business, financial condition and results of operations. In addition, to execute our growth plan, we must attract and retain highly qualified personnel.
The loss of one or more of our executive officers or other key employees could have an adverse effect on our business, financial condition and results of operations. In addition, to execute our growth plan, we must attract and retain highly qualified personnel.
If we are unable to continue to use or license these technologies on reasonable terms, or if these technologies fail to operate properly, we may not be able to secure alternatives in a timely manner or at all, and our ability to remain competitive would be harmed.
If we are unable to continue to use or license these technologies on reasonable 27 terms, or if these technologies fail to operate properly, we may not be able to secure alternatives in a timely manner or at all, and our ability to remain competitive would be harmed.
Any disputes with our licensing partners with respect to such agreements could narrow what we believe to be the scope of our rights to the relevant intellectual property, increase our obligations under such agreements or restrict our ability to develop and market our current or new products and services.
Any disputes with our licensing partners with respect to such agreements could narrow what we believe to 50 be the scope of our rights to the relevant intellectual property, increase our obligations under such agreements or restrict our ability to develop and market our current or new products and services.
Some of these agreements contain terms that allocate ownership of, and rights to use and enforce, technologies and intellectual property rights. As a result of these agreements, we may be required to limit use of, or refrain from using, certain of such 54 related technologies and intellectual property rights in parts of our business.
Some of these agreements contain terms that allocate ownership of, and rights to use and enforce, technologies and intellectual property rights. As a result of these agreements, we may be required to limit use of, or refrain from using, certain of such related technologies and intellectual property rights in parts of our business.
The trading price and volume of our ordinary shares is likely to be volatile and could fluctuate significantly in response to numerous factors, many of which are beyond our control, including but not limited to: • actual or anticipated fluctuations in our results of operations due to, among other things, changes in customer demand, product life cycles, pricing, ordering patterns, and unforeseen operating costs; • the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; • failure of securities analysts to initiate or maintain coverage of us, changes in financial estimates or ratings by any securities analysts who follow us, or our failure to meet these estimates or the expectations of investors; • announcements by our significant customers of changes to their product offerings, business plans, or strategies; • announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures, or capital commitments; • changes in operating performance and stock market valuations of other technology companies generally, or those in the data infrastructure industry; • timing and seasonality of the end-market demand; • cyclical fluctuations in the data infrastructure market; • price and volume fluctuations in the overall stock market from time to time, including as a result of trends in the economy as a whole; • actual or anticipated developments in our business or our competitors’ businesses or the competitive landscape generally; • new laws or regulations or new interpretations of existing laws, or regulations applicable to our business; • changes in our management; • general economic and market conditions, including the global COVID-19 pandemic; • lawsuits threatened or filed against us; and • other events or factors, including those resulting from war, incidents of terrorism, or responses to these events.
The trading price and volume of our ordinary shares is likely to be volatile and could fluctuate significantly in response to numerous factors, many of which are beyond our control, including but not limited to: • actual or anticipated fluctuations in our results of operations due to, among other things, changes in customer demand, product life cycles, pricing, ordering patterns and unforeseen operating costs; • the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; • failure of securities analysts to initiate or maintain coverage of us, changes in financial estimates or ratings by any securities analysts who follow us or our failure to meet these estimates or the expectations of investors; • announcements by our significant customers of changes to their product offerings, business plans or strategies; • announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures or capital commitments; • changes in operating performance and stock market valuations of other technology companies generally, or those in the data infrastructure industry; • timing and seasonality of the end-market demand; • cyclical fluctuations in the data infrastructure market; • price and volume fluctuations in the overall stock market from time to time, including as a result of trends in the economy as a whole; • actual or anticipated developments in our business or our competitors’ businesses or the competitive landscape generally; • new laws or regulations or new interpretations of existing laws, or regulations applicable to our business; • changes in our management; • general economic and market conditions; • lawsuits threatened or filed against us; and • other events or factors, including those resulting from war, incidents of terrorism or responses to these events.
In June 2021, we submitted to the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) a 45 final voluntary self-disclosure concerning these apparent violations. On September 16, 2021, BIS closed the matter with the issuance of a warning letter.
In June 2021, we submitted to the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) a final voluntary self-disclosure concerning these apparent violations. On September 16, 2021, BIS closed the matter with the issuance of a warning letter.
Past developments in relations between Taiwan and mainland China have on occasion depressed the market prices of the securities of companies doing business in Taiwan. Such initiatives and actions 46 are commonly viewed as having a detrimental effect to reunification efforts between Taiwan and mainland China.
Past developments in relations between Taiwan and mainland China have on occasion depressed the market prices of the securities of companies doing business in Taiwan. Such initiatives and actions are commonly viewed as having a detrimental effect to reunification efforts between Taiwan and mainland China.
Accordingly, if competition increases in our target markets, we may need to reduce the average unit price of our products in anticipation of competitive pricing pressures, new product introductions by us or our competitors and for other reasons.
Accordingly, if competition 28 increases in our target markets, we may need to reduce the average unit price of our products in anticipation of competitive pricing pressures, new product introductions by us or our competitors and for other reasons.
While we believe that we have remedied the deficiencies that resulted in the apparent violations through additional training, system enhancements and enhanced export controls, we cannot assure you that our policies and procedures relating to export control compliance will prevent violations in the future.
While we believe that we have remedied the deficiencies that resulted in the apparent violations through 42 additional training, system enhancements and enhanced export controls, we cannot assure you that our policies and procedures relating to export control compliance will prevent violations in the future.
In addition, the rapid 22 pace of innovation in our industry could also render significant portions of our inventory obsolete. Excess or obsolete inventory levels could result in unexpected expenses or increases in our reserves that could adversely affect our business, financial condition and results of operations.
In addition, the rapid pace of innovation in our industry could also render significant portions of our inventory obsolete. Excess or obsolete inventory levels could result in unexpected expenses or increases in our reserves that could adversely affect our business, financial condition and results of operations.
Significant judgment is required in determining our provisions for taxes, and there are many transactions and calculations where the ultimate tax determination is uncertain. The amount of income tax we pay is subject to ongoing audits by tax authorities.
Significant judgment is required in determining our provisions for taxes, and there are many transactions and calculations where the ultimate tax determination is uncertain. The 33 amount of income tax we pay is subject to ongoing audits by tax authorities.
Moreover, products for our target markets are based on industry standards that are continually evolving, and industry standards are often developed and promoted by larger companies who 27 are industry leaders and provide other components of the systems in which our products are incorporated.
Moreover, products for our target markets are based on industry standards that are continually evolving, and industry standards are often developed and promoted by larger companies who are industry leaders and provide other components of the systems in which our products are incorporated.
On June 30, 2020, The Law of the People’s Republic of China on Safeguarding National 49 Security Law in the Hong Kong Special Administrative Region (the Hong Kong National Security Law) became effective. Among other things, it criminalizes separatism, subversion, terrorism and foreign interference in Hong Kong.
On June 30, 2020, The Law of the People’s Republic of China on Safeguarding National Security Law in the Hong Kong Special Administrative Region (the Hong Kong National Security Law) became effective. Among other things, it criminalizes separatism, subversion, terrorism and foreign interference in Hong Kong.
These provisions include, among other things: • a classified board of directors with staggered three-year terms; • the authorization of the issuance of “blank check” preferred shares that our board of directors could use to implement a shareholder rights plan; • restrictions on the ability of our shareholders to call meetings or make shareholder proposals; • our amended and restated memorandum and articles of association may only be amended by a vote of shareholders representing at least two-thirds of the outstanding ordinary shares or by a unanimous written consent; • shareholders will not be permitted to increase the size of our board, fill vacancies on our board or remove directors without cause; and • the ability of our board of directors, without action by our shareholders, to issue 50,000,000 preferred shares and to issue additional ordinary shares that could have the effect of impeding the success of an attempt to acquire us or otherwise effect a change in control.
These provisions include, among other things: • a classified board of directors with staggered three-year terms; • the authorization of the issuance of “blank check” preferred shares that our board of directors could use to implement a shareholder rights plan; • restrictions on the ability of our shareholders to call meetings or make shareholder proposals; 59 • our amended and restated memorandum and articles of association may only be amended by a vote of shareholders representing at least two-thirds of the outstanding ordinary shares or by a unanimous written consent; • shareholders are not permitted to increase the size of our board, fill vacancies on our board or remove directors without cause; and • the ability of our board of directors, without action by our shareholders, to issue 50,000,000 preferred shares and to issue additional ordinary shares that could have the effect of impeding the success of an attempt to acquire us or otherwise effect a change in control.
Any failure to comply with the foreign exchange registration requirements may expose us or our PRC resident beneficial owners or PRC participants of employee stock incentive plans to liability and penalties under PRC law.
Any failure to comply with foreign exchange registration requirements may expose us or our PRC resident beneficial owners or PRC participants of employee stock incentive plans to liability and penalties under PRC law.
