QUALCOMM Incorporated : INC/DE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

This information should be read in conjunction with the condensed consolidated
financial statements and the notes thereto included in "Part I, Item 1" of this
Quarterly Report and with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for the fiscal year ended September 27,
2020 contained in our 2020 Annual Report on Form 10-K.
This Quarterly Report (including but not limited to this section titled
Management's Discussion and Analysis of Financial Condition and Results of
Operations) contains forward-looking statements regarding our business,
investments, financial condition, results of operations, cash flows and
prospects. Forward-looking statements also include but are not limited to
statements regarding the coronavirus (COVID-19) pandemic and its potential
future impact on: the global economy, economic uncertainty and consumer and
business confidence; demand for devices that incorporate our products and
intellectual property; our and the global wireless industry's supply chains,
transportation and distribution networks and workforces; 5G network deployments;
and our business, revenues, results of operations, cash flows and financial
condition; as well as statements regarding our planning assumptions, workforce
practices, the duration and severity of the pandemic, and government and other
actions to mitigate the spread of, and to treat, COVID-19. Forward-looking
statements further include but are not limited to statements regarding industry,
market, business, product, technology, commercial, competitive or consumer
trends, including seasonality; the 5G transition; our businesses, growth
potential or strategies, or factors that may impact them; challenges to our
licensing business, including by licensees, governments, governmental agencies
or regulators, standards bodies or others; challenges to our QCT business; other
legal or regulatory matters; competition; new or expanded product areas,
adjacent industry segments or applications; costs or expenditures including
research and development, selling, general and administrative, restructuring or
restructuring-related charges, working capital or information technology
systems; our debt, financing, stock repurchase or dividend programs; our
liquidity and capital resources; strategic investments or acquisitions, and the
anticipated timing or benefits thereof; adoption and application of future
accounting guidance; tax law changes; our tax structure or strategies;
U.S./China trade or national security policies; and the potential business or
financial statement impacts of any of the above, among others. Words such as
"expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates"
and similar expressions or variations of such words are intended to identify
forward-looking statements, but are not the exclusive means of identifying
forward-looking statements in this Quarterly Report.
Although forward-looking statements in this Quarterly Report reflect our good
faith judgment, such statements can only be based on facts and factors currently
known by us. Consequently, forward-looking statements are inherently subject to
risks and uncertainties and actual results and outcomes may differ materially
from the results and outcomes discussed in or anticipated by the forward-looking
statements. Factors that could cause or contribute to such differences in
results and outcomes include without limitation those discussed under the
heading "Risk Factors" below, as well as those discussed elsewhere in this
Quarterly Report. Further, see the Risk Factor titled "The coronavirus
(COVID-19) pandemic has had an adverse effect on our business and results of
operations, and may continue to impact us in the future," and note that many of
the risks and uncertainties set forth in other Risk Factors will be exacerbated
by the COVID-19 pandemic, government and business responses thereto and any
further resulting decline in the global business and economic environment, as
well as the extent and/or speed of global economic recovery. Readers are urged
not to place undue reliance on these forward-looking statements, which speak
only as of the date of this Quarterly Report. We undertake no obligation to
revise or update any forward-looking statements in order to reflect any event or
circumstance that may arise after the date of this Quarterly Report. Readers are
urged to carefully review and consider the various disclosures made in this
Quarterly Report, which attempt to advise interested parties of the risks and
factors that may affect our business, financial condition, results of operations
and prospects.
First Quarter Fiscal 2021 Overview and Other Recent Events
Revenues for the first quarter of fiscal 2021 were $8.2 billion, an increase of
62% compared to the year ago quarter, with net income of $2.5 billion, an
increase of 165% compared to the year ago quarter. Highlights and other key
developments from the first quarter of fiscal 2021 and other recent events
included:
•QCT and QTL results were positively impacted by Apple's fall device launches in
advance of the holiday season.
•QCT revenues increased by 81% in the first quarter of fiscal 2021 compared to
the year ago quarter, primarily due to an increase in demand for 5G products
across handsets and RFFE, along with higher automotive and IoT revenues.
•QTL revenues increased by 18% in the first quarter of fiscal 2021 compared to
the year ago quarter, primarily due an increase in estimated sales of
3G/4G/5G-based multimode products from our key licensees (in part due to the new
license agreement with Huawei), partially offset by the negative impact of
COVID-19 and lower demand in China for licensees' products that incorporate our
intellectual property.
                                       22
--------------------------------------------------------------------------------

•In January 2021, we announced that we entered into a definitive agreement to
acquire NuVia, Inc. (NUVIA) for approximately $1.4 billion. NUVIA is comprised
of a CPU (central processing unit) and technology design team with expertise in
high performance processors, SoC (system-on-chip) and power management for
compute-intensive devices and applications. Upon development, NUVIA's
technologies are expected to be integrated into certain QCT products. The
acquisition is expected to close in the second quarter of fiscal 2021.
Our Business and Operating Segments
We develop and commercialize foundational technologies and products used in
mobile devices and other wireless products. We derive revenues principally from
sales of integrated circuit products and licensing our intellectual property,
including patents and other rights.
We are organized on the basis of products and services and have three reportable
segments. We conduct business primarily through our QCT (Qualcomm CDMA
Technologies) semiconductor business and our QTL (Qualcomm Technology Licensing)
licensing business. Our QSI (Qualcomm Strategic Initiatives) reportable segment
makes strategic investments. We also have nonreportable segments, including QGOV
(Qualcomm Government Technologies), our cloud AI inference processing initiative
and other technology and service initiatives.
Our reportable segments are operated by QUALCOMM Incorporated and its direct and
indirect subsidiaries. QTL is operated by QUALCOMM Incorporated, which owns the
vast majority of our patent portfolio. Substantially all of our products and
services businesses, including QCT, and substantially all of our engineering,
research and development functions, are operated by Qualcomm Technologies, Inc.
(QTI), a wholly-owned subsidiary of QUALCOMM Incorporated, and QTI's
subsidiaries. Neither QTI nor any of its subsidiaries has any right, power or
authority to grant any licenses or other rights under or to any patents owned by
QUALCOMM Incorporated.
Seasonality. Many of our products and much of our intellectual property are
incorporated into consumer wireless devices, which are subject to seasonality
and other fluctuations in demand. Our revenues have historically fluctuated
based on consumer demand for devices, as well as on the timing of
customer/licensee device launches and/or innovation cycles (such as the
transition to the next generation of wireless technologies). This has resulted
in fluctuations in QCT revenues in advance of and during device launches
incorporating our products and in QTL revenues when licensees' sales occur. We
expect QCT revenues to continue to be impacted by seasonal trends related to
product launch timing for sales made to Apple under our multi-year chipset
supply agreement. These trends may or may not continue in the future and have
been impacted by the decline in consumer demand resulting from COVID-19.
Further, the trends for QTL have been, and may in the future be, impacted by
disputes and/or resolutions with licensees and/or governmental investigations or
proceedings.
Results of Operations
Revenues (in millions)
                                       Three Months Ended
                          December 27,       December 29,
                              2020               2019           Change
Equipment and services   $       6,442      $       3,534      $ 2,908
Licensing                        1,793              1,543          250
                         $       8,235      $       5,077      $ 3,158


First quarter 2021 vs. 2020
The increase in revenues in the first quarter of fiscal 2021 was primarily due
to:
+  $2.9 billion in higher equipment and services revenues from our QCT segment
+  $256 million in higher licensing revenues from our QTL segment
                                       23
--------------------------------------------------------------------------------

Costs and Expenses (in millions, except percentages)

                                             Three Months Ended
                                 December 27,      December 29,
                                     2020              2019          Change
Cost of revenues                $     3,489       $     2,113       $ 1,376
Gross margin                             58  %             58  %


First quarter 2021 vs. 2020
Gross margin percentage remained flat in the first quarter of fiscal 2021
primarily due to:
-  decrease in higher margin QTL licensing revenues in proportion to QCT
revenues
+  increase in QCT gross margin
                                        Three Months Ended
                            December 27,      December 29,
                                2020              2019          Change
Research and development   $     1,653       $     1,406       $  247
% of revenues                       20  %             28  %


First quarter 2021 vs. 2020
The increase in research and development expenses in the first quarter of fiscal
2021 was primarily due to:
+  $170 million increase driven by higher costs related to the development of
wireless and integrated circuit technologies, including 5G and application
processor technologies
+  $74 million increase in share-based compensation expense
                                                    Three Months Ended
                                        December 27,      December 29,
                                            2020              2019          Change

Selling, general and administrative    $       567       $      528        $    39
% of revenues                                    7  %            10  %


First quarter 2021 vs. 2020
The increase in selling, general and administrative expenses in the first
quarter of fiscal 2021 was primarily due to:
+  $22 million increase in share-based compensation expense
+  $20 million in higher expenses driven by revaluation of our deferred
compensation obligation on strong stock market performance (which resulted in a
corresponding increase in net gains on deferred compensation plan assets within
investment and other income, net due to the revaluation of the related assets)
Interest Expense and Investment and Other Income, Net (in millions)
                                                                            Three Months Ended
                                                          December 27,           December 29,
                                                              2020                   2019                Change
Interest expense                                         $      141            $         148          $      (7)

Investment and other income, net
Interest and dividend income                             $       21            $          59          $     (38)
Net gains on marketable securities                              118                       11                107
Net gains on other investments                                   34                       48                (14)
Net gains on deferred compensation plan assets                   54                       30                 24
Impairment losses on other investments                           (1)                     (72)                71

Net gains on derivative instruments                               9                        2                  7
Equity in net losses of investees                                (2)                     (10)                 8

Net losses on foreign currency transactions                     (14)                      (3)               (11)
                                                         $      219            $          65          $     154


                                       24

--------------------------------------------------------------------------------

Income Tax Expense (in millions, except percentages)
The following table summarizes the primary factors that caused our income tax
provision to differ from the expected income tax provision at the U.S. federal
statutory rate:
                                                                               Three Months Ended
                                                                     December 27,               December 29,
                                                                         2020                       2019

Expected income tax provision at federal statutory tax rate $ 547

$      199
Excess tax benefit associated with share-based awards                      (163)                      (47)

Foreign currency gain related to foreign withholding tax receivable (79)

                      (43)
Benefit from foreign-derived intangible income (FDII) deduction             (75)                      (46)
Benefit related to the research and development tax credit                  (59)                      (25)
Benefit from releasing valuation allowance on capital losses                 (8)                      (44)
Other                                                                       (14)                       28
   Income tax expense                                               $       149                $       22
Effective tax rate                                                            6  %                      2  %


As of the first quarter of fiscal 2021, we estimated our annual effective income
tax rate to be 11% for fiscal 2021, which is lower than the U.S. federal
statutory rate, primarily due to a significant portion of our income qualifying
for preferential treatment as foreign-derived intangible income (FDII) at a 13%
effective tax rate and due to benefits from our federal research and development
tax credit.
In the first quarter of fiscal 2021, the United States Treasury Department
issued final regulations on the foreign tax credit, which generally are
applicable beginning in fiscal 2021, with certain provisions retroactive to
fiscal 2019. As a result of these regulations, our fiscal 2021 estimated annual
effective tax rate increased by approximately 1%. The retroactive impact
resulting from these new regulations, which was related to fiscal 2019 and
fiscal 2020 and recorded discretely in the first quarter of fiscal 2021, was not
significant.
                                       25
--------------------------------------------------------------------------------