As such, it may be difficult for investors to effect service of process within the United States upon our directors or executive officers, or enforce judgments obtained in the United States courts against our directors or officers..
As such, it may be difficult for investors to effect service of process within the United States upon our 55 directors or executive officers, or enforce judgments obtained in the United States courts against our directors or officers..
Moreover, because we would not control the sales representatives and other employees of any such distributors, any actions by the sales representatives and other employees of such distributors that do not comply with our sales process or priorities or applicable regulatory requirements could harm the reputation of our company or our products, result in legal liability to us or result in sales that are below our expectations, any of which could have a material adverse effect on our business, financial condition and results of operations.
Moreover, because we do not control the sales representatives and other employees of our distributors, any actions by the sales representatives and other employees of our distributors that do not comply with our sales process or priorities or applicable regulatory requirements could harm the reputation of our company or our products, result in legal liability to us or result in sales that are below our expectations, any of which could have a material adverse effect on our business, financial condition and results of operations.
In those circumstances, although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, the courts of the Cayman Islands will recognise and enforce a foreign money judgment of a foreign court of competent jurisdiction without retrial on the merits based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the sum for which judgment has been given provided certain conditions are met.
In those circumstances, although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, the courts of the Cayman Islands will recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction without retrial on the merits based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the sum for which judgment has been given provided certain conditions are met.
Neither we nor our directors, officers, advisors or service providers (including the organization which provides registered office services in the Cayman Islands) will bear any responsibility for any delay howsoever caused in mail reaching the forwarding address. 59 Risks Related to Our Ordinary Shares Our share price may be volatile and may decline, resulting in a loss of some or all of your investment.
Neither we nor our directors, officers, advisors or service providers (including the organization which provides registered office services in the Cayman Islands) will bear any responsibility for any delay howsoever caused in mail reaching the forwarding address. 56 Risks Related to Our Ordinary Shares Our share price may be volatile and may decline, resulting in a loss of some or all of your investment.
We are subject to numerous, and sometimes conflicting, legal regimes of the United States and foreign national, state and provincial authorities on matters as diverse as anti-corruption, trade restrictions, tariffs, taxation, sanctions, immigration, internal and disclosure control obligations, securities regulation, anti-competition, data security, privacy, labor relations, wages and severance, and health care requirements.
We are subject to numerous, and sometimes conflicting, legal regimes of the United States and foreign national, state and provincial authorities on matters as diverse as anti-corruption, trade restrictions, tariffs, taxation, sanctions, immigration, internal and disclosure control obligations, environmental impact, securities regulation, anti-competition, data security, privacy, labor relations, wages and severance and health care requirements.
If we are deemed as a CIIO, or as an operator who collects, uses and processes important data according to the Cyber Security Law, Data Security Law and other relevant laws and regulations, we may need to perform or be subject to certain prescribed obligations, and if we were found to be in violation of these applicable laws and regulations, we may be subject to administrative penalties, including fines and service suspension.
If we are deemed as a CIIO, an internet platform operator or as an operator who collects, uses and processes important data according to the Cyber Security Law, Data Security Law and other relevant laws and regulations, we may need to perform or be subject to certain prescribed obligations, and if we were found to be in violation of these applicable laws and regulations, we may be subject to administrative penalties, including fines and service suspension.
If political tensions between the PRC and Taiwan were to increase, it could disrupt our business. 40 Our global operations expose us to numerous legal and regulatory requirements and failure to comply with such requirements, including unexpected changes to such requirements, could adversely affect our results of operations. We service our customers around the world.
If political tensions between the PRC and Taiwan were to increase, it could disrupt our business. 38 Our global operations expose us to numerous legal and regulatory requirements and failure to comply with such requirements, including unexpected changes to such requirements, could adversely affect our results of operations. We service our customers around the world.
If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and adversely affect our business, financial condition, and results of operations. 60 Substantial future sales of our ordinary shares could cause the market price of our ordinary shares to decline.
If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and adversely affect our business, financial condition, and results of operations. 57 Substantial future sales of our ordinary shares could cause the market price of our ordinary shares to decline.
Our amended and restated memorandum and articles of association provide for indemnification of our officers and directors to the maximum extent permitted by law, including for any liability incurred in their capacities as such, except through their own actual fraud, wilful neglect or wilful default.
Our amended and restated memorandum and articles of association provide for indemnification of our officers and directors to the maximum extent permitted by law, including for any liability incurred in their capacities as such, except through their own actual fraud, willful neglect or willful default.
Since PRC administrative and 41 court authorities have significant discretion in interpreting and implementing statutory provisions and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy, than in more developed legal systems.
Since PRC administrative and 39 court authorities have significant discretion in interpreting and implementing statutory provisions and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy, than in more developed legal systems.
To the extent we rely on distributors in the future, we would be unable to predict the extent to which these distributors will be successful in marketing and selling our products. Moreover, many of these distributors would also be likely to market and sell competing products, which may affect the extent to which they would promote our products.
To the extent we rely on distributors, we may be unable to predict the extent to which these distributors will be successful in marketing and selling our products. Moreover, many of these distributors are also likely to market and sell competing products, which may affect the extent to which they would promote our products.
Prior to fiscal 2022, the majority of our total revenue was derived from our IP solutions and related licensing revenue. However, our business strategy is to build on our IP portfolio as a product-focused business to deliver comprehensive connectivity products.
Prior to fiscal 2021, the majority of our total revenue was derived from our IP solutions and related licensing revenue. However, our business strategy is to build on our IP portfolio as a product-focused business to deliver comprehensive connectivity products.
In addition, even after securing a design win, we may experience delays in generating revenue from our products as a result of the lengthy development cycle typically required. Our customers may take several months or more than a year to evaluate our products and solutions. Our design cycle from initial engagement to volume shipment is typically two to three years.
In addition, our design cycle from initial engagement to volume shipment is typically two to three years, so even after securing a design win, we may experience delays in generating revenue from our products as a result of the lengthy development cycle. 22 Our customers may take several months or more than a year to evaluate our products and solutions.
If we fail to accurately predict market requirements or market demand for 100G/200G/400G/800G semiconductor solutions, or if our 100G/200G/400G/800G semiconductor solutions are not successfully developed or competitive in the industry, our business will suffer. If 100G/200G/400G/800G networks are deployed to a lesser extent or more slowly than we currently 37 anticipate, we may not realize any benefits from our investment.
If we fail to accurately predict market requirements or market demand for 100G/200G/400G/800G/1.6T semiconductor solutions, or if our 100G/200G/400G/800G/1.6T semiconductor solutions are not successfully developed or competitive in the industry, our business will suffer. If 100G/200G/400G/800G/1.6T networks are deployed to a lesser extent or more slowly than we currently anticipate, we may not realize any benefits from our investment.
We are currently investing significant resources to develop semiconductor solutions supporting 100G/200G/400G/800G data transmission rates in order to increase the number of such solutions in our product line.
We are currently investing significant resources to develop semiconductor solutions supporting 100G/200G/400G/800G/1.6T data transmission rates in order to increase the number of such solutions in our product line.
Currently, our competitors range from large, international companies offering a wide range of semiconductor products to smaller companies specializing in narrow markets. Our principal competitors with respect to our products include Broadcom Ltd. (Broadcom) and Marvell Technology, Inc. (Marvell) (which recently acquired Inphi Corporation, another competitor of ours) as well as various DAC suppliers.
Currently, our competitors range from large, international companies offering a wide range of semiconductor products to smaller companies specializing in narrow markets. Our principal competitors with respect to our products include Broadcom and Marvell (which recently acquired Inphi Corporation, another competitor of ours) as well as various DAC suppliers.
In the event that we cannot t imely obtain sufficient quantities of materials or at reasonable prices, the quality of the material deteriorates or we are not able to pass on higher materials costs to our customers, our business, financial condition and results of operations could be adversely impacted.
In the event that we cannot timely obtain materials in sufficient quantities or at reasonable prices, the quality of the material deteriorates or we are not able to pass on higher materials costs to our customers, our business, financial condition and results of operations could be adversely impacted.
Under the relevant PRC laws and regulations, the foreign capital of an FIE shall not be used for the following purposes: (i) directly or indirectly used for payment beyond the business scope of the enterprise (which typically does not include domestic equity investments unless specifically permitted subject to certain conditions as required by applicable PRC laws and regulations) or the payment prohibited by relevant laws and regulations; (ii) directly or indirectly used for investment in securities or investments other than banks’ principal-secured products unless otherwise provided by relevant laws and regulations; (iii) the granting of loans to non-affiliated enterprises, except where it is expressly permitted in the business license; and (iv) paying the expenses related to the purchase of real estate that is not for self-use (except for the foreign-invested real estate enterprises).