Segment Results
The following should be read in conjunction with our financial results for the
first quarter of fiscal 2021 for each reportable segment included in this
Quarterly Report in "Notes to Condensed Consolidated Financial Statements, Note
6. Segment Information."
QCT Segment (in millions, except percentages)
                                                    Three Months Ended
                                       December 27,      December 29,
                                           2020              2019           Change
            Revenues
            Handsets (1)              $     4,216       $     2,352       $ 1,864
            RFFE (2)                        1,061               413           648
            Automotive (3)                    212               147            65
            IoT (4)                         1,044               706           338
            Total revenues            $     6,533       $     3,618       $ 2,915
            EBT (5)                   $     1,919       $       479       $ 1,440
            EBT as a % of revenues             29  %             13  %         16  %


(1) Includes revenues from products sold for use in mobile handsets, excluding
RFFE (radio frequency front-end) components.
(2) Includes all revenues from sales of 4G, 5G sub-6 and 5G millimeter wave RFFE
products (a substantial portion of which are sold for use in handsets).
(3) Includes revenues from products sold for use in automobiles, including
telematics, connectivity and digital cockpit.
(4) Internet of things (IoT) revenues primarily include products sold for use in
cellular and non-cellular connected devices within the following industry
segments or applications: consumer, computing, industrial, fixed wireless
broadband, voice and music and wireless networking.
(5) Earnings (loss) before taxes.
Substantially all of QCT's revenues consist of equipment and services revenues,
which were $6.4 billion and $3.5 billion in the first quarter of fiscal 2021 and
fiscal 2020, respectively. QCT handsets, automotive and IoT revenues mostly
relate to sales of our stand-alone Mobile Data Modems, Snapdragon platforms
(which include processors and modems), radio frequency, power management and
wireless connectivity integrated chipsets.
First quarter 2021 vs. 2020
The increase in QCT revenues in the first quarter of fiscal 2021 was primarily
due to:
+  higher handsets revenues, primarily driven by $926 million in higher revenues
per chipset and $899 million in higher chipset shipments, both of which are
primarily due to an increase in demand for 5G products, a substantial portion of
which is attributable to higher sales to Apple
+  higher RFFE revenues, primarily driven by an increase in demand for 5G
products from Apple and other major OEMs
+  higher automotive revenues, primarily driven by an increase in demand for
telematics products
+  higher IoT revenues, primarily driven by an increase in demand for connected
devices due to the continued work and learn from home environment
QCT EBT as a percentage of revenues increased in the first quarter of fiscal
2021 primarily due to:
+  higher revenues
+  higher gross margin percentage, primarily driven by favorable mix from an
increase in demand for 5G products
-  higher operating expenses, primarily driven by higher research and
development costs
                                       26
--------------------------------------------------------------------------------

QTL Segment (in millions, except percentages)

                                                    Three Months Ended
                                        December 27,      December 29,
                                            2020              2019          Change

              Licensing revenues       $     1,660       $     1,404       $ 256

              EBT                            1,270             1,017         253

              EBT as a % of revenues            77  %             72  %        5  %


As a result of the global patent license agreement entered into with Huawei in
July 2020, QTL results for the first quarter of fiscal 2021 included revenues
for royalties due on sales made by Huawei in the December 2020 quarter. We did
not record any revenues in the first quarter of fiscal 2020 for royalties due on
the sales of Huawei's consumer wireless products.
First quarter 2021 vs. 2020
The increase in QTL licensing revenues in the first quarter of fiscal 2021 was
primarily due to an increase in estimated sales of 3G/4G/5G-based multimode
products from our key licensees (in part due to the new license agreement with
Huawei), partially offset by the negative impact of COVID-19 and lower demand in
China for licensees' products that incorporate our intellectual property.
QTL EBT as a percentage of revenues increased in the first quarter of fiscal
2021 primarily due to higher revenues.
QSI Segment (in millions)
                                                         Three Months Ended
                                             December 27,      December 29,
                                                 2020              2019          Change

        Equipment and services revenues     $    9            $         20      $  (11)

        EBT                                    158                      (3)        161


First quarter 2021 vs. 2020
The increase in QSI EBT in the first quarter of fiscal 2021 was primarily due
to:
+   $88 million increase in net gains on investments, primarily driven by
unrealized gains on marketable equity investments
+  $71 million decrease in impairment losses on non-marketable equity
investments
Looking Forward
In the coming years, we expect new consumer demand for 3G/4G/5G multimode and 5G
products and services to ramp around the world as we transition from 3G/4G
multimode and 4G products and services. We believe that 5G will drive growth and
transformation in emerging device categories and industries that will create new
business models and new services, resulting from the expanding adoption of
certain technologies that are already commonly used in smartphones by industry
segments or applications beyond mobile, such as automotive and IoT. We believe
it is important that we remain a leader in 5G technology development,
standardization, intellectual property creation and licensing of 5G
technologies, and to be a leading developer and supplier of 5G integrated
circuit products in order to sustain and grow our business long-term.
As we look forward to the next several months and beyond, our business may be
impacted by the following key items:
•The COVID-19 pandemic has resulted in significant economic uncertainty and has
led to a global recession. While the pandemic has had a negative impact on
consumer demand for some devices that incorporate our products and intellectual
property, as compared to economic conditions and consumer demand prior to the
pandemic, we currently do not expect a significant impact on our results of
operations in the future. We have not experienced, and we currently do not
anticipate a material adverse impact on our ability, or our suppliers' ability,
to manufacture and test our products or on our ability to provide our products
to our customers due to the pandemic. Workforce changes that we implemented in
fiscal 2020 are expected to remain in effect in the near term. The degree to
which the COVID-19 pandemic impacts our business, financial condition and
results of operations will depend on future developments, which are highly
uncertain. See "Risk Factors" in this Quarterly Report, specifically the Risk
Factor titled "The coronavirus (COVID-19) pandemic has had an adverse effect on
our business and results of operations, and may continue to impact us in the
future."
•In May 2019, in United States Federal Trade Commission (FTC) v. QUALCOMM
Incorporated, the district court issued an Order ruling against us and imposing
certain injunctive relief. On August 11, 2020, on appeal, the Ninth Circuit
reversed the district court's judgment, vacated its injunction and vacated its
partial grant of summary
                                       27
--------------------------------------------------------------------------------

judgment. On September 25, 2020, the FTC filed a Petition for Rehearing En Banc.
On October 28, 2020, the Ninth Circuit denied the FTC's petition. Regulatory
authorities in certain other jurisdictions are investigating and/or have
investigated our business practices and instituted proceedings against us, and
they or other regulatory authorities may do so in the future. Unfavorable
resolutions of one or more of these matters have had and could in the future
have a material adverse effect on our business, revenues, results of operations,
financial condition and cash flows. See "Notes to Condensed Consolidated
Financial Statements, Note 5. Commitments and Contingencies" and "Risk Factors"
in this Quarterly Report, including the Risk Factors titled "Changes in our
patent licensing practices, whether due to governmental investigations or
private legal proceedings challenging those practices, or otherwise, could
adversely impact our business and results of operations" and "Our business may
suffer as a result of adverse rulings in government investigations or
proceedings."
•We expect QCT revenues to continue to be favorably impacted compared to the
prior year as we make shipments to support Apple's iPhone products, as well as
reflect increased demand for connected devices resulting from the continued work
and learn from home environment.
•We have seen and expect to continue to see increased demand from certain
Chinese OEMs as they position to gain device share, particularly in China. Since
it will take time for us to adapt our supply chain process, and due to the
limited supply capacity across the semiconductor industry, primarily at the
leading node, we do not expect to realize the full benefit from this increased
demand from OEMs.
•We expect commercial 5G network deployments and device launches will continue
through calendar 2021 and beyond.
•We expect our research and development costs will increase, primarily due to
increased investment towards advancements in 5G and application processor
technologies and certain other long-term initiatives, as well as an increase in
share-based compensation expense.
•We expect continued intense competition, particularly in China, as our
competitors expand their product offerings and/or reduce the prices of their
products as part of a strategy to attract new and/or retain existing customers.
•Current U.S./China trade relations and/or national security protection policies
may negatively impact our business, growth prospects and results of operations.
See "Risk Factors" in this Quarterly Report, including the Risk Factor titled "A
significant portion of our business is concentrated in China, and the risks of
such concentration are exacerbated by U.S./China trade and national security
tensions."
In addition to the foregoing business and market-based matters, we continue to
devote resources to working with and educating participants in the wireless
value chain and governments as to the benefits of our licensing program and our
extensive technology investments in promoting a highly competitive and
innovative wireless industry. However, we expect that certain companies may
continue to be dissatisfied with the need to pay reasonable royalties for the
use of our technologies and not welcome the success of our licensing program in
enabling new, highly cost-effective competitors to their products. Accordingly,
such companies, and/or governments or regulators, may continue to challenge our
business model in various forums throughout the world.
Further discussion of risks related to our business is provided in the section
labeled "Risk Factors" included in this Quarterly Report.
Liquidity and Capital Resources
Our principal sources of liquidity are our existing cash, cash equivalents and
marketable securities, cash generated from operations and cash provided by our
debt programs. The following tables present selected financial information
related to our liquidity at December 27, 2020 and September 27, 2020 and for the
first three months of fiscal 2021 and 2020 (in millions):
                                                          December 27,      

September 27,

                                                              2020                   2020                Change

Cash, cash equivalents and marketable securities $ 12,333

   $       11,249          $  1,084
Accounts receivable, net                                        4,148                   4,003               145
Inventories                                                     2,552                   2,598               (46)
Short-term debt                                                   500                     500                 -
Long-term debt                                                 15,231                  15,226                 5
Noncurrent income taxes payable                                 1,855                   1,872               (17)


                                       28
--------------------------------------------------------------------------------

                                                             Three Months Ended
                                                December 27,       December 29,
                                                    2020               2019           Change

Net cash provided by operating activities $ 3,175 $ 1,118 $ 2,057

  Net cash used by investing activities               (1,202)              

(203) (999)

  Net cash used by financing activities               (1,645)            

(1,659) 14

The net increase in cash, cash equivalents and marketable securities was
primarily due to net cash provided by operating activities, partially offset by
$739 million in cash dividends paid, $469 million in capital expenditures, $449
million in payments of tax withholdings related to the vesting of share-based
awards and $444 million in payments to repurchase shares of our common stock.
The increase in accounts receivable was primarily due to an increase in QCT
revenues, partially offset by timing of QCT integrated circuit shipments during
the quarter. Accounts receivable from Huawei related to the remaining amounts
due under the previously disclosed settlement agreement remained unchanged
during the first three months of fiscal 2021 as Huawei paid the second
installment of $500 million (excluding the impact of foreign withholding taxes)
subsequent to December 27, 2020 in accordance with the agreed upon payment
schedule.
Debt. At December 27, 2020, we had $15.5 billion of principal floating- and
fixed-rate notes outstanding. Our remaining debt has maturity dates in 2022
through 2050.
We have an unsecured commercial paper program, which provides for the issuance
of up to $4.5 billion of commercial paper. Net proceeds from this program are
used for general corporate purposes. At December 27, 2020, we had $500 million
of commercial paper outstanding.
On December 8, 2020, we entered into a Revolving Credit Facility replacing our
prior Amended and Restated Revolving Credit Facility. There were no outstanding
borrowings under the Amended and Restated Revolving Credit Facility at the time
of termination. The Revolving Credit Facility provides for unsecured revolving
facility loans, swing line loans and letters of credit in an aggregate amount of
up to $4.5 billion, which expires on December 8, 2025. At December 27, 2020, no
amounts were outstanding under the Revolving Credit Facility.
We may issue new debt in the future. COVID-19 has led to disruption and
volatility in the global capital markets, which may adversely impact the cost of
and access to capital. The amount and timing of additional borrowings, if any,
will depend on a number of factors, including but not limited to maturities of
our existing debt, acquisitions and strategic investments, favorable and/or
acceptable interest rates and changes in corporate income tax law. Additional
information regarding our outstanding debt is provided in "Notes to Consolidated
Financial Statements, Note 6. Debt" in our 2020 Annual Report on Form 10-K.
Income Taxes. At December 27, 2020, we estimated remaining future payments of
$2.0 billion for the one-time U.S. repatriation tax accrued in fiscal 2018 (Toll
Charge), after application of certain tax credits, which is payable in
installments over the next six years. At December 27, 2020, other current
liabilities included $177 million, reflecting the installment paid in January
2021. We estimate the next installment due in January 2022 to be $189 million.
Additional information regarding our income taxes is provided in this Quarterly
Report in "Notes to Condensed Consolidated Financial Statements, Note 3. Income
Taxes."
Capital Return Program. In fiscal 2018, we announced a stock repurchase program
authorizing us to repurchase up to $30 billion of our common stock. The stock
repurchase program has no expiration date. In the first quarter of fiscal 2021,
we resumed stock repurchases under the stock repurchase program, which we had
suspended in the third quarter of fiscal 2020 in light of the COVID-19 pandemic,
and we repurchased and retired 3 million shares of our common stock for $444
million, before commissions. At December 27, 2020, $4.2 billion remained
authorized for repurchase under the stock repurchase program. Since December 27,
2020, we repurchased and retired 2 million shares of common stock for $311
million. Our stock repurchase program is subject to periodic evaluations to
determine when and if repurchases are in the best interests of our stockholders,
and we may accelerate, suspend, delay or discontinue repurchases at any time.
In the first quarter of fiscal 2021, we paid cash dividends totaling $739
million, or $0.65 per share. On January 20, 2021, we announced a cash dividend
of $0.65 per share on our common stock, payable on March 25, 2021 to
stockholders of record as of the close of business on March 4, 2021. We
currently intend to continue to use cash dividends as a means of returning
capital to stockholders, subject to capital availability, which may be impacted
by COVID-19, and our view that cash dividends are in the best interests of our
stockholders, among other factors.
                                       29
--------------------------------------------------------------------------------

Acquisitions. In January 2021, we announced that we entered into a definitive
agreement to acquire NUVIA for approximately $1.4 billion before working capital
and other adjustments, a substantial portion of which will be paid in cash and
the remaining amount of which relates to unvested NUVIA equity awards that will
be assumed or replaced in connection with the acquisition and will be recognized
as compensation expense over the related post-acquisition service vesting
period. The acquisition has been approved by the requisite number of NUVIA's
stockholders and is subject to receipt of regulatory approval in the United
States and other customary closing conditions. We expect to use existing cash
resources to fund the acquisition, which is expected to close in the second
quarter of fiscal 2021.
Additional Capital Requirements. Expected working and other capital requirements
are described in our 2020 Annual Report on Form 10-K in "Part II, Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations." At December 27, 2020, other than changes disclosed in the "Notes to
Condensed Consolidated Financial Statements" and "Liquidity and Capital
Resources" in this Quarterly Report, there have been no material changes to our
expected working and other capital requirements or contractual obligations
described in our 2020 Annual Report on Form 10-K.
Further, regulatory authorities in certain jurisdictions have investigated our
business practices and instituted proceedings against us and they or other
regulatory authorities may do so in the future. Additionally, certain of our
direct and indirect customers and licensees, have pursued, and others may in the
future pursue, litigation, arbitration or other strategies against us related to
our business. Unfavorable resolutions of one or more of these matters have had
and could in the future have a material adverse effect on our business,
revenues, results of operations, financial condition and cash flows. See "Notes
to Condensed Consolidated Financial Statements, Note 5. Commitments and
Contingencies" and "Risk Factors" in this Quarterly Report.
We believe, based on our current business plan and the facts and factors known
by us, our cash, cash equivalents and marketable securities, our expected cash
flow generated from operations and our expected financing activities will
satisfy our working and other capital requirements for at least the next 12
months and thereafter for the foreseeable future. See "Risk Factors" in this
Quarterly Report, including the Risk Factor titled "The coronavirus (COVID-19)
pandemic has had an adverse effect on our business and results of operations,
and may continue to impact us in the future."
Recent Accounting Guidance
Information regarding recent accounting guidance and the impact of such guidance
on our condensed consolidated financial statements is provided in this Quarterly
Report in "Notes to Condensed Consolidated Financial Statements, Note 1. Basis
of Presentation and Significant Accounting Policies Update."
Risk Factors
You should consider each of the following factors in evaluating our business and
our prospects. However, the risks and uncertainties described below are not the
only ones we face. Additional risks and uncertainties not presently known to us
or that we currently consider immaterial may also negatively impact our
business, results of operations, cash flows and financial condition, and require
significant management time and attention. In that case, the trading price of
our common stock could decline. In addition to the risks and uncertainties set
forth in the Risk Factor below titled "The coronavirus (COVID-19) pandemic has
had an adverse effect on our business and results of operations, and may
continue to impact us in the future," many of the risks and uncertainties set
forth in the other Risk Factors below are exacerbated by the COVID-19 pandemic,
government and business responses thereto and any further resulting decline in
the global business and economic environment, and may be impacted by the extent
and speed of the global economic recovery. You should also consider the other
information set forth in this Quarterly Report in evaluating our business and
our prospects, including but not limited to our financial statements and the
related notes, and "Part I, Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations." References to "and," "or" and
"and/or" should be read to include the others, as appropriate.
RISKS RELATED TO THE CORONAVIRUS (COVID-19) PANDEMIC
The coronavirus (COVID-19) pandemic has had an adverse effect on our business
and results of operations, and may continue to impact us in the future.
The rapid, global spread of COVID-19 and the fear it has created has resulted in
significant economic uncertainty, significant declines in business and consumer
confidence and global demand in the wireless industry (among others), a global
economic slowdown, and has led to a global recession. Specifically, the decline
in demand for smartphones and other consumer devices sold by our customers or
licensees has resulted in decreased demand for our integrated circuit products
(which are incorporated into such devices) and a decrease in the royalties we
earn on the licensing of our intellectual property
                                       30
--------------------------------------------------------------------------------

(which is dependent upon the number of such devices sold that utilize our
intellectual property). However, we currently do not expect a significant impact
on our results of operations in the future.
Further, while to date we have not seen a significant impact on our
manufacturing facilities or our supply chain, the ability of our suppliers to
deliver on their commitments to us, or our ability to ship our products to our
customers, may be negatively impacted by the pandemic and/or government
responses thereto, such as travel bans and restrictions, quarantines,
shelter-in-place and social distancing orders, declarations of states of
emergency and shutdowns.
Although the spread of COVID-19 has caused us to modify our workforce practices,
such as having the vast majority of our employees working from home, we have not
experienced a significant negative impact to our business or results of
operations. However, we could be negatively affected in the future if, among
others, a significant number of our employees, or employees who perform critical
functions, become ill and/or are quarantined as the result of exposure to
COVID-19, or if government policies restrict the ability of those employees to
perform their critical functions.
The COVID-19 pandemic could also impact our business, results of operations and
financial condition through delayed, reduced or cancelled customer orders; the
inability of our customers or licensees to purchase or pay for our products or
technologies; the insolvency of key suppliers, customers or licensees; delays in
reporting or payments from our customers or licensees; or failures by other
counterparties. Additionally, state or federal governments may in the future
increase corporate tax rates, increase employer payroll tax obligations and/or
otherwise change tax laws to pay for stimulus and other actions that may be
taken as a result of COVID-19.
The degree to which the COVID-19 pandemic impacts our future business, results
of operations and financial condition will depend on future developments, which
are uncertain, including but not limited to the duration, spread and severity of
the pandemic, government responses and other actions to mitigate the spread of
and to treat COVID-19, and when and to what extent normal business, economic and
social activity and conditions resume. We are similarly unable to predict the
extent to which the pandemic impacts our customers, licensees, suppliers and
other partners and their financial conditions, but adverse effects on these
parties could also adversely affect us. Finally, the COVID-19 pandemic makes it
challenging for management to estimate the future performance of our business.
RISKS RELATED TO INDUSTRY DYNAMICS AND COMPETITION
Our revenues depend on our customers' and licensees' sales of products and
services based on CDMA, OFDMA and other communications technologies, including
5G, and customer demand for our products based on these technologies.
We develop, patent and commercialize technology and products based on CDMA,
OFDMA and other communications technologies, which are primarily wireless. We
depend on our customers and licensees to develop devices and services based on
these technologies with value-added features to drive consumer demand for new
3G/4G and 3G/4G/5G multimode devices, as well as 3G and 4G single-mode devices,
and to establish the selling prices for such devices. Further, the timing of our
shipment of our products is dependent on the timing of our customers' and
licensees' deployments of new devices and services based on these technologies.
Increasingly, we also depend on operators of wireless networks, our customers
and licensees and other third parties to incorporate these technologies into new
device types and into industries and applications beyond mobile, such as
automotive and IoT, among others.
We have historically been successful during wireless technology transitions,
including 3G, 4G and now 5G. Commercial deployments of 5G networks and devices
have begun and will continue. However, the timing and scale of such deployments,
in certain regions, have been and may in the future be delayed due to the
COVID-19 pandemic.
We believe it is critical that we remain a leader in 5G technology development,
standardization, intellectual property creation and technology licensing, and
that we develop, commercialize and be a leading supplier of 5G integrated
circuit products, in order to sustain and grow our business long-term.
Our revenues and growth in revenues could be negatively impacted, our business
may be harmed and our substantial investments in these technologies may not
provide us an adequate return if: our customers' and licensees' revenues and
sales of products, particularly premium-tier products, and services using these
technologies, and average selling prices of such products, decline due to, for
example, the maturity of smartphone penetration in developed regions and China;
our intellectual property and technical leadership included in the continued 5G
standardization effort is less than in 3G and 4G standards; we are unable to
drive the adoption of our products into networks and devices, including devices
beyond mobile; or consumers' rates of replacement of smartphones and other
computing devices decline.
                                       31
--------------------------------------------------------------------------------