Under the relevant PRC laws and regulations, the foreign capital of an FIE shall not be used for the following purposes: (i) directly or indirectly used for payment beyond the business scope of the enterprise (which typically does not include domestic equity investments unless specifically permitted subject to certain conditions as required by applicable PRC laws and regulations) or the payment prohibited by relevant laws and regulations; (ii) directly or indirectly used for investment in securities unless otherwise provided by relevant laws and regulations; (iii) the granting of loans to non-affiliated enterprises, except where it is expressly permitted in the business license; and (iv) paying the expenses related to the purchase of real estate that is not for self-use (except for the foreign-invested real estate enterprises).
Additionally, as our fabrication and assembly and test contractors are located in the Pacific Rim region, principally in Taiwan, our manufacturing capacity may be similarly reduced or eliminated due to natural disasters, including earthquakes, drought or typhoons, political unrest, trade restrictions, war or undeclared armed conflict, including terrorism, labor strikes, work stoppages or public health crises, such as the COVID-19 pandemic.
Additionally, as our fabrication and assembly and test contractors are located in the Pacific Rim region, principally in Taiwan, our manufacturing capacity may be similarly reduced or eliminated due to natural disasters, including earthquakes, drought or typhoons, political unrest, trade restrictions, war or undeclared armed conflict, including terrorism, labor strikes, work stoppages or public health crises.
Any loans to our wholly owned subsidiaries in mainland China, 47 which are treated as foreign invested enterprises under PRC law, are subject to foreign exchange loan registrations, and cannot exceed statutory limits, which is either the difference between the registered capital and the total investment amount of such enterprise or the upper limit calculated based on a statutory formula.
Any loans to our wholly owned subsidiaries in mainland China, which are treated as foreign invested enterprises under PRC laws, are subject to foreign exchange loan registrations, and cannot exceed statutory limits, which is either the difference between the registered 41 capital and the total investment amount of such enterprise or the upper limit calculated based on a statutory formula.
The market price and trading market for our ordinary shares will be influenced by the research and reports that industry or securities analysts publish about us, our business and our market. If one or more analysts adversely change their recommendation regarding our shares or change their recommendation about our competitors’ shares, our share price would likely decline.
The market price and trading market for our ordinary shares is influenced by the research and reports that industry or securities analysts publish about us, our business and our market. If one or more analysts adversely change their recommendation regarding our shares or change their recommendation about our competitors’ shares, our share price would likely decline.
Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we will eventually be required to include in our periodic reports that will be filed with the SEC.
Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we are required to include in our periodic reports that are filed with the SEC.
We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file with the Securities and Exchange Commission (SEC) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers.
We have developed and continue to refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file with the Securities and Exchange Commission (SEC) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers.
Cayman Islands law does not limit the extent to which a company’s memorandum and articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against wilful default, wilful neglect, breach of fiduciary duty, unconscionable behaviour or behaviour which falls within the broad stable of conduct indentifiable as ‘equitable’ fraud on the part of the director or officer in question.
Cayman Islands law does not limit the extent to which a company’s memorandum and articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against willful default, willful neglect, breach of fiduciary duty, unconscionable behavior or behavior which falls within the broad stable of conduct identifiable as ‘equitable’ fraud on the part of the director or officer in question.
Revenue from sales of our products accounted for 69%, 47% and 22% of our total revenue in fiscal 2022, 2021 and 2020, respectively. We are still in the process of implementing our strategy to focus on product sales, and we cannot be certain that this strategy will succeed.
Revenue from sales of our products accounted for 77%, 69% and 47% of our total revenue in fiscal 2023, 2022 and 2021, respectively. We are still in the process of implementing our strategy to focus on product sales, and we cannot be certain that this strategy will succeed.
Unauthorized use of our intellectual property may have occurred or may occur in the future. Although we have taken steps to minimize the risk of this occurring, any such failure to identify unauthorized use and otherwise adequately protect our intellectual property would adversely affect our business.
Monitoring unauthorized use of our intellectual property is difficult and costly. Unauthorized use of our intellectual property may have occurred or may occur in the future. Although we have taken steps to minimize the risk of this occurring, any such failure to identify unauthorized use and otherwise adequately protect our intellectual property would adversely affect our business.
The exact scope of CIIOs and important data under the current laws, regulations and regulatory regime remains unclear, and the authorities may have wide discretion in the interpretation and enforcement of the related laws and regulations.
The exact scope of CIIOs, internet platform operator and important data under the current laws, regulations and regulatory regime remains unclear, and the authorities may have wide discretion in the interpretation and enforcement of the related laws and regulations.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeProperties The following table presents the approximate square footage of our significant leased facilities as of April 30, 2022: 66 (Square Feet) Locations Primary Use Leased Facilities (1) United States Research and design, sales and marketing, administration and operations 89,727 Mainland China Research and design, administration and operations 66,929 Taiwan Research and design, administration and operations 18,537 Hong Kong Administration and operations 1,658 Total 176,851 (1) Lease terms expire in various years from 2022 through 2032.
Biggest changeProperties The following table presents the approximate square footage of our significant leased facilities as of April 29, 2023: 62 (Square Feet) Locations Primary Use Leased Facilities (1) United States Research and design, sales and marketing, administration and operations 89,727 Mainland China Research and design, administration and operations 66,929 Taiwan Research and design, administration and operations 18,537 Hong Kong Administration and operations 7,088 Total 182,281 (1) Lease terms expire in various years from 2023 through 2030.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeFor a discussion of certain risks associated with legal proceedings, please see Part I, Item 1A, “Risk Factors” above. Item 4. Mine Safety Disclosures Not Applicable. 67 PART II
Biggest changeFor a discussion of certain risks associated with legal proceedings, please see Part I, Item 1A, “Risk Factors” above. Item 4. Mine Safety Disclosures Not Applicable. 63 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeOn February 10, 2022, we issued and sold an additional 3,000,000 of our ordinary shares pursuant to the underwriters’ option to purchase additional shares from us. All of the shares sold were registered under the Act pursuant to a registration statement on Form S-1 (File No. 333-261982) (the Registration Statement), which became effective on January 26, 2022.
Biggest changeAll of the shares sold were registered under the Act pursuant to a registration statement on Form S-1 (File No. 333-261982) (the Registration Statement), which became effective on January 26, 2022. The offering resulted in proceeds to us of approximately $194.2 million, net of underwriting discounts and offering costs.
There has been no material change in the planned use of the proceeds from our IPO as described in our final prospectus filed with the SEC on January 27, 2022. Issuer Purchases of Equity Securities None. Item 6. [Reserved]
There has been no material change in the planned use of the proceeds from our IPO as described in our final prospectus filed with the SEC on January 27, 2022. 64 Issuer Purchases of Equity Securities None. Item 6. [Reserved]
The graph below compares the cumulative total return on our ordinary shares with the cumulative total return of the NASDAQ Composite Index and the Philadelphia Semiconductor Index during the period from January 27, 2022 to April 30, 2022.
The graph below compares the cumulative total return on our ordinary shares with the cumulative total return of the NASDAQ Composite Index and the Philadelphia Semiconductor Index during the period from January 27, 2022 to April 29, 2023.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our ordinary shares have been traded on the Nasdaq Global Select Market under the symbol “CRDO” since January 27, 2022. Holders On June 1, 2022, there were 177 shareholders of record holding our ordinary shares.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our ordinary shares have been traded on the Nasdaq Global Select Market under the symbol “CRDO” since January 27, 2022, the first trading day following our IPO. Holders On June 15, 2023, there were 103 shareholders of record holding our ordinary shares.
Use of Proceeds from Our IPO 68 On January 31, 2022, we closed our IPO, in which we issued and sold 18,383,800 of our ordinary shares and certain of our existing shareholders sold an aggregate of 1,616,200 of our ordinary shares.
Use of Proceeds from Our IPO On January 31, 2022, we closed our IPO, in which we issued and sold 18,383,800 of our ordinary shares and certain of our existing shareholders sold an aggregate of 1,616,200 of our ordinary shares at an offering price of $10.00 per share.
Added
On February 10, 2022, we issued and sold an additional 3,000,000 of our ordinary shares pursuant to the underwriters’ option to purchase additional shares from us at an offering price of $10.00 per share.