Our industry is subject to intense competition in an environment of rapid
technological change. Our success depends in part on our ability to adapt to
such change and compete effectively; and such change and competition could
result in decreased demand for our products and technologies or declining
average selling prices for our products or those of our customers or licensees.
Our products and technologies face significant competition. We expect
competition to increase as our current competitors expand their product
offerings, improve their products or reduce the prices of their products as part
of a strategy to maintain existing business and customers or attract new
business and customers, as new opportunities develop, and as new competitors
enter the industry. Competition in wireless communications is affected by
various factors that include, among others: OEM concentrations; vertical
integration; competition in certain geographic regions; government intervention
or support of national industries or competitors; the ability to maintain
product differentiation as the result of evolving industry standards and speed
of technological change (including the transition to smaller geometry process
technologies and the demand for always on, always connected capabilities); and
value-added features that drive selling prices and consumer demand for new 3G/4G
and 3G/4G/5G multimode devices, as well as 3G and 4G single-mode devices.
We anticipate that additional competitors will introduce products as a result of
growth opportunities in wireless communications, the trend toward global
expansion by foreign and domestic competitors, and technological and public
policy changes. Additionally, the semiconductor industry has experienced and may
continue to experience consolidation, which could result in significant changes
to the competitive landscape. For example, if any key supplier of technologies
and intellectual property to the semiconductor industry was sold to one of our
competitors, it could negatively affect our ability to procure or license such
technologies and intellectual property in the future, which could have
wide-ranging impacts on our business and operations.
We expect that our future success will depend on, among other factors, our
ability to:
•differentiate our integrated circuit products with innovative technologies
across multiple products and features (e.g., modem, radio frequency front-end
(RFFE), including mmWave, graphics and other processors, camera and
connectivity) and with smaller geometry process technologies that drive both
performance and lower power consumption;
•develop and offer integrated circuit products at competitive cost and price
points to effectively cover all geographic regions and all device tiers;
•continue to be a leader in mobile, and drive the adoption of our technologies
and integrated circuit products, including RFFE, into the most popular device
models and across a broad spectrum of devices in mobile, such as smartphones,
tablets, laptops and other mobile computing devices;
•increase or accelerate adoption of our technologies and products in industry
segments or applications outside of mobile, including automotive and IoT;
•maintain or accelerate demand for our integrated circuit products at the
premium device tier, while also driving the adoption of our products into high,
mid- and low-tier devices across all regions;
•remain a leader in 5G (and 4G) technology development, standardization,
intellectual property creation and licensing, and develop, commercialize and
remain a leading supplier of 5G (and 4G) integrated circuit products, including
RFFE products;
•create standalone value and contribute to the success of our existing
businesses through acquisitions, joint ventures and other transactions, and by
developing customer, licensee, vendor, distributor and other channel
relationships in new industry segments or applications and with disruptive
technologies and products;
•identify potential acquisition targets that will grow or sustain our business
or address strategic needs, reach agreement on terms acceptable to us, close the
transactions and effectively integrate these new businesses, products and
technologies;
•provide leading products and technologies to OEMs, high level operating systems
(HLOS) providers, operators, cloud providers and other industry participants as
competitors, new industry entrants and other factors continue to affect the
industry landscape;
•be a preferred partner and sustain preferred relationships providing integrated
circuit products that support multiple operating system and infrastructure
platforms to industry participants that effectively commercialize new devices
using these platforms; and
                                       32
--------------------------------------------------------------------------------

•continue to develop brand recognition to effectively compete against better
known companies in computing and other consumer driven segments and to deepen
our presence in significant emerging regions and China.
We compete with many different semiconductor companies, ranging from
multinational companies with integrated research and development, manufacturing,
sales and marketing organizations across a broad spectrum of product lines, to
companies that are focused on a single application, industry segment or standard
product, including those that produce products for mobile, automotive and IoT,
among others. Most of these competitors compete with us with respect to some,
but not all, of our businesses. Companies that design integrated circuits based
on CDMA, OFDMA, Wi-Fi or their derivatives are generally competitors or
potential competitors. Examples (some of which are strategic partners of ours in
other areas) include Broadcom, HiSilicon, MediaTek, Nvidia, NXP Semiconductors,
Qorvo, Samsung, Skyworks, Texas Instruments and UNISOC (formally known as
Spreadtrum Communications). Some of these current and potential competitors may
have advantages over us that include, among others: motivation by our customers
in certain circumstances to use our competitors' integrated circuit products, to
utilize their own internally-developed integrated circuit products, or sell such
products to others, or to utilize alternative technologies; lower cost
structures or a willingness and ability to accept lower prices or lower margins
for their products, particularly in China; foreign government support of other
technologies, competitors or OEMs that sell devices that do not contain our
integrated circuit products; better known brand names; ownership and control of
manufacturing facilities and greater expertise in manufacturing processes; more
extensive relationships with local distribution companies and OEMs in certain
geographic regions (such as China); more experience in adjacent industry
segments or applications beyond mobile (such as automotive and IoT); and a more
established presence in certain regions.
In addition, certain of our largest integrated circuit customers have in the
past utilized, currently utilize and may in the future utilize our competitors'
integrated circuit products in some (or all) of their devices, rather than our
products. Further, certain of those customers have developed, are developing or
may develop their own integrated circuit products (effectively making them
competitors), which they have in the past utilized, currently utilize and may in
the future utilize in some (or all) of their devices, rather than our products.
See also the Risk Factor titled "Our business, particularly our semiconductor
business, may suffer as a result of our customers vertically integrating (i.e.,
developing their own integrated circuit products)." Further, political actions,
including trade and/or national security protection policies, or other actions
by governments, particularly the U.S. and Chinese governments, have in the past,
currently are and could in the future limit or prevent us from transacting
business with certain of our customers or suppliers, limit, prevent or
discourage certain of our customers or suppliers from transacting business with
us, or make it more expensive to do so. This could advantage our competitors by
enabling them with increased sales, economies of scale, operating income and/or
cash flows and/or enable critical technology transfer, allowing them to increase
their investments in technology development, research and development and
commercialization of products. See also the Risk Factor titled "A significant
portion of our business is concentrated in China, and the risks of such
concentration are exacerbated by U.S./China trade and national security
tensions." Further, certain of our competitors develop and sell multiple
components (including integrated circuit products) for use in devices and sell
those components together to OEMs. Our competitors' sales of multiple components
put us (and our discrete integrated circuit products) at a competitive
disadvantage. Certain of our competitors also develop and sell infrastructure
equipment for wireless networks and can optimize their integrated circuit
products to perform on such networks to a degree that we are not able to, which
again puts us at a competitive disadvantage.
Competition in any or all product tiers may result in the loss of business or
customers, which would negatively impact our business, revenues, results of
operations, cash flows and financial condition. Such competition may also reduce
average selling prices for our chipset products or the products of our customers
and licensees. Certain of these dynamics are particularly pronounced in emerging
regions and China where competitors may have lower cost structures or may have a
willingness and ability to accept lower prices or lower margins on their
products. Reductions in the average selling prices of our chipset products,
without a corresponding increase in volumes, would negatively impact our
revenues, and without corresponding decreases in average unit costs, would
negatively impact our margins. In addition, reductions in the average selling
prices of our licensees' products, unless offset by an increase in volumes,
would generally decrease total royalties payable to us, negatively impacting our
licensing revenues.
RISKS RELATED TO OUR OPERATING BUSINESSES
We derive a significant portion of our revenues from a small number of customers
and licensees, and particularly from their sale of premium tier devices. If
revenues derived from these customers or licensees decrease or the timing of
such revenues fluctuates, our business and results of operations could be
negatively affected.
We derive a significant portion of our revenues from a small number of customers
and licensees, and particularly from their sale of premium tier devices, and we
expect this trend to continue in the foreseeable future. Our industry is
experiencing and may continue to experience concentration of device share among
a few companies, particularly at the premium tier, contributing to this trend.
Chinese OEMs continue to grow their device share in China and are increasing
their device share in
                                       33
--------------------------------------------------------------------------------

regions outside of China, and we derive a significant portion of our revenues
from a small number of these OEMs as well. See also "Notes to Condensed
Consolidated Financial Statements, Note 2. Composition of Certain Financial
Statement Items - Concentrations."
In addition, a number of our largest integrated circuit customers have
developed, are developing or may develop their own integrated circuit products,
or may choose our competitors' integrated circuit products, which they have in
the past utilized, currently utilize and may in the future utilize in some (or
all) of their devices, rather than our products, which could significantly
reduce the revenues we derive from these customers. See also the Risk Factor
titled "Our business, particularly our semiconductor business, may suffer as a
result of our customers vertically integrating (i.e., developing their own
integrated circuit products)."
Further, political actions, including trade and/or national security protection
policies, or other actions by governments, particularly the U.S. and Chinese
governments, have in the past and could in the future limit or prevent us from
transacting business with some of our largest customers, limit, prevent or
discourage those customers from transacting business with us, or make it more
expensive to do so, any of which could also significantly reduce the revenues we
derive from these customers. See also the Risk Factor titled "A significant
portion of our business is concentrated in China, and the risks of such
concentration are exacerbated by U.S./China trade and national security
tensions."
In addition, we spend a significant amount of engineering and development time,
funds and resources in understanding our key customers' feedback and/or
specifications and attempt to incorporate such input into our product launches
and technologies. These efforts may not require or result in purchase
commitments from such customers or we may have lower purchases from such
customers than expected, and consequently, we may not achieve the anticipated
revenues from these efforts, or these efforts may result in non-recoverable
costs.
The loss of any one of our significant customers, a reduction in the purchases
of our products by such customers or the cancelation of significant purchases by
any of these customers, whether due to the use of their own integrated circuit
products or our competitors' integrated circuit products, government
restrictions, the COVID-19 pandemic or otherwise, would reduce our revenues and
could harm our ability to achieve or sustain expected results of operations, and
a delay of significant purchases, even if only temporary, would reduce our
revenues in the period of the delay. Any such reduction in revenues would also
impact our cash resources available for other purposes, such as research and
development.
Further, the concentration of device share among a few companies, and the
corresponding purchasing power of these companies, may result in lower prices
for our products which, if not accompanied by a sufficient increase in the
volume of purchases of our products, could have an adverse effect on our
revenues and margins. In addition, the timing and size of purchases by our
significant customers may be impacted by the timing of such customers' new or
next generation product introductions, over which we have no control, and the
timing and success of such introductions may cause our revenues and results of
operations to fluctuate.
Apple purchases our MDM (or thin modem) products, which do not include our
integrated application processor technology, and which have lower revenue and
margin contributions than our combined modem and application processor products.
Further, to the extent Apple takes device share from our customers who purchase
our integrated modem and application processor products, our revenues and
margins may be negatively impacted.
Our industry has also experienced, and we expect it will continue to experience,
slowing growth in the premium-tier device segment due to, among other factors,
lengthening replacement cycles in developed regions, where premium-tier
smartphones are common; increasing consumer demand in emerging regions where
premium-tier smartphones are less common and replacement cycles are on average
longer than in developed regions and are continuing to lengthen; and a maturing
premium-tier smartphone industry in which demand is increasingly driven by new
product launches and innovation cycles.
A reduction in sales of premium-tier devices, a reduction in sales of our
premium-tier integrated circuit products (which have a higher revenue and margin
contribution than our lower-tier integrated circuit products), or a shift in
share away from OEMs that utilize our premium-tier products, would reduce our
revenues and margins and may harm our ability to achieve or sustain expected
financial results. Any such reduction in revenues would also impact our cash
resources available for other purposes, such as research and development.
Although we have more than 300 licensees, we derive a significant portion of our
licensing revenues from a limited number of licensees, which includes a number
of Chinese OEMs. In the event that one or more of our significant licensees fail
to meet their reporting and payment obligations, or we are unable to renew or
modify one or more of their license agreements under similar terms as their
existing agreements, our revenues, results of operations and cash flows would be
adversely impacted. Moreover, the future growth and success of our core
licensing business will depend in part on the ability
                                       34
--------------------------------------------------------------------------------

of our licensees to develop, introduce and deliver high-volume products that
achieve and sustain customer acceptance. We do not have control over the product
development, sales efforts or pricing of products by our licensees, and our
licensees might not be successful. Reductions in sales of our licensees'
products, or reductions in the average selling prices of wireless devices sold
by our licensees without a sufficient increase in the volumes of such devices
sold, would generally have an adverse effect on our licensing revenues. Such
adverse impact may be mitigated by our per unit royalty caps that apply to
certain categories of our licensees' complete wireless devices, namely
smartphones, tablets, laptops and smartwatches.
Our business, particularly our semiconductor business, may suffer as a result of
our customers vertically integrating (i.e., developing their own integrated
circuit products).
Certain of our largest integrated circuit customers (for example, Samsung)
develop their own integrated circuit products, which they have in the past
utilized, and currently utilize, in certain of their devices and may in the
future utilize in some (or all) of their devices, rather than our products (and
they have and may continue to sell their integrated circuit products to third
parties, discretely or together with certain of their other products, in
competition with us).
Apple has utilized modem products of one of our competitors in some of its
devices rather than our products, and solely utilized one of our competitors'
products in several of its prior device launches. In April 2019, we entered into
a new multi-year chipset supply agreement with Apple and began shipping modems
under this agreement in the third quarter of fiscal 2020. In December 2019,
Apple acquired Intel's modem assets and is developing its own modem products
using these assets. Accordingly, Apple is expected to use its own modem
products, rather than our products, in some (or all) of its future devices.
Similarly, we derive a significant portion of our revenues from Chinese OEMs.
Certain of our customers in China have developed, and others may in the future
develop, their own integrated circuit products and use such integrated circuit
products in their devices rather than our integrated circuit products, including
due to pressure from or policies of the Chinese government (whose Made in China
2025 campaign targets 70% semiconductor self-sufficiency by 2025), concerns over
losing access to our integrated circuit products as a result of actual,
threatened or potential U.S. or Chinese government actions or policies,
including trade protection or national security policies, or other reasons.
If some or all of our largest customers and/or the largest smartphone OEMs
utilize their own integrated circuit/modem products in some (or all) of their
devices rather than our products, our business, revenues, results of operations,
cash flows and financial position could be materially adversely impacted. See
also the Risk Factor titled "We derive a significant portion of our revenues
from a small number of customers and licensees, and particularly from their sale
of premium tier devices. If revenues derived from these customers or licensees
decrease or the timing of such revenues fluctuates, our business and results of
operations could be negatively affected."
A significant portion of our business is concentrated in China, and the risks of
such concentration are exacerbated by U.S./China trade and national security
tensions.
We derive a significant portion of our revenues from Chinese OEMs, and from
non-Chinese OEMs that utilize our integrated circuit products in their devices
and sell those devices into China, which has the largest number of smartphone
users in the world. We also source certain critical integrated circuit products
from suppliers in China.
Due to various factors, including pressure, encouragement or incentives from, or
policies of, the Chinese government (including its Made in China 2025 campaign),
concerns over losing access to our integrated circuit products as a result of
actual, threatened or potential U.S. or Chinese government actions or policies,
including trade protection or national security policies, or other reasons, some
of our Chinese integrated circuit customers have developed, and others may in
the future develop, their own integrated circuit products and use such
integrated circuit products in their devices, or use our competitors' integrated
circuit products in their devices, rather than our products.
Political actions, including trade protection and national security policies of
the U.S. and Chinese governments, such as tariffs, bans or placing companies on
restricted entity lists, have in the past, currently are and could in the future
limit or prevent us from transacting business with certain of our Chinese
customers or suppliers, limit, prevent or discourage certain of our Chinese
customers or suppliers from transacting business with us, or make it more
expensive to do so. Given our revenue concentration in China, if, due to actual,
threatened or potential U.S. or Chinese government actions or policies, we were
further limited in, or prohibited from, selling our integrated circuit products
to Chinese OEMs; if our non-Chinese OEM customers were limited in, or prohibited
from, selling devices into China that incorporate our integrated circuit
products; if Chinese OEMs develop and use their own integrated circuit products
or use our competitors' integrated circuit products in some (or all) of their
devices rather than our integrated circuit products; if Chinese tariffs on our
integrated circuit products or on devices which incorporate our integrated
circuit products made purchasing such products or devices more expensive to
Chinese OEMs or Chinese consumers; or if our Chinese licensees delay or cease
making payments of license fees they owe
                                       35
--------------------------------------------------------------------------------

us, our business, revenues, results of operations, cash flows and financial
position could be materially harmed. Similarly, if, due to U.S. or Chinese
government actions or policies, we were limited in or prohibited from obtaining
critical integrated circuit products from our suppliers in China, our business,
revenues, results of operations, cash flows and financial position could be
materially harmed.
Finally, government policies in China that regulate the amount and timing of
funds that may flow out of the country have impacted and may continue to impact
the timing of our receipt of, and/or ability to receive, payments from our
customers and licensees in China, which may negatively impact our cash flows.
RISKS SPECIFIC TO OUR LICENSING BUSINESS
Efforts by some OEMs to avoid paying fair and reasonable royalties for the use
of our intellectual property may require the investment of substantial
management time and financial resources and may result in legal decisions or
actions by governments, courts, regulators or agencies, Standards Development
Organizations (SDOs) or other industry organizations that harm our business.
From time to time, companies initiate various strategies to attempt to
negotiate, renegotiate, reduce and/or eliminate their need to pay royalties to
us for the use of our intellectual property. These strategies have included: (i)
litigation, often alleging infringement of patents held by such companies,
patent misuse, patent exhaustion, patent invalidity or unenforceability of our
patents or licenses, alleging that we do not license our patents on fair,
reasonable and nondiscriminatory (FRAND) terms, or alleging some form of unfair
competition or competition law violation; (ii) taking positions contrary to our
understanding (and/or the plain language) of their contracts with us; (iii)
appeals to governmental authorities; (iv) collective action, including working
with wireless operators, standards bodies, other like-minded companies and
organizations, on both formal and informal bases, to adopt intellectual property
policies and practices that could have the effect of limiting returns on
intellectual property innovations; (v) lobbying governmental regulators and
elected officials for the purpose of seeking the reduction of royalty rates or
the base on which royalties are calculated, seeking to impose some form of
compulsory licensing or weakening a patent holder's ability to enforce its
rights or obtain a fair return for such rights; and (vi) attempts by licensees
to shift their royalty obligation to their suppliers in order to lower the
wholesale (i.e., licensee's) selling price on which the royalty is calculated.
In addition, certain licensees have disputed, underreported, underpaid, not
reported or not paid royalties owed to us under their license agreements or
reported to us in a manner that is not in compliance with their contractual
obligations, and certain companies have yet to enter into or have delayed
entering into or renewing license agreements with us for their use of our
intellectual property, and they or others may engage in such behavior in the
future. The fact that one or more licensees dispute, underreport, underpay, do
not report or do not pay royalties owed to us may encourage other licensees to
take similar actions or not renew their existing license agreements, and may
encourage other licensees or unlicensed companies to delay entering into, or to
not enter into, new license agreements. Further, to the extent such licensees
and companies increase their device share, the negative impact of their
underreporting, underpayment, non-payment or non-reporting on our business,
revenues, results of operations, cash flows and financial condition will be
exacerbated.
We have been in the past and are currently subject to various litigation and
governmental investigations and proceedings. Certain of these matters are
described more fully in this Quarterly Report in "Notes to Condensed
Consolidated Financial Statements, Note 5. Commitments and Contingencies." We
may become subject to other litigation or governmental investigations or
proceedings in the future. Additionally, certain of our direct and indirect
customers and licensees have pursued, and others may in the future pursue,
litigation or arbitration against us related to our business. Unfavorable
resolutions of one or more of these matters have had and could in the future
have a material adverse effect on our business, revenues, results of operations,
cash flows and financial condition. See also the Risk Factors below titled "Our
business may suffer as a result of adverse rulings in government investigations
or proceedings" and "Changes in our patent licensing practices, whether due to
governmental investigations or private legal proceedings challenging those
practices, or otherwise, could adversely impact our business and results of
operations."
In addition, in connection with our participation in SDOs, we, like other patent
owners, generally have made contractual commitments to such organizations to
license those of our patents that would necessarily be infringed by
standard-compliant products as set forth in those commitments. Some
manufacturers and users of standard-compliant products advance interpretations
of these commitments that are adverse to our licensing business, including
interpretations that would limit the amount of royalties that we could collect
on the licensing of our standard-essential patent portfolio.
Further, some third parties have proposed significant changes to existing
intellectual property policies for implementation by SDOs and other industry
organizations with the goal of significantly devaluing standard-essential
patents. For example, some have put forth proposals which would require a
maximum aggregate intellectual property royalty rate for the use of all
standard-essential patents owned by all of the member companies to be applied to
the selling price of any
                                       36
--------------------------------------------------------------------------------

product implementing the relevant standard. They have further proposed that such
maximum aggregate royalty rate be apportioned to each member company with
standard-essential patents based upon the number of standard-essential patents
held by such company. Others have proposed that injunctions should not be an
available remedy for infringement of standard-essential patents and have made
proposals that could severely limit damage awards and other remedies by courts
for patent infringement (e.g., by severely limiting the base upon which the
royalty rate may be applied). A number of these strategies are purportedly based
on interpretations of the policies of certain SDOs concerning the licensing of
patents that are or may be essential to industry standards and on our (or other
companies') alleged failure to abide by these policies.
Some SDOs, courts and governmental agencies have adopted, and may in the future
adopt, some or all of these interpretations or proposals in a manner adverse to
our interests, including in litigation to which we may not be a party. Further,
SDOs in certain countries may attempt to modify widely accepted standards and
claim the resulting standard as their own.
We expect that such proposals, interpretations and strategies will continue in
the future, and if successful, our business model would be harmed, either by
limiting or eliminating our ability to collect royalties (or by reducing the
royalties we can collect) on all or a portion of our standard-essential patent
portfolio, limiting our return on investment with respect to new technologies,
limiting our ability to seek injunctions against infringers of our
standard-essential patents, constraining our ability to make licensing
commitments when submitting our technologies for inclusion in future standards
(which could make our technologies less likely to be included in such standards)
or forcing us to work outside of SDOs or other industry groups to promote our
new technologies, and our revenues, results of operations and cash flows could
be negatively impacted. In addition, the legal and other costs associated with
asserting or defending our positions have been and continue to be significant.
We expect that such challenges, regardless of their merits, will continue into
the foreseeable future and will require the investment of substantial management
time and financial resources.
Changes in our patent licensing practices, whether due to governmental
investigations or private legal proceedings challenging those practices, or
otherwise, could adversely impact our business and results of operations.
As described in the Risk Factor "Our business may suffer as a result of adverse
rulings in government investigations or proceedings" below, we have been in the
past and are currently subject to various governmental investigations and
proceedings, as well as private legal proceedings, challenging our patent
licensing and chipset sales practices. Certain of these matters are described
more fully in this Quarterly Report in "Notes to Condensed Consolidated
Financial Statements, Note 5. Commitments and Contingencies." We believe that
one intent of certain of these investigations and legal proceedings has been to
reduce the amount of royalties that licensees are required to pay to us for
their use of our intellectual property. We may become subject to other
litigation or governmental investigations or proceedings in the future.
If we were required to reduce the royalty rates in our patent license
agreements, our revenues, earnings and cash flows would be negatively impacted
absent a sufficient increase in the volume of sales of devices upon which
royalties are paid. Similarly, if we were required to reduce the base on which
our royalties are calculated, our revenues, results of operations and cash flows
would be negatively impacted unless there was a sufficient increase in the
volume of sales of devices upon which royalties are paid or we were able to
increase our royalty rates to offset the decrease in revenues resulting from
such lower royalty base (assuming the absolute royalty dollars were below any
relevant royalty caps).
If we were required to grant patent licenses to chipset manufacturers (which
could lead to implementing a more complex, multi-level licensing structure in
which we license certain portions of our patent portfolio to chipset
manufacturers and other portions to OEMs), we would incur additional transaction
costs, which may be significant, and we could incur delays in recognizing
revenues until license negotiations were completed. In addition, our licensing
revenues and earnings would be negatively impacted if we were not able to
obtain, in the aggregate, equivalent revenues under such a multi-level licensing
structure.
If we were required to sell chipsets to OEMs that do not have a license to our
patents, our licensing program could be negatively impacted by patent exhaustion
claims raised by such unlicensed OEMs (i.e., claims that our sale of chipsets to
such OEMs forecloses us from asserting any patents substantially embodied by the
chipsets against such OEMs). Such sales would provide OEMs with a defense in the
event we asserted our patents against them to obtain licensing revenue for those
patents. This could have a material adverse effect on our licensing program and
our results of operations, cash flows and financial condition.
To the extent that we were required to implement any of these new licensing
and/or business practices, including by modifying or renegotiating our existing
license agreements or pursuing other commercial arrangements, we would incur
additional transaction costs, which may be significant, we could incur delays in
recognizing revenues until license negotiations were completed, and our
business, revenues, results of operations, cash flows and financial condition
could be harmed. The impact of any such changes to our licensing practices could
vary widely and by jurisdiction, depending on the
                                       37
--------------------------------------------------------------------------------