Item 7. Management's Discussion & Analysis

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

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Biggest changeInterest and penalties related to uncertain tax positions are classified in the consolidated financial statements as income tax expense. 77 Results of Operations Years Ended April 30, 2022 and 2021 The following table sets forth information derived from our consolidated statements of operations expressed as a percentage of total revenue: Year Ended April 30, 2022 2021 Revenue: Product sales 69.2 % 46.8 % Product engineering services 7.3 % 16.4 % IP license 21.9 % 29.4 % IP license engineering services 1.6 % 7.4 % Total revenue 100.0 % 100.0 % Cost of revenue: Cost of product sales revenue 37.6 % 27.4 % Cost of product engineering services revenue 1.8 % 5.4 % Cost of IP license engineering services revenue 0.5 % 2.0 % Total cost of revenue 39.9 % 34.8 % Gross margin 60.1 % 65.2 % Operating expenses: Research and development 45.0 % 59.4 % Selling, general and administrative 32.8 % 48.8 % Impairment charges 2.9 % — % Total operating expenses 80.7 % 108.2 % Operating loss (20.6) % (43.0) % Other income (expense), net (0.2) % (0.1) % Loss before income taxes (20.8) % (43.1) % Provision for income taxes — % 3.8 % Net loss (20.8) % (46.9) % Comparison of Years Ended April 30, 2022 and 2021 Revenue Year Ended April 30, % Change 2022 2021 (in thousands, except percentages) Product sales $ 73,721 $ 27,477 168.3 % Product engineering services 7,741 9,579 (19.2) % IP license 23,309 17,273 34.9 % IP license engineering services 1,706 4,368 (60.9) % Total revenue $ 106,477 $ 58,697 81.4 % Revenue for fiscal 2022 increased by $47.8 million primarily due to increases in product sales and IP license revenues, which increased by $46.2 million and $6.0 million, respectively, offset by decreases in product and IP license engineering services revenues of $1.8 million and $2.7 million, respectively. 78 The increase in product sales revenue was primarily due to an increase in the number of IC units sold and revenue relating to AEC cables that were introduced in fiscal 2021.
Biggest changeResults of Operations Years Ended April 29, 2023 and April 30, 2022 73 The following table sets forth information derived from our consolidated statements of operations expressed as a percentage of total revenue: Year Ended April 29, 2023 April 30, 2022 Revenue: Product sales 76.8 % 69.2 % Product engineering services 5.9 % 7.3 % IP license 16.0 % 21.9 % IP license engineering services 1.3 % 1.6 % Total revenue 100.0 % 100.0 % Cost of revenue: Cost of product sales revenue 40.8 % 37.6 % Cost of product engineering services revenue 0.5 % 1.8 % Cost of IP license revenue 0.6 % — % Cost of IP license engineering services revenue 0.4 % 0.5 % Total cost of revenue 42.3 % 39.9 % Gross margin 57.7 % 60.1 % Operating expenses: Research and development 41.7 % 45.0 % Selling, general and administrative 26.2 % 32.8 % Impairment charges 1.3 % 2.9 % Total operating expenses 69.2 % 80.7 % Operating loss (11.5) % (20.6) % Other income (expense), net 1.8 % (0.2) % Loss before income taxes (9.7) % (20.8) % Benefit for income taxes (0.7) % — % Net loss (9.0) % (20.8) % Comparison of Years Ended April 29, 2023 and April 30, 2022 Revenue Year Ended % Change April 29, 2023 April 30, 2022 (in thousands, except percentages) Product sales $ 141,475 $ 73,721 91.9 % Product engineering services 10,780 7,741 39.3 % IP license 29,444 23,309 26.3 % IP license engineering services 2,495 1,706 46.2 % Total revenue $ 184,194 $ 106,477 73.0 % Revenue for fiscal 2023 increased by $77.7 million primarily due to increases in product sales and IP license revenues, which increased by $67.8 million and $6.1 million, respectively.
Our product gross margins will be affected by the extent to which these declines are paired with improvements in manufacturing yields and lower wafer, assembly and test costs that offset some of the margin reduction that results from lower average selling prices as well as the extent to which we introduce new products with higher initial average selling prices and achieve market acceptance.
Our product gross margins will be affected by the extent to which these declines are paired with improvements in manufacturing yields and lower wafer, assembly and test costs that offset some of the margin reduction that results from lower average selling prices as well as the extent to which we introduce new products with higher initial average selling prices that achieve market acceptance.
Costs of revenue includes cost of product sales revenue, cost of product engineering services revenue and cost of IP license engineering services revenue.
Costs of revenue includes cost of product sales revenue, cost of product engineering services revenue, cost of IP license revenue and cost of IP license engineering services revenue.
Selling, General and Administrative Expenses Selling expenses consist of personnel costs including salaries, benefits, and share-based compensation expense, field application engineering support, samples to customers, shipping costs, and travel & entertainment costs. We expect selling expenses to increase in absolute dollars as we increase our sales and marketing personnel and continue to expand our customer engagement.
Selling, General and Administrative Expenses Selling expenses consist of personnel costs including salaries, benefits and share-based compensation expense, field application engineering support, samples to customers, shipping costs and travel and entertainment costs. We expect selling expenses to increase in absolute dollars as we increase our sales and marketing personnel and continue to expand our customer engagement.
In the event that 80 we need to borrow funds or issue additional equity, we cannot assure you that any such additional financing will be available on terms acceptable to us, if at all. If we are unable to raise additional capital when we need it, our business, results of operations and financial condition would be adversely affected.
In the event that we need to borrow funds or issue additional equity, we cannot assure you that any such additional financing will be available on terms acceptable to us, if at all. If we are unable to raise additional capital when we need it, our business, results of operations and financial condition would be adversely affected.
Our policy is to record revenue net of 75 any applicable sales, use or excise taxes. Changes in our contract assets and contract liabilities primarily result from the timing difference between our performance and the customer’s payment. We fulfill our obligations under a contract with a customer by transferring products or services in exchange for consideration from the customer.
Our policy is to record revenue net of any applicable sales, use or excise taxes. Changes in our contract assets and contract liabilities primarily result from the timing difference between our performance and the customer’s payment. We fulfill our obligations under a contract with a customer by transferring products or services in exchange for consideration from the customer.
Where an arrangement includes multiple performance obligations, the transaction price is allocated to these on a relative standalone selling price (SSP) basis. We determine the SSP based on an observable standalone selling price when it is available, as well as other factors, including the price charged to customers and our overall pricing objectives, while maximizing observable inputs.
Where an arrangement includes multiple performance obligations, the transaction price is allocated to these on a relative standalone selling price (SSP) basis. We determine the SSP based on an observable standalone 70 selling price when it is available, as well as other factors, including the price charged to customers and our overall pricing objectives, while maximizing observable inputs.
When we determine that it is probable that a tranche of the warrant will vest and we recognize the related revenue, the grant date fair value of the associated tranche will be recognized in shareholders’ equity and the underlying expense will be amortized as a reduction of revenue in proportion to the amount of related revenue recognized.
When we determine that it 78 is probable that a tranche of the warrant will vest and we recognize the related revenue, the grant date fair value of the associated tranche will be recognized in shareholders’ equity and the underlying expense will be amortized as a reduction of revenue in proportion to the amount of related revenue recognized.
Impairment Charges Impairment charges consist primarily of impairment on property and equipment for assets no longer in service. Other Income and Expense, Net Other income and expense, net consists primarily of interest income from significant financing components related to IP license revenue contracts, and foreign exchange gains and losses.
Impairment Charges Impairment charges consist primarily of impairment on property and equipment for assets no longer in service. 72 Other Income and Expense, Net Other income and expense, net consists primarily of interest income from significant financing components related to IP license revenue contracts, and foreign exchange gains and losses.
These factors may affect the timing and magnitude of demand from customers and the availability of portions of the supply chain, logistical services and component supply and may have a material net negative impact on our business and 74 financial results.
These factors may affect the timing and magnitude of demand from customers and the availability of portions of the supply chain, logistical services and component supply and may have a material net negative impact on our business and financial results.
As a result, the degree to which we are successful in achieving design wins and the speed and level at which end customers ramp 72 volume production of the products into which our product is designed will impact our success and financial results in future periods.
As a result, the degree to which we are successful in achieving design wins and the speed and level at which end customers ramp 68 volume production of the products into which our product is designed will impact our success and financial results in future periods.
Cash Flows from Financing Activities Net cash provided by financing activities of $204.2 million for fiscal 2022 was primarily attributable to $194.2 million in proceeds from our IPO, net of underwriting discounts and commissions, and offering costs, $2.7 million in proceeds from exercises of share options and $7.2 million in proceeds from the issuance of convertible preferred shares, net of issuance costs.
Net cash provided by financing activities of $204.2 million in fiscal 2022 was primarily attributable to $194.2 million in proceeds from our IPO, net of underwriting discounts and commissions and offering costs, $2.7 million in proceeds from exercises of share options and $7.2 million in proceeds from the issuance of convertible preferred shares, net of issuance costs.
In order to remain competitive, we have made, and expect to continue to make, significant expenses in research and 73 development, and our research and development expenses in a particular period may be significantly impacted by specific product or engineering initiatives that we undertake to maintain our competitiveness and expand our product portfolio.
In order to remain competitive, we have made, and expect to continue to make, significant expenses in research and 69 development, and our research and development expenses in a particular period may be significantly impacted by specific product or engineering initiatives that we undertake to maintain our competitiveness and expand our product portfolio.
The determination of the SPP for certain of our IPs requires fair value estimate under income approach, involving the estimation of future cash flow expected to be generated from the IPs. Our policy is to record revenue net of any applicable sales, use or excise taxes.