specific outcomes and the geographic scope of such outcomes. In addition, if we
were required to make modifications to our licensing practices in one
jurisdiction, licensees or governmental agencies in other jurisdictions may
attempt to obtain similar outcomes for themselves or for such other
jurisdictions, as applicable.
The continued and future success of our licensing programs requires us to
continue to evolve our patent portfolio and to renew or renegotiate license
agreements that are expiring or to cover additional future patents.
We own a very strong portfolio of issued and pending patents related to 3G, 4G,
5G and other technologies. It is critical that we continue to evolve our patent
portfolio, particularly in 5G. If we do not maintain a strong portfolio that is
applicable to current and future standards, products and services, our future
licensing revenues could be negatively impacted.
Further, the licenses granted to and from us under a number of our license
agreements include only patents that are either filed or issued prior to a
certain date. As a result, there are agreements with some licensees where later
patents are not licensed by or to us. Additionally, our patent license
agreements in effect that constitute a significant portion of our licensing
revenues are effective for a specified term. In order to license or to obtain a
license to such later patents or after the expiration of the specified term, and
to receive royalties after the expiration date of the specified term, we will
need to extend or modify such license agreements or enter into new license
agreements with such licensees more frequently than we have done historically.
We might not be able to extend or modify license agreements, or enter into new
license agreements, in the future without negatively affecting the material
terms and conditions of our license agreements with such licensees, and such
modifications or new agreements may negatively impact our revenues. In some
circumstances, we may extend, modify or enter into new license agreements as a
result of arbitration or litigation, and terms imposed by arbitrators or courts
may be less favorable to us than existing terms and may impact the financial or
other terms of license agreements not subject to the litigation or arbitration.
If there is a delay in extending, modifying or entering into a new license
agreement with a licensee, there would be a delay in our ability to recognize
revenues related to that licensee's product sales. Further, if we are unable to
reach agreement on such modifications or new agreements, it could result in
patent infringement litigation with such companies.
RISKS RELATED TO REGULATORY AND LEGAL CHALLENGES
Our business may suffer as a result of adverse rulings in government
investigations or proceedings.
We have been in the past and are currently subject to various governmental
investigations and proceedings. Certain of these matters are described more
fully in this Quarterly Report in "Notes to Condensed Consolidated Financial
Statements, Note 5. Commitments and Contingencies." Key allegations or findings
in those matters include, among others, that we violate FRAND licensing
commitments by refusing to grant licenses to chipset manufacturers; that our
royalty rates are too high; that the base on which our royalties are calculated
should be something less than the wholesale (i.e., licensee's) selling price of
the applicable device (minus certain permitted deductions); that we unlawfully
require customers to execute a patent license before we sell them cellular modem
chipsets; that we have entered into exclusive agreements with chipset customers
that foreclose competition; that we leverage our position in baseband chipsets
in the RFFE space; and that we violate antitrust laws, engage in anticompetitive
conduct and unfair methods of competition. We may become subject to other
litigation or governmental investigations or proceedings in the future.
Unfavorable resolutions of one or more of these matters have had and could in
the future have a material adverse effect on our business, revenues, results of
operations, cash flows and financial condition. Depending on the matter, various
remedies that could result from an unfavorable resolution include, among others,
the loss of our ability to enforce one or more of our patents; injunctions;
monetary damages or fines or other orders to pay money; the issuance of orders
to cease certain conduct or modify our business practices, such as requiring us
to reduce our royalty rates, reduce the base on which our royalties are
calculated, grant patent licenses to chipset manufacturers, sell chipsets to
unlicensed OEMs or modify or renegotiate some or all of our existing license
agreements; and determinations that some or all of our license agreements are
invalid or unenforceable. If some or all of our license agreements are declared
invalid or unenforceable and/or we are required to renegotiate these license
agreements, we may not receive, or may not be able to recognize, some or any
licensing or royalty revenues under the impacted license agreements unless and
until we enter into new license agreements; and even licensees whose license
agreements are not impacted may demand to renegotiate their agreements or invoke
the dispute resolution provision in their agreements, and we may not be able to
recognize some or any licensing or royalty revenues under such agreements. The
renegotiation of license agreements could result in terms which are less
favorable to us than existing terms, or lead to arbitration or litigation to
resolve the licensing terms, which could also be less favorable to us than
existing terms, and each of which could take months or possibly years. Licensees
may underreport, underpay, not report or not pay royalties owed to us pending
the conclusion of such negotiations, arbitration or litigation. In addition, we
may be sued for alleged overpayments of past royalties paid to us, including
private antitrust actions seeking treble damages under U.S. antitrust laws. The
occurrence of any of the above could have a material adverse effect on our
business, revenues, results
                                       38
--------------------------------------------------------------------------------

of operations, cash flows and financial condition, and our stock price could
decline, possibly significantly, in which case we may have to significantly cut
costs and other uses of cash, including in research and development,
significantly impairing our ability to maintain product and technology
leadership and invest in next generation technologies such as 5G. Further,
depending on the breadth and severity of the circumstances above, we may have to
reduce, suspend or eliminate our capital return programs, and our ability to
timely pay our indebtedness may be impacted. In addition, a governmental body in
a particular country or region may successfully assert and impose remedies with
effects that extend beyond the borders of that country or region.
These challenges have required, and we expect that they will continue to
require, the investment of significant management time and attention and have
resulted, and we expect that they will continue to result, in significant legal
costs until the respective matters are resolved.
RISKS RELATED TO SUPPLY AND MANUFACTURING
We depend on a limited number of third-party suppliers for the procurement,
manufacture and testing of our products manufactured in a fabless production
model. If we fail to execute supply strategies that provide supply assurance,
technology leadership and reasonable margins, our business and results of
operations may be harmed. We are also subject to order and shipment
uncertainties that could negatively impact our results of operations.
We primarily utilize a fabless production model, which means that we do not own
or operate foundries for the production of silicon wafers from which our
integrated circuits are made. Other than the facilities we own that manufacture
certain of our RFFE modules and RF filter products, we rely on third-party
suppliers to perform the manufacturing and assembly, and most of the testing, of
our integrated circuits. Our suppliers are also responsible for the procurement
of most of the raw materials used in the production of our integrated circuits.
There are a limited number of such third-party suppliers, and even fewer who are
capable of manufacturing at the leading process technology nodes. We employ both
turnkey and two-stage manufacturing models to purchase our integrated circuits.
Under the turnkey model, our foundry suppliers are responsible for delivering
fully assembled and tested integrated circuits. Under the two-stage
manufacturing model, we purchase die in singular or wafer form from
semiconductor manufacturing foundries and contract with separate third-party
suppliers for manufacturing services such as wafer bump, probe, assembly and the
majority of our final test requirements. The semiconductor manufacturing
foundries that supply our products are primarily located in Asia, as are our
primary warehouses where we store finished goods for fulfillment of customer
orders.
The following could have an adverse effect on our ability to meet customer
demand and negatively impact our revenues, business operations, profitability
and cash flows:
•a reduction, interruption, delay or limitation in our product supply sources;
•a failure by our suppliers to procure raw materials or allocate adequate raw
materials for our products;
•an inability to procure or utilize raw materials, components or products from
our suppliers due to government prohibitions or restrictions on transactions
with certain countries and/or companies, and alternative suppliers, raw material
sources or raw materials are not available or not available in acceptable time
frames or upon acceptable terms;
•a failure by our suppliers to allocate adequate manufacturing or test capacity
for our products;
•our suppliers' inability to react to shifts in product demand or an increase in
raw material or component prices;
•our suppliers' inability to develop or maintain, or a delay in developing or
building out manufacturing capacity for leading process technologies, including
transitions to smaller geometry process technologies;
•the loss of a supplier or the inability of a supplier to meet performance,
quality or yield specifications or delivery schedules;
•additional expense or production delays as a result of qualifying a new
supplier and commencing volume production or testing in the event of a loss of,
or a decision to add or change, a supplier;
•natural disasters or geopolitical conflicts impacting our suppliers;
•health crises, including epidemics or pandemics, such as the COVID-19 pandemic,
and government and business responses thereto, which impact our suppliers,
including as a result of quarantines or closure; and
•trade or national security protection policies, particularly U.S. or Chinese
government policies, that limit or prevent us from transacting business with
suppliers of critical integrated circuit products, or that limit or prevent such
                                       39
--------------------------------------------------------------------------------

suppliers from transacting business with us or from procuring materials,
machinery or technology necessary to manufacture goods for us.
While we have established alternate suppliers for certain technologies, there
are a limited number of such suppliers, and even fewer who are capable of
operating at the leading process technology nodes or who are willing to operate
at older process technology nodes. We rely on sole- or limited-source suppliers
for certain products, which may exacerbate the risks identified above, and
subject us to other significant risks, including: poor product performance and
reduced control over delivery schedules, manufacturing capability and yields,
quality assurance, quantity and costs. To the extent we have established
alternate suppliers, these suppliers may require significant amounts of time and
levels of support to bring such technologies to production, both of which may
increase for complex or leading process technologies. As a result, we may invest
a significant amount of effort and resources and incur higher costs to support
and maintain such alternate suppliers. Further, the elimination or limitation of
a foundry supplier's ability to manufacture components or products for us due to
trade or national security protection policies could increase our vulnerability
to sole- or limited-source arrangements and limit or prevent us from procuring
critical components or products from those suppliers. Future consolidation of
foundry suppliers could also increase our vulnerability to sole- or
limited-source arrangements and reduce our suppliers' willingness to negotiate
pricing, which could negatively impact our ability to achieve cost reductions,
increase our manufacturing costs and limit the amount of capacity available to
us. Our arrangements with our suppliers may obligate us to incur costs to
manufacture and test our products that do not decrease at the same rate as
decreases in pricing to our customers. Our ability, and that of our suppliers,
to develop or maintain leading process technologies, including transitions to
smaller geometry process technologies (which adds risk to manufacturing yields
and reliability), and to effectively compete with the manufacturing processes
and performance of our competitors, could impact our ability to introduce new
products and meet customer demand, could increase our costs (possibly decreasing
our margins) and could subject us to the risk of excess inventories. Any of the
above could negatively impact our business, results of operations and cash
flows.
Although we have long-term contracts with our suppliers, most of these contracts
do not provide for long-term capacity commitments. To the extent we do not have
firm commitments from our suppliers over a specific time period or for any
specific quantity, our suppliers may allocate, and in the past have allocated,
capacity to the production and testing of products for their other customers
while reducing or limiting capacity to manufacture or test our products, and
such capacity may be limited based on our suppliers' ability and willingness to
invest in the capital required to manufacture in the leading process
technologies. Accordingly, capacity for our products may not be available when
we need it or at reasonable prices. To the extent we do obtain long-term
capacity commitments, we may incur additional costs related to those commitments
or make non-refundable payments for capacity commitments that are not used.
Our suppliers or potential alternate suppliers may manufacture CDMA- or
OFDMA-based integrated circuits, for themselves or for other companies, that
compete with our products. Such suppliers have in the past and could again elect
to allocate raw materials and manufacturing capacity to their own products or
products of our competitors and reduce or limit the production of our products.
In addition, we may not receive reasonable pricing, manufacturing or delivery
terms from our suppliers. We cannot guarantee that the actions of our suppliers
will not cause disruptions in our operations that could harm our ability to meet
our delivery obligations to our customers or increase our cost of sales. To the
extent we are unable to obtain adequate supply, we may be obligated to make
payment to our customers for such shortfalls.
Additionally, we place orders with our suppliers using our and our customers'
forecasts of demand for our products, which are based on a number of assumptions
and estimates. As we move to smaller geometry process technologies, the
manufacturing lead-time increases. As a result, the orders we place with our
suppliers are generally only partially covered by commitments from our
customers. If we, or our customers, overestimate demand, or if demand is
impacted by factors outside of our or our customers' control, such as the
COVID-19 pandemic, that is not under a binding commitment from our customers, we
may experience increased excess or obsolete inventory, which would negatively
impact our results of operations.
There are numerous risks associated with the operation and control of our
manufacturing facilities, including a higher portion of fixed costs relative to
a fabless model, environmental compliance and liability, impacts related to
climate change, exposure to natural disasters, timely supply of equipment and
materials, and various manufacturing issues.
We own and operate various facilities that manufacture certain of our RFFE
modules and RF filter products. Manufacturing facilities are characterized by a
higher portion of fixed costs relative to a fabless model. We may be faced with
a decline in the utilization rates of our manufacturing facilities due to
decreases in demand for our products, including in less favorable industry
environments, or due to our failure to win and/or retain designs with OEMs.
During such periods, our
                                       40
--------------------------------------------------------------------------------

manufacturing facilities could operate at lower capacity levels, while the fixed
costs associated with such facilities would continue to be incurred, resulting
in lower gross profit.
We are subject to many environmental, health and safety laws and regulations in
each jurisdiction in which we operate our manufacturing facilities, which
govern, among other things, emissions of pollutants into the air; wastewater
discharges; the use, storage, generation, handling and disposal of hazardous
substances and other waste; the investigation and remediation of soil and ground
water contamination; and the health and safety of our employees. Certain
environmental laws impose strict, and in certain circumstances joint and
several, liability on current or previous owners or operators of real property,
or parties who arranged for hazardous substances to be sent to disposal or
treatment facilities, for the cost of investigation, removal or remediation of
hazardous substances. As a result, we may incur clean-up costs in connection
with any such removal or remediation efforts, as well as other third-party
claims in connection with contaminated sites. In addition, we could be held
liable for consequences arising out of human exposure to hazardous substances or
other environmental damage. If we, or companies or facilities we acquire or have
acquired, in the past failed or in the future fail to comply with any such laws
and regulations, then we could incur liabilities, fines or prohibitions on the
sale of products we manufacture, and our operations could be suspended. Such
laws and regulations could also restrict our ability to modify or expand our
facilities, could require us to acquire costly equipment, or could require other
significant expenditures. We are also required to obtain and maintain
environmental permits from governmental authorities for certain of our
operations. While we have policies and procedures designed to ensure compliance
with applicable laws, regulations and permits, we cannot make assurances that
we, or our employees, contractors or agents, will at all times be in compliance
with such laws, regulations and permits, or our related policies and procedures.
Climate change concerns and the potential resulting environmental impact may
result in new environmental, health and safety laws and regulations that may
affect us, our suppliers and our customers. Such laws or regulations could cause
us to incur additional direct costs for compliance, as well as increased
indirect costs resulting from our customers, suppliers or both incurring
additional compliance costs that are passed on to us. These costs may adversely
impact our results of operations and financial condition. In addition, climate
change may pose physical risks to our manufacturing facilities or our suppliers'
facilities, including increased extreme weather events that could result in
supply delays or disruptions.
We have manufacturing facilities in Asia and Europe. If tsunamis, flooding,
earthquakes, volcanic eruptions or other natural disasters, effects of climate
change or geopolitical conflicts, were to damage, destroy or disrupt our
manufacturing facilities, it could disrupt our operations, delay production and
shipments of inventory and result in costly repairs, replacements or other
costs. In addition, natural disasters, effects of climate change or geopolitical
conflicts may result in disruptions in transportation, distribution channels and
supply chains, and significant increases in the prices of raw materials.
Further, health crises, including epidemics or pandemics, such as the COVID-19
pandemic, and government and business responses thereto, could affect our
manufacturing facilities, including by resulting in quarantines and/or closures,
which would result in disruptions to and potential closures of our manufacturing
operations.
Our manufacturing operations depend on securing raw materials and other supplies
in adequate quality and quantity in a timely manner from multiple suppliers, and
in some cases, we rely on a limited number of suppliers, including in some cases
sole suppliers, particularly in Asia. There may be cases where supplies of raw
materials and other products are interrupted by disaster, accident or some other
event at a supplier; supply is suspended due to quality or other issues; there
is a shortage of supply due to a rapid increase in demand; and/or we or our
suppliers are prohibited from utilizing certain raw materials, or products or
components that incorporate such raw materials, due to government restrictions
related to the countries from which such raw materials originate, and acceptable
alternative suppliers, raw materials or raw materials sources are not available
or not available in acceptable time frames or upon acceptable terms, among
others, which could impact production and prevent us from supplying our products
to our customers. If the supply-demand balance is disrupted, it may considerably
increase costs of manufacturing due to increased prices we pay for raw
materials. From time to time, suppliers may extend lead times, limit amounts
supplied to us or increase prices due to capacity constraints or other factors.
Additionally, supply and costs of raw materials may be negatively impacted by
trade and/or national security protection policies, such as tariffs, or actions
by governments that limit or prevent us from transacting business with certain
countries or companies or that limit or prevent certain companies from
transacting business with us, or trade tensions, particularly with countries in
Asia. Further, it may be difficult or impossible to substitute one piece of
equipment for another or replace one type of material with another. A failure by
our suppliers to deliver our requirements could result in disruptions to our
manufacturing operations.
Our manufacturing processes are highly complex, require advanced and costly
equipment and must be continuously modified to improve yields and performance.
Difficulties in the production process can reduce yields or interrupt
production, and as a result, we may not be able to deliver our products or do so
in a timely, cost-effective or competitive manner. Further, to remain
competitive and meet customer demand, we may be required to improve our
facilities and process technologies and
                                       41
--------------------------------------------------------------------------------

carry out extensive research and development, each of which may require
investment of significant amounts of capital and may have a material adverse
effect on our results of operations, cash flows and financial condition.
Finally, we typically begin manufacturing our products using our or our
customers' forecasts of demand for our products, which are based on a number of
assumptions and estimates and are generally not covered by purchase commitments.
As a result, we incur inventory and manufacturing costs in advance of
anticipated sales, which sales ultimately may not materialize or may be lower
than expected. If we or our customers overestimate demand, or if demand is
impacted by factors outside of our or our customers' control such as the
COVID-19 pandemic or trade or national security protection policies, that is not
under a binding commitment from our customers, we may experience higher
inventory carrying and operating costs and/or increased excess or obsolete
inventory, which would negatively impact our results of operations.
RISKS RELATED TO NEW AND ADJACENT INITIATIVES
Our growth depends in part on our ability to extend our technologies and
products into new and expanded product areas, and adjacent industry segments or
applications beyond mobile. Our research, development and other investments in
these new and expanded product areas, industry segments or applications, and
related technologies and products, as well as in our existing technologies and
products, and new technologies, may not generate operating income or contribute
to future results of operations that meet our expectations.
While we continue to invest significant resources toward advancements primarily
in support of 4G- and 5G-based technologies, we also invest in new and expanded
product areas, and adjacent industry segments or applications, by utilizing our
existing technical and business expertise and through acquisitions.
In particular, our future growth depends in part on new and expanded product
areas, such as RFFE, and adjacent industry segments or applications beyond
mobile, such as automotive and IoT; our ability to develop leading and
cost-effective technologies and products for new and expanded product areas,
adjacent industry segments or applications; and third parties incorporating our
technologies and products into devices used in these product areas, industry
segments or applications. Accordingly, we intend to continue to make substantial
investments in these new and expanded product areas and adjacent industry
segments or applications, and in developing new products and technologies for
these product areas, industry segments or applications. Our growth also depends
significantly on our ability to develop and patent 5G technologies, and to
develop and commercialize products using 5G technologies.
However, our research, development and other investments in these new and
expanded product areas and adjacent industry segments or applications, and
corresponding technologies and products, as well as in our existing,
technologies and products and new technologies, such as 5G, use of licensed,
shared and unlicensed spectrum and convergence of cellular and Wi-Fi, may not
succeed because, among other reasons: we may not be issued patents on the
technologies we develop; the technologies we develop may not be incorporated
into relevant standards; new and expanded product areas, adjacent industry
segments or applications, and consumer demand therein, may not develop or grow
as anticipated; our strategies or the strategies of our customers, licensees or
partners may not be successful; alternate technologies may be better or may
reduce the advantages we anticipate from our investments; competitors'
technologies or products may be more cost effective, have more capabilities or
fewer limitations or are brought to market faster than our new technologies or
products; we may not be able to develop, or our competitors may have more
established and/or stronger, customer, vendor, distributor or other channel
relationships; and competitors may have longer operating histories in industry
segments or applications that are new to us. We may also underestimate the costs
of or overestimate the future revenues or margins that could result from these
investments, and these investments may not, or may take many years to, generate
material returns.
Further, the automotive industry is subject to long design-in time frames, long
product life cycles and a high degree of regulatory and safety requirements,
necessitating suppliers to the industry to comply with stringent qualification
processes, very low defect rates and high reliability standards, all of which
results in significant barriers to entry and increased costs.
If our new technologies and products are not successful, or are not successful
in the time frames we anticipate, we may incur significant costs and asset
impairments, our business and revenues may not grow or grow as anticipated, our
revenues and margins may be negatively impacted, our stock price may decline and
our reputation may be harmed.
We may engage in strategic acquisitions and other transactions or make
investments, or be unable to consummate planned strategic acquisitions, which
could adversely affect our results of operations or fail to enhance stockholder
value.
We engage in strategic acquisitions and other transactions, including joint
ventures, and make investments, which we believe are important to the future of
our business, with the goal of maximizing stockholder value. From time to time,
we acquire businesses and other assets, including patents, technology and other
intangible assets, enter into joint ventures or other strategic transactions and
purchase minority equity interests in or make loans to companies, including
those that may be private and early-stage. Our strategic activities are
generally focused on opening or expanding opportunities for our products
                                       42
--------------------------------------------------------------------------------