The determination of the SPP for certain of our IP requires fair value estimate under income approach, involving the estimation of future cash flow expected to be generated from the IP. Our policy is to record revenue net of any applicable sales, use or excise taxes.
The demands for increased bandwidth, improved power and cost efficiency, and heightened security have simultaneously and dramatically expanded as work, education, and entertainment have rapidly digitized across billions of end-point users. 69 Since our founding in 2008, we have achieved several significant milestones: • From 2008 to 2012, we developed our proprietary, low-power, mixed-signal SerDes architecture which could scale from 25Gbps/lane to 50Gbps/lane and ultimately to 100Gbps/lane. • In 2013, we began commercializing our core SerDes technology by providing connectivity solutions for the electrical and optical links in data centers. • In 2014, we signed our first product contract with Non-Recurring Engineering (NRE) services as well as our first IP licensing contract. • In 2016, we commenced production shipments of our Line Card PHY products. • In 2017, we developed a 3.2Tbps chiplet for high bandwidth 12.8Tbps switches.
The demands for increased bandwidth, improved power and cost efficiency and heightened security have simultaneously and dramatically expanded as work, education and entertainment have rapidly digitized across myriad endpoint users. 65 Since our founding in 2008, we have achieved several significant milestones: • From 2008 to 2012, we developed our proprietary, low-power, mixed-signal SerDes architecture which could scale from 25Gbps/lane to 50Gbps/lane and ultimately to 100Gbps/lane. • In 2013, we began commercializing our core SerDes technology by providing connectivity solutions for the electrical and optical links in data centers. • In 2014, we signed our first product contract with Non-Recurring Engineering (NRE) services as well as our first IP licensing contract. • In 2016, we commenced production shipments of our Line Card PHY products. • In 2017, we developed a 3.2Tbps chiplet for high bandwidth 12.8Tbps switches.
We recognize product sales when we transfer control of promised goods in an amount that reflects the consideration to which we expect to be entitled to in exchange for those goods, net of accruals for estimated sales returns and rebates. IP License Revenue - Our licensing revenue consists of a perpetual license, support and maintenance, and royalties.
We recognize product sales when we transfer control of promised goods in an amount that reflects the consideration to which we expect to be entitled to in exchange for those goods, net of accruals for estimated sales returns and rebates. IP License Revenue - Our IP license revenue consists of perpetual licenses, support and maintenance and royalties.
Customer Demand and Pipeline Demand for our products is dependent on conditions in the markets in which our customers operate, which are subject to cyclicality and competitive conditions. We believe our relationships with the end customers of our products and the long-term implications of decisions to adopt our solutions, provide us with valuable visibility into customer demand.
Customer Demand and Pipeline Demand for our products is dependent on conditions in the markets in which our customers operate, which are subject to cyclicality and competitive conditions, among other factors. We believe our relationships with the end customers of our products and the long-term implications of decisions to adopt our solutions provide us with valuable visibility into customer demand.
Our future capital requirements will depend on many factors including our growth rate, the timing and extent of our sales and marketing and research and development expenditures, and the continuing market acceptance of our solutions.
Our future capital requirements will depend 76 on many factors, including our growth rate, the timing and extent of our sales and marketing and research and development expenditures, customer demand and the continuing market acceptance of our solutions.
Research and development costs are expensed as incurred. We believe that continued investments in our products are important to our future growth and, as a result, we expect our research and development expenses to continue to increase in absolute dollars.
We believe that continued investments in our products are important to our future growth and, as a result, we expect our research and development expenses to continue to increase in absolute dollars.
During fiscal 2022 and 2021, we generated $22.2 million and $27.5 million in net loss, respectively. We derive the substantial majority of our revenue from a limited number of customers, and we anticipate we will continue to derive a significant portion of our revenue from a limited number of customers for the foreseeable future.
During fiscal 2023 and 2022, we generated $16.5 million and $22.2 million in net loss, respectively. 66 We derive the substantial majority of our revenue from a limited number of customers, and we anticipate we will continue to derive a significant portion of our revenue from a limited number of customers for the foreseeable future.
The cash outflows from operating activities for fiscal 2022 were primarily due to $22.2 million of net loss and $29.6 million of cash outflows for working capital purposes, partially offset by $21.0 million of non-cash items.
Net cash used in operating activities was $30.8 million for fiscal 2022. The cash outflows from operating activities for fiscal 2022 were primarily due to $22.2 million of net loss and $29.6 million of cash outflows for working capital purposes, partially offset by $21.0 million of non-cash items.
Product sales gross margin increased by 4.1 percentage points in fiscal 2022 primarily from our product sales business gaining scale. We expect to see an additional long-term benefit from improvements in our operating leverage as our business continues to gain scale.
Product sales gross margin increased by 1.3 percentage points in fiscal 2023 primarily from our product sales business gaining scale. We expect to see a long-term benefit from improvements in our operating leverage as our business continues to gain scale.
As of April 30, 2022, we had $259.3 million in cash and cash equivalents, and working capital of $305.7 million. Our principal use of cash is to fund our operations and invest in research and development to support our growth.
As of April 29, 2023 and April 30, 2022, we had cash and cash equivalents of $108.6 million and $259.3 million, respectively, and working capital of $297.2 million and $305.7 million, respectively. Our principal use of cash is to fund our operations and invest in research and development to support our growth.
Geographically, 36% and 75% of our total revenue in fiscal 2022 and 2021, respectively, was generated from customers in North America, and 64% and 25% of our total revenue in fiscal 2022 and 2021, respectively, was generated from customers in the rest of the world, primarily in Asia.
Geographically, 31% and 36% of our total revenue in fiscal 2023 and 2022, respectively, was generated from customers in North America, and 69% and 64% of our total revenue in fiscal 2023 and 2022, respectively, was generated from customers in the rest of the world, primarily in Asia.
Impairment Charges Year Ended April 30, % Change 2022 2021 (in thousands, except percentages) Impairment charges $ 3,134 $ — 100.0 % % of total revenue 2.9 % — % Impairment charges incurred in fiscal 2022 were primarily related to an impairment on property and equipment that did not reach production qualification.
Impairment Charges Year Ended % Change April 29, 2023 April 30, 2022 (in thousands, except percentages) Impairment charges $ 2,407 $ 3,134 (23.2) % % of total revenue 1.3 % 2.9 % Impairment charges incurred in fiscal 2023 and 2022 were primarily related to the impairments on property and equipment that did not reach production qualification.
Product sales and product engineering services revenue comprised 77% and 63% of our total revenue in fiscal 2022 and 2021, respectively, and IP license and IP license engineering services revenue represented 23% and 37% of our total revenue in fiscal 2022 and 2021, respectively.
Product sales and product engineering services revenue comprised 83% and 77% of our total revenue in fiscal 2023 and 2022, respectively, and IP license and IP license engineering services revenue represented 17% and 23% of our total revenue in fiscal 2023 and 2022, respectively.
Product Sales - We transact with customers primarily pursuant to standard purchase orders for delivery of products and generally allow customers to cancel or change purchase orders within limited notice periods prior to the scheduled shipment date. We offer standard performance warranties of twelve months after product delivery and do not allow returns, other than returns due to warranty issues.
Product Sales - We transact with customers primarily pursuant to standard purchase orders for delivery of products and generally allow customers to cancel or change purchase orders within limited notice periods prior to the scheduled shipment date. We offer standard performance warranties of twelve months after product delivery and offer limited product return rights to certain distributors.
Cost of Revenue Cost of revenue includes cost of materials, such as wafers processed by third-party foundries, cost associated with packaging and assembly, testing and shipping, cost of personnel, including stock-based compensation, depreciation of equipment associated with manufacturing support, logistics and quality assurance, warranty cost, amortization of intellectual property purchased from third parties, write-down of inventories, and amortization of production mask costs.
We record liabilities for amounts that are collected in advance of the satisfaction of performance obligations under deferred revenue. 71 Cost of Revenue Cost of revenue includes cost of materials, such as wafers processed by third-party foundries, cost associated with packaging and assembly, testing and shipping, cost of personnel, including stock-based compensation, depreciation of equipment associated with manufacturing support, logistics and quality assurance, warranty cost, amortization of intellectual property purchased from third parties, write-down of inventories and amortization of production mask costs.
By providing tailored engineering services to our customers, we believe we strengthen our customer relationships, enable additional sales and establish ourselves for potential long-term revenue opportunities from associated product sales or IP license revenue. 71 A summary of our revenue and associated gross margin by these revenue sources for fiscal 2022 and 2021 is presented below (in thousands, except percentages): Year Ended April 30, 2022 2021 Revenue: Product sales $ 73,721 $ 27,477 Product engineering services 7,741 9,579 Total product sales and product engineering services 81,462 37,056 IP license 23,309 17,273 IP license engineering services 1,706 4,368 Total IP license and IP license engineering services 25,015 21,641 Total revenue $ 106,477 $ 58,697 Gross margin: Product sales 45.6 % 41.5 % Product engineering services 75.2 % 66.9 % Total product sales and product engineering services 48.4 % 48.1 % IP license 100.0 % 100.0 % IP license engineering services 72.9 % 73.0 % Total IP license and IP license engineering services 98.2 % 94.5 % Total gross margin 60.1 % 65.2 % Over time, we anticipate that our revenues from product sales and IP license will become a larger proportion of total revenue relative to engineering services.
By providing tailored engineering services to our customers, we believe we strengthen our customer relationships, enable additional sales and establish ourselves for potential long-term revenue opportunities from associated product sales or IP license revenue. 67 A summary of our revenue and associated gross margin by these revenue sources for fiscal 2023 and 2022 is presented below (in thousands, except percentages): Year Ended April 29, 2023 April 30, 2022 Revenue: Product sales $ 141,475 $ 73,721 Product engineering services 10,780 7,741 Total product sales and product engineering services 152,255 81,462 IP license 29,444 23,309 IP license engineering services 2,495 1,706 Total IP license and IP license engineering services 31,939 25,015 Total revenue $ 184,194 $ 106,477 Gross margin: Product sales 46.9 % 45.6 % Product engineering services 91.0 % 75.2 % Total product sales and product engineering services 50.0 % 48.4 % IP license 96.0 % 100.0 % IP license engineering services 71.7 % 72.9 % Total IP license and IP license engineering services 94.1 % 98.2 % Total gross margin 57.7 % 60.1 % Over time, we anticipate that our revenues from product sales and IP license will become a larger proportion of total revenue relative to engineering services.
Revenue is deferred for any amounts billed or received prior to delivery of services. We believe the input method, based on time spent by our engineers, best depicts the efforts expended to transfer services to the customers. Certain contracts may include multiple performance obligations for which we allocate revenue to each performance obligation based on relative SSP.
We believe the input method, based on time spent by our engineers, best depicts the efforts expended to transfer services to the customers. Certain contracts may include multiple performance obligations for which we allocate revenue to each performance obligation based on relative SSP. We determine SSPs based on observable evidence.
The cash outflows from operating activities for fiscal 2021 were primarily due to $27.5 million of net loss and $21.3 million of cash outflows from working capital, partially offset by $6.5 million of non-cash items.
The cash outflows from operating activities for fiscal 2023 were primarily due to $16.5 million of net loss and $50.4 million of cash outflows for working capital purposes, partially offset by $42.4 million of non-cash items.
Our historical results are not necessarily indicative of the results that may be expected for any period in the future. Overview Credo is an innovator in providing secure, high-speed connectivity solutions that deliver improved power and cost efficiency as data rates and corresponding bandwidth requirements increase exponentially throughout the data infrastructure market.
Overview Credo is an innovator in providing secure, high-speed connectivity solutions that deliver improved power and cost efficiency as data rates and corresponding bandwidth requirements increase exponentially throughout the data infrastructure market.
In addition, we engineered breakthrough Line Card PHYs and Optical PAM4 DSPs with leading performance and power for 50G/lane and 100G/lane solutions. • In 2021, we launched new AEC solutions targeting ToR-to-NIC connections. Our solutions enabled dual-ToR server racks to seamlessly “switch” data traffic to the redundant ToR if a ToR port failed.
In addition, we engineered breakthrough Line Card PHYs and Optical PAM4 DSPs with leading performance and power for 50G/lane and 100G/lane solutions. • In 2021, we launched new AEC solutions targeting ToR-to-NIC connections.
We estimate the sales-based royalties earned each quarter primarily based on our customers’ reporting of sales activity incurred in that quarter. We recognize the estimated royalty revenue when it is probable that reversal of such amounts will not occur. Any differences between actual royalties owed by a customer and the quarterly estimates are recognized when updated information becomes available.
Such royalties are reported to us on a quarterly basis. We estimate the sales-based royalties earned each quarter primarily based on our customers’ reporting of sales activity incurred in that quarter. We recognize the estimated royalty revenue when it is probable that reversal of such amounts will not occur.
We transact with customers primarily pursuant to standard purchase orders for delivery of products and generally allow customers to cancel or change purchase orders within limited notice periods prior to the scheduled shipment date. We offer standard performance warranties of twelve months after product delivery and do not allow returns, other than returns due to warranty issues.
We transact with customers primarily pursuant to standard purchase orders for delivery of products and generally allow customers to cancel or change purchase orders within limited notice periods prior to the scheduled shipment date.
Factors that could cause or contribute to such differences include those identified below and those discussed in the section titled “Risk Factors.” For a discussion and analysis of our financial condition and results of operations for our fiscal year ended April 30, 2020, and a comparison of our fiscal years ended April 20, 2021 and 2020, see the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our prospectus dated January 26, 2022.
Factors that could cause or contribute to such differences include those identified below and those discussed in the section titled “Risk Factors.” A discussion regarding our financial condition and our results of operations for the fiscal year ended April 29, 2023 compared to the fiscal year ended April 30, 2022 is presented below.
Gross Profit and Gross Margin Year Ended April 30, % Change 2022 2021 (in thousands, except percentages) Gross profit $ 64,015 $ 38,278 67.2 % Gross margin 60.1 % 65.2 % Gross margin decreased by 5.1 percentage points in fiscal 2022 primarily driven by an increase in our product sales revenue as a percentage of overall revenue as noted above.
Gross Profit and Gross Margin Year Ended % Change April 29, 2023 April 30, 2022 (in thousands, except percentages) Gross profit $ 106,194 $ 64,015 65.9 % Gross margin 57.7 % 60.1 % Gross margin decreased by 2.4 percentage points in fiscal 2023 primarily driven by an increase in our product sales revenue as a percentage of overall revenue as noted above given that our product sales has lower gross margin in relation to other revenue streams.
We determine SSPs based on observable evidence. When SSPs are not directly observable, we use the adjusted market assessment approach or residual approach, if applicable. We also consider the constraint on estimates of variable consideration when estimating the total transaction price. We record liabilities for amounts that are collected in advance of the satisfaction of performance obligations under deferred revenue.
When SSPs are not directly observable, we use the adjusted market assessment approach or residual approach, if applicable. We also consider the constraint on estimates of variable consideration when estimating the total transaction price.
We consider an accounting policy to be critical if the policy is subject to a material level of judgment and if changes in those judgments are reasonably likely to materially impact our results. 81 We base our estimates and judgments on our historical experience, knowledge of current conditions, and our beliefs of what could occur in the future, given the available information.
We consider an accounting policy to be critical if the policy is subject to a material level of judgment and if changes in those judgments are reasonably likely to materially impact our results.
Pricing and Product Gross Margins Our revenue is also impacted by changes in the number and average selling prices of our products. Our products are typically characterized by a life cycle that begins with higher average selling prices and lower volumes, followed by broader market adoption, leading to higher volumes, and average selling prices lower than initial levels.
Our products are typically characterized by a life cycle that begins with higher average selling prices and lower volumes, followed by broader market adoption, which leads to higher volumes and average selling prices that are lower than initial levels.
Any prolonged or significant downturn in our industry generally could adversely affect our business and reduce demand for our products and otherwise harm our financial condition and results of operations. Impact of COVID-19 The ongoing COVID-19 pandemic has significantly impacted global economic activity and caused business disruption worldwide.
Any prolonged or significant downturn in our industry generally could adversely affect our business and reduce demand for our products and otherwise harm our financial condition and results of operations.
Product Engineering and IP License Engineering Services Revenue - Some product and IP license revenue contracts includes non-recurring engineering services deliverables. We recognize revenue from these agreements over time as services are provided or at a point in time upon completion and acceptance by the customer of contract deliverables, depending on the terms of the arrangement.
We recognize revenue from these agreements over time as services are provided or at a point in time upon completion and acceptance by the customer of contract deliverables, depending on the terms of the arrangement. Revenue is deferred for any amounts billed or received prior to delivery of services.
Years Ended April 30, 2022 2021 (in thousands) Net cash used in operating activities $ (30,832) $ (42,361) Net cash used in investing activities $ (17,580) $ (6,056) Net cash provided by financing activities $ 204,181 $ 77,888 Cash Flows Used in Operating Activities Net cash used in operating activities was $30.8 million for fiscal 2022.
Year Ended April 29, 2023 April 30, 2022 (in thousands) Net cash used in operating activities $ (24,615) $ (30,832) Net cash used in investing activities $ (130,941) $ (17,580) Net cash provided by financing activities $ 4,885 $ 204,181 Cash Flows Used in Operating Activities Net cash used in operating activities was $24.6 million for fiscal 2023.
Revenue from customer support is deferred and earned over the support period, which is typically one year. In certain cases, we also charge licensees royalties related to the distribution or sale of products that use our technologies. Such royalties are reported to us on a quarterly basis.
In connection with the license arrangements, we offer support to assist customers in qualifying their final product. Revenue from customer support is deferred and recognized ratably over the support period, which is typically one year. In certain cases, we also charge licensees royalties related to the distribution or sale of products that use our technologies.
The increase was due primarily to a $9.1 million increase in personnel costs as a result of new hires for product development, a $3.1 million increase in design activities and higher engineering activities relating to testing and laboratory supplies for new product development and a $1.6 million decrease in allocation of research and development expense to costs of engineering services due to less engineering hours incurred relating to non-recurring engineering service revenue arrangements, which was offset by a $2.7 million decrease in share-based compensation expense driven by a one-time share repurchase transaction from employees in fiscal 2021. 79 Selling, General and Administrative Year Ended April 30, % Change 2022 2021 (in thousands, except percentages) Selling, general and administrative $ 34,900 $ 28,667 21.7 % % of total revenue 32.8 % 48.8 % Selling, general and administrative expense for fiscal 2022 increased by $6.2 million compared to the same period in fiscal 2021.
The increase was due primarily to a $9.8 million increase in personnel costs as a result of new hires for product development, an $8.3 million increase in share-based compensation expense driven by increased amortization expense from new equity awards granted to employees, a $3.6 million increase in design activities and higher engineering activities relating to testing and laboratory supplies for new product development, a $3.6 million increase in depreciation expense driven by increased computer equipment and software and laboratory equipment utilized in research and development activities, and a $1.4 million increase in information technology and facilities costs. 75 Selling, General and Administrative Year Ended % Change April 29, 2023 April 30, 2022 (in thousands, except percentages) Selling, general and administrative $ 48,248 $ 34,900 38.2 % % of total revenue 26.2 % 32.8 % Selling, general and administrative expenses for fiscal 2023 increased by $13.3 million compared to the same period in fiscal 2022.
Research and Development Year Ended April 30, % Change 2022 2021 (in thousands, except percentages) Research and development $ 47,949 $ 34,845 37.6 % % of total revenue 45.0 % 59.4 % Research and development expense for fiscal 2022 increased by $13.1 million compared to fiscal 2021.
Research and Development Year Ended % Change April 29, 2023 April 30, 2022 (in thousands, except percentages) Research and development $ 76,774 $ 47,949 60.1 % % of total revenue 41.7 % 45.0 % Research and development expenses for fiscal 2023 increased by $28.8 million compared to fiscal 2022.
Product sales and product engineering services revenue comprised 77% and 63% of our total revenue in fiscal 2022 and 2021, respectively, and IP license and IP license engineering services revenue represented 23% and 37% of our total revenue in fiscal 2022 and 2021, respectively.
During fiscal 2023 and 2022, we generated $184.2 million and $106.5 million in total revenue, respectively. Product sales and product engineering services revenue comprised 83% and 77% of our total revenue in fiscal 2023 and 2022, respectively, and IP license and IP license engineering services revenue represented 17% and 23% of our total revenue in fiscal 2023 and 2022, respectively.
Cost of revenue relating to IP license revenue was not material for fiscal 2022 and 2021. 76 Research and Development Expenses Research and development expense consists of costs incurred in performing research and development activities and includes salaries, share-based compensation, employee benefits, occupancy costs, pre-production engineering mask costs, overhead costs and prototype wafer, packaging and test costs.
Research and Development Expenses Research and development expenses consist of costs incurred in performing research and development activities and includes salaries, share-based compensation, employee benefits, occupancy costs, pre-production engineering mask costs, overhead costs and prototype wafer, packaging and test costs. Research and development costs are expensed as incurred.
Purchases of property and equipment primarily related to mask sets purchases for new products introduced or in process of being introduced and laboratory equipment used for research and development purposes.
Purchases of property and equipment primarily related to mask sets purchases for new products introduced or in process of being introduced, and computer equipment and software used for research and development purposes. Net cash used in investing activities of $17.6 million in fiscal 2022 was attributable to purchases of property and equipment, including third-party licenses.
However, if estimates regarding customer demand are inaccurate or changes in technology affect demand for certain products in an unforeseen manner, we may be exposed to losses or gains that could be material. 82 Share-Based Compensation Share-based compensation is measured at the grant date, based on the fair value of the award, and is recognized as expense over the requisite service vesting period.
However, if estimates regarding customer demand are inaccurate or changes in technology affect demand for certain products in an unforeseen manner, we may be exposed to losses or gains that could be material.
Cost of Revenue Year Ended April 30, % Change 2022 2021 (in thousands, except percentages) Cost of product sales revenue $ 40,082 $ 16,071 149.4 % Cost of product engineering services revenue 1,918 3,168 (39.5) % Cost of IP license engineering services revenue 462 1,180 (60.8) % Total cost of revenue $ 42,462 $ 20,419 108.0 % Cost of product sales revenue increased by $24.0 million in fiscal 2022 primarily due to higher product sales during the same period, which resulted in the higher product sales revenue as discussed above.
Cost of Revenue Year Ended % Change April 29, 2023 April 30, 2022 (in thousands, except percentages) Cost of product sales revenue $ 75,143 $ 40,082 87.5 % Cost of product engineering services revenue 972 1,918 (49.3) % Cost of IP license revenue 1,179 — N/A Cost of IP license engineering services revenue 706 462 52.8 % Total cost of revenue $ 78,000 $ 42,462 83.7 % Cost of product sales revenue increased by $35.1 million in fiscal 2023 primarily due to higher product sales during the same period, which resulted in the higher product sales revenue as discussed above, and a $4.2 million increase of write-downs for excess and obsolete inventory.
Our connectivity solutions are optimized for optical and electrical Ethernet applications, including the emerging 100G, 200G, 400G and 800G port markets. Our products are based on our proprietary SerDes and DSP technology. Our product families include ICs, AECs and SerDes Chiplets. Our IP solutions primarily are comprised of SerDes IP development and licensing.
Our connectivity solutions are optimized for optical and electrical Ethernet applications, including the 100G (or Gigabits per second), 200G, 400G, 800G and emerging 1.6T (or Terabits per second) markets. Our products are based on our Serializer/Deserializer (SerDes) and Digital Signal Processor (DSP) technologies. Our product families include integrated circuits (ICs), Active Electrical Cables (AECs) and SerDes Chiplets.
Provision (Benefit) for Income Taxes Year Ended April 30, % Change 2022 2021 (in thousands, except percentages) Provision (benefit) for income taxes $ (37) $ 2,215 (101.7) % % of total revenue — % 3.8 % Provision (benefit) for income taxes in fiscal 2022 decreased by $2.3 million.
Benefit for Income Taxes Year Ended % Change April 29, 2023 April 30, 2022 (in thousands, except percentages) Benefit for income taxes $ (1,367) $ (37) 3594.6 % % of total revenue (0.7) % — % Benefit for income taxes in fiscal 2023 increased by $1.3 million compared to the same period in fiscal 2022.
We amortize share-based compensation expense for time-based awards under the straight-line attribution method over the vesting period. The fair value of each restricted stock unit is estimated based on the market price of the Company’s ordinary shares on the date of grant less the expected dividend yield.
Share-Based Compensation Share-based compensation is measured at the grant date, based on the fair value of the award, and is recognized as expense over the requisite service vesting period. We amortize share-based compensation expense for time-based awards under the straight-line attribution method over the vesting period.
The increase was due primarily to a $3.8 million increase in personnel costs as a result of higher selling, general and administrative headcount, a $2.4 million increase in professional services spending and general increases in selling, general and administrative expense as we built out our public company infrastructure, which was offset by a $2.0 million decrease in share-based compensation expense driven by a one-time share repurchase transaction from employees in fiscal 2021.
The increase was due primarily to a $3.8 million increase in personnel costs as a result of higher selling, general and administrative headcount, a $0.9 million increase in professional services spending, a $1.3 million increase in facility-related costs, a $1.6 million increase in director and officer insurance cost as a result of being a public company and a $5.6 million increase in share-based compensation expense driven by increased amortization expense from new equity awards granted to employees.
We develop standard solutions we can sell broadly to our end markets and also develop tailored solutions designed to address specific customer needs.
We develop standard solutions we can sell broadly to our end markets and also develop tailored solutions designed to address specific customer needs. Once developed, these tailored solutions can generally be broadly leveraged across our portfolio and we are able to sell the part or license the IP into the broader market.
We believe our existing cash and cash equivalents and other components of working capital will be sufficient to meet our needs for at least the next 12 months.
See also Note 7 to our consolidated financial statements included in this Annual Report on Form 10-K for a further discussion of our cash requirements under non-cancelable purchase obligations. We believe our existing cash and cash equivalents and other components of working capital will be sufficient to meet our needs for at least the next 12 months.
Increases and decreases in the market price of our ordinary shares will increase and decrease the fair value of our share-based awards granted in future periods. Recent Accounting Pronouncements For more information, see Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Previously recognized expense is reversed for the portion of awards forfeited prior to vesting as and when forfeitures occur. Recent Accounting Pronouncements For more information, see Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
We estimate the fair value of share purchase awards on the date of grant using the Black-Scholes option-pricing model. Forfeitures are recorded when they occur. Previously recognized expense is reversed for the portion of awards forfeited prior to vesting as and when forfeitures occur.
The fair value of each restricted share unit is estimated based on the market price of our ordinary shares on the date of grant less the expected dividend yield. We estimate the fair value of share purchase awards on the date of grant using the Black-Scholes option-pricing model. Forfeitures are recorded when they occur.
Changes in customer forecasts or the timing of orders from customers expose us to the risks of inventory shortages or excess inventory. Cancellations of orders could result in the loss of anticipated sales without allowing us sufficient time to reduce and manage our operating expenses.
Changes in customer forecasts or the timing of orders from customers expose us to the risks of inventory shortages or excess inventory as well as fluctuations in our results of operations.
Liquidity and Capital Resources Our activities consist primarily of selling our products, licensing our IP, providing IP customization services and conducting research and development of our products and technology. Since our inception through April 30, 2022, our operations have been financed primarily by the sale of convertible preferred shares and ordinary shares, and cash generated from our customers.
Since our inception through April 29, 2023, our operations have been financed primarily by net proceeds from our IPO, the sale of convertible preferred shares and ordinary shares prior to our IPO, and cash generated from our customers.
A recent example is the announcement of our HiWire Switch cable and open-source implementation with Microsoft that helps realize Microsoft’s vision for a network-managed dual-ToR architecture, overcoming complex and slow legacy enterprise approaches, simplifying deployment, and improving connection reliability in the datacenter. The multi-billion dollar data infrastructure market that we serve is driven largely by hyperscalers, HPC and 5G infrastructure.
We partner with Microsoft on our HiWire Switch AEC and open-source implementation that helps realize Microsoft’s vision for a highly reliable network-managed dual-Top-of-Rack (ToR) architecture (a network architecture design in which computing equipment located within the same or an adjacent rack are, for redundancy, connected to two in-rack network switches, which are, in turn, connected to aggregation switches via fiber optic cables), overcoming complex and slow legacy enterprise approaches, simplifying deployment and improving connection reliability in the data center.
Cash Flows Used in Investing Activities Net cash used in investing activities of $17.6 million and $6.1 million in fiscal 2022 and 2021, respectively, was attributable to purchases of property and equipment.
Cash Flows Used in Investing Activities Net cash used in investing activities of $130.9 million in fiscal 2023 was attributable to purchases of property and equipment of $21.7 million and investment in certificates of deposit of $159.2 million, partially offset by maturities of investment in certificates of deposits of $50.0 million.
Data generation has increased dramatically over the past ten years, creating new and complicated challenges in both circuit and system design. Our proprietary SerDes and DSP technologies enable us to disrupt competition in existing markets, lead the way into emerging markets, and innovate to create new market opportunities.
Our intellectual property (IP) solutions consist primarily of SerDes IP licensing. Data generation has increased dramatically over the past ten years, creating new and complicated challenges in both circuit and system design. Our proprietary SerDes and DSP technologies enable us to achieve similar performance to leading competitors’ products but in a lower cost, more highly available legacy node (n-1 advantage).
Net cash provided by financing activities of $77.9 million in fiscal 2021 was primarily attributable to $1.4 million in proceeds from exercises of share options and $99.3 million in proceeds from the issuance of convertible preferred shares, net of issuance costs. This cash inflow was partially offset by $22.9 million in payments for repurchases of ordinary shares.
Purchases of property and equipment primarily related to mask sets purchases for new products introduced or in process of being introduced, and laboratory equipment used for research and development purposes. 77 Cash Flows Provided by Financing Activities Net cash provided by financing activities of $4.9 million for fiscal 2023 was primarily attributable to $5.5 million in proceeds from exercises of employee share options and the issuance of shares under our employee share purchase plan.
Our license arrangements do not typically grant the customer the right to terminate for convenience and where such rights exist, termination is prospective, with no refund of fees already paid by the customer. In connection with the license arrangements, we offer support and maintenance to assist customers in bringing up and qualifying the final product.
Where such rights exist, termination is prospective, with no refund of fees already paid by the customer. IP revenue recognition is dependent on the nature and terms of each agreement. We recognize IP license revenue at the point of time of the delivery of the IP.
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While many others in the data infrastructure industry struggle to meet customers’ increasing performance and energy efficiency requirements, we continue to innovate to deliver groundbreaking solutions.
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A discussion regarding our results of operations for the fiscal year ended April 30, 2022 compared to the fiscal year ended April 30, 2021 can be found in “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 April 30, 2022, filed with the SEC on June 8, 2022.
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Once developed, these tailored solutions can generally be broadly leveraged across our portfolio and we are able to sell the product or license the IP into the broader market. 70 During fiscal 2022 and 2021, we generated $106.5 million and $58.7 million in total revenue, respectively.
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Beyond power and performance, Credo continues to innovate to solve customers’ system level requirements.
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In August 2021, TSMC, on which we rely as the foundry for all our semiconductor products, began informing its customers that it plans to increase the prices of its most advanced chips by roughly 10% and its less advanced chips by up to 20%, effective in late 2021 or early 2022 as a result of a global supply shortage that began in 2020.
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The multibillion-dollar data infrastructure market that we serve is driven largely by hyperscale data centers (hyperscalers), as well as general compute, Artificial Intelligence and Machine Learning (AI/ML) infrastructure, multi-service operators (MSOs), and mobile network operators (MNOs).
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If we are unable to offset the increased costs associated with this price increase through pricing increases on our products, our gross margins may decrease.
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Our solutions enabled dual-ToR server racks to seamlessly “switch” data traffic to the redundant ToR if a ToR port failed. • In 2022, we released our 112G/lane AEC products including 400G, 800G and 1.6T varieties and expanded our AEC engagement to a second major hyperscaler, who awarded us with its next generation NIC-TOR AEC program and completed qualification. • In 2023, we expanded our AEC engagements to include all seven of the leading hyperscalers in the world, with additional program awards and qualifications.
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It has prompted governments and businesses to take unprecedented measures, including restrictions on travel, temporary business closures, quarantines and shelter-in-place orders. Since the onset of the pandemic in March 2020, most of our employees have transitioned to remote work, and we have temporarily prohibited most business travel.
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For example, on February 14, 2023, we announced that our largest customer has reduced its demand forecast for certain Credo products for reasons we understand are unrelated to our performance.
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We have complied with the recommendations of government health agencies in each jurisdiction in which we operate throughout the pandemic. We formed a task force to track the spread of COVID-19 and other relevant metrics to stay informed and took several precautions to operate safely.
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Although we do not expect our market share with the customer will be affected, the customer’s reduced demand forecast will have a substantial negative impact on our revenue and results of operations for our fiscal year ending April 27, 2024.
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We are very proud of the response of our employees, suppliers and customers to the demands of the pandemic. Our collective response meant that the impact to our business was significantly mitigated, and we believe the overall impact was relatively limited as a result.
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Cancellations of orders could result in the loss of anticipated sales without allowing us sufficient time to reduce and manage our operating expenses. Pricing and Product Gross Margins Our revenue is also impacted by changes in the number and average selling prices of our products.

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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 changeIf the U.S. dollar weakened by 10%, our operating expense in fiscal 2022 would have increased by approximately 2%. 84
Biggest changeIf the U.S. dollar weakened by 10%, our operating expense in fiscal 2023 would have increased by approximately 2%. Interest Rate Risk We maintain an investment policy that requires minimum credit ratings and diversification of credit risk. We invest our excess cash primarily in money market mutual funds and time deposits.
Increases in the value of the U.S. dollar relative to other currencies could make our products more expensive, which could negatively impact our ability to compete. Conversely, decreases in the value of the U.S. dollar relative to other currencies could result in our suppliers raising their prices to continue doing business with us.
Increases in the value of the U.S. dollar relative to other currencies could make our products more expensive, which could negatively impact our ability to compete. Conversely, decreases in the value of the U.S. dollar relative to 79 other currencies could result in our suppliers raising their prices to continue doing business with us.
Additionally, we may hold certain assets and liabilities, including potential tax liabilities, in local currency on our consolidated balance sheet. These tax liabilities would be settled in local currency. Foreign exchange gains and losses from remeasuring the tax liabilities are recorded to interest and other income, net.
Additionally, we may hold certain assets and liabilities, including potential tax liabilities, in local currency on our consolidated balance sheets. These tax liabilities would be settled in local currency. Foreign exchange gains and losses from remeasuring the tax liabilities are recorded to interest and other income, net.
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These investments are recorded on our consolidated balance sheets at fair market value with their related unrealized gain or loss reflected as a component of accumulated other comprehensive income (loss). Investments in both fixed-rate and floating-rate interest-earning securities carry a degree of interest rate risk.
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The fair market value of fixed-rate securities may be adversely impacted due to a rise in interest rates, while floating-rate securities may produce less income than predicted if interest rates fall. 80

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