and technologies and supporting the design and introduction of new products (or
enhancing existing products) for mobile, and for new industry segments or
applications beyond mobile. Many of our strategic activities entail a high
degree of risk and require the use of significant amounts of capital, and
investments may not become liquid for several years after the date of the
investment, if at all. Our strategic activities may not generate financial
returns or result in increased adoption or continued use of our technologies or
products. We may underestimate the costs or overestimate the benefits, including
product, revenue, cost and other synergies and growth opportunities that we
expect to realize, and we may not achieve those benefits. In some cases, we may
be required to consolidate or record our share of the earnings or losses of
companies in which we have acquired ownership interests. In addition, we have in
the past and may record impairment charges in the future related to our
strategic activities. Any losses or impairment charges that we incur related to
strategic activities will have a negative impact on our results of operations
and financial condition, and we may continue to incur new or additional losses
related to strategic assets or investments that we have not fully impaired or
exited.
Achieving the anticipated benefits of business acquisitions, including joint
ventures and other strategic investments in which we have management and
operational control, depends in part upon our ability to integrate the
businesses in an efficient and effective manner and achieve anticipated
synergies, and we may not be successful in these efforts. Such integration is
complex and time consuming and involves significant challenges, including, among
others: retaining key employees; successfully integrating new employees,
facilities, technology, products, processes, operations (including supply and
manufacturing operations), sales and distribution channels, business models and
business systems; retaining customers and suppliers of the businesses;
consolidating research and development operations; minimizing the diversion of
management's attention from ongoing business matters; consolidating corporate
and administrative infrastructures; and managing the increased scale, complexity
and globalization of our business, operations and employee base. We may not
derive any commercial value from associated technologies or products or from
future technologies or products based on these technologies, and we may be
subject to liabilities that are not covered by indemnification protection that
we may obtain, and we may become subject to litigation. Additionally, we may not
be successful in entering or expanding into new sales or distribution channels,
business or operational models, geographic regions, industry segments or
applications served by or adjacent to the associated businesses or in addressing
potential new opportunities that may arise out of our strategic acquisitions.
If we do not achieve the anticipated benefits of business acquisitions or other
strategic activities, our business and results of operations may be adversely
affected, and we may not enhance stockholder value by engaging in these
transactions.
Many of our acquisitions and other strategic investments require approval by the
United States and foreign government agencies. Certain agencies in the past
have, and may in the future, deny the transaction or fail to approve in a timely
manner, resulting in us not realizing the anticipated benefits of the proposed
transaction. Future acquisitions or other strategic investments may be more
difficult, complex or expensive to the extent that our reputation for our
ability to consummate acquisitions has been harmed. Further, if U.S./China
relations remain strained, our ability to consummate any transaction that would
require approval from the relevant regulatory agency(ies) in China may be
severely impacted.
RISKS RELATED TO CYBERSECURITY OR MISAPPROPRIATION OF OUR CRITICAL INFORMATION
Our business and operations could suffer in the event of security breaches of
our information technology systems, or other misappropriation of our technology,
intellectual property or other proprietary or confidential information.
Third parties regularly attempt to gain unauthorized access to our information
technology systems, and many such attempts are increasingly more sophisticated.
The perception that the COVID-19 pandemic has made companies' information
technology systems more vulnerable has increased the already significant volume
of such attempts. These attempts, which might be related to industrial,
corporate or other espionage, criminal hackers or state-sponsored intrusions,
include trying to covertly introduce malware to our computers and networks,
including those in our manufacturing operations, and impersonating authorized
users, among others. We may also be subject to ransom-style cyber-attacks, which
could impact our information technology systems and cause widespread disruption
to our business, including our manufacturing operations, and expose our
confidential or propriety information. In addition, third parties that we may
rely on to store and/or process our confidential information may also be subject
to similar threats. Such threats could result in the misappropriation, theft,
misuse, disclosure, loss or destruction of the technology, intellectual
property, or the proprietary, confidential or personal information, of us or our
employees, customers, licensees, suppliers or other third parties, as well as
damage to or disruptions in our information technology systems. These threats
are constantly evolving, increasing the difficulty of successfully defending
against them or implementing adequate preventative measures. We seek to detect
and investigate all security incidents and to prevent their recurrence, but
attempts to gain unauthorized access to our information technology systems or
other attacks have in the past, in certain instances and to certain degrees,
been successful (but have not caused significant harm), and may in the future be
successful, and in some cases, we might be unaware of an incident or its
magnitude and effects.
                                       43
--------------------------------------------------------------------------------

In addition, employees and former employees, in particular former employees who
become employees of our competitors, customers, licensees or other third
parties, including state actors, have in the past and may in the future
misappropriate, use, publish or provide to our competitors, customers, licensees
or other third parties, including state actors, our technology, intellectual
property or other proprietary or confidential information. This risk is
exacerbated as competitors for talent, particularly engineering talent,
increasingly attempt to hire our employees. See also the Risk Factor titled "We
may not be able to attract and retain qualified employees." Similarly, we
provide access to certain of our technology, intellectual property and other
proprietary or confidential information to our direct and indirect customers and
licensees and certain of our consultants, who have in the past and may in the
future wrongfully use such technology, intellectual property or information, or
wrongfully disclose such technology, intellectual property or information to
third parties, including our competitors or state actors. We also provide access
to certain of our technology, intellectual property and other proprietary or
confidential information to certain of our joint venture partners, including
those affiliated with state actors and including in foreign jurisdictions where
ownership restrictions may require us to take a minority ownership interest in
the joint venture. Such joint venture partners may wrongfully use such
technology, intellectual property or information, or wrongfully disclose such
technology, intellectual property or information to third parties, including our
competitors or state actors.
The misappropriation, theft, misuse, disclosure, loss or destruction of the
technology, intellectual property, or the proprietary, confidential or personal
information, of us or our employees, customers, licensees, suppliers or other
third parties, could harm our competitive position, reduce the value of our
investment in research and development and other strategic initiatives, cause us
to lose business, damage our reputation, subject us to legal or regulatory
proceedings, cause us to incur other loss or liability and otherwise adversely
affect our business. We expect to continue to devote significant resources to
the security of our information technology systems, and our technology,
intellectual property and proprietary and confidential information.
Further, China has implemented, and other countries or regions may implement,
cybersecurity laws that require our overall information technology security
environment to meet certain standards and/or be certified. Such laws may be
complex, ambiguous and subject to interpretation, which may create uncertainty
regarding compliance. As a result, our efforts to comply with such laws may be
expensive and may fail, which could adversely affect our business, results of
operations and cash flows.
RISKS RELATED TO INTELLECTUAL PROPERTY
The enforcement and protection of our intellectual property may be expensive,
could fail to prevent misappropriation or unauthorized use of our intellectual
property, could result in the loss of our ability to enforce one or more
patents, and could be adversely affected by changes in patent laws, by laws in
certain foreign jurisdictions that may not effectively protect our intellectual
property and by ineffective enforcement of laws in such jurisdictions.
We rely primarily on patent, copyright, trademark and trade secret laws, as well
as nondisclosure and confidentiality agreements, international treaties and
other methods, to protect our intellectual property, including our patent
portfolio. Policing unauthorized use of our products, technologies and
intellectual property is difficult and time consuming. The steps we have taken
have not always prevented, and we cannot be certain the steps we will take in
the future will prevent, the misappropriation or unauthorized use of our
products, technologies or intellectual property, particularly in foreign
countries where the laws may not protect our rights as fully or as readily as
U.S. laws or where the enforcement of such laws may be lacking or ineffective.
See also the Risk Factor titled "Our business and operations could suffer in the
event of security breaches of our information technology systems, or other
misappropriation of our technology, intellectual property or other proprietary
or confidential information."
Some industry participants who have a vested interest in devaluing patents in
general, or standard-essential patents in particular, have mounted attacks on
certain patent systems, increasing the likelihood of changes to established
patent laws. In the United States, there is continued discussion regarding
potential patent law changes and current and potential future litigation
regarding patents, the outcomes of which could be detrimental to our licensing
business. The laws in certain foreign countries in which our products are or may
be manufactured or sold, including certain countries in Asia, may not protect
our intellectual property rights to the same extent as the laws in the United
States. We cannot predict with certainty the long-term effects of any potential
changes. In addition, we cannot be certain that the laws and policies of any
country or the practices of any standards bodies, foreign or domestic, with
respect to intellectual property enforcement or licensing or the adoption of
standards, will not be changed in the future in a way detrimental to our
licensing program or to the sale or use of our products or technologies.
We have had and may in the future have difficulty in certain circumstances in
protecting or enforcing our intellectual property and contracts, including
collecting royalties for use of our patent portfolio due to, among others:
refusal by certain licensees to report and pay all or a portion of the royalties
they owe to us; policies or political actions of governments,
                                       44
--------------------------------------------------------------------------------

including trade protection and national security policies; challenges to our
licensing practices under competition laws; adoption of mandatory licensing
provisions by foreign jurisdictions; failure of foreign courts to recognize and
enforce judgments of contract breach and damages issued by courts in the United
States; and challenges before competition agencies to our licensing business and
the pricing and integration of additional features and functionality into our
chipset products. See also the Risk Factors titled "Efforts by some OEMs to
avoid paying fair and reasonable royalties for the use of our intellectual
property may require the investment of substantial management time and financial
resources and may result in legal decisions or actions by governments, courts,
regulators or agencies, Standards Development Organizations (SDOs) or other
industry organizations that harm our business" and "Our business may suffer as a
result of adverse rulings in government investigations or proceedings."
We have engaged in litigation and arbitration in the past and may need to
further litigate or arbitrate in the future to enforce our contract and
intellectual property rights, protect our trade secrets or determine the
validity and scope of proprietary rights of others. As a result of any such
litigation or arbitration, we could lose our ability to enforce one or more
patents, portions of our license agreements could be determined to be invalid or
unenforceable (which may in turn result in other licensees either not complying
with their existing license agreements or initiating litigation or arbitration),
license terms (including but not limited to royalty rates for the use of our
intellectual property) could be imposed that are less favorable to us than
existing terms, and we could incur substantial costs. Any action we take to
enforce our contract or intellectual property rights could be costly and could
absorb significant management time and attention, which, in turn, could
negatively impact our results of operations and cash flows. Further, even a
positive resolution to our enforcement efforts may take time to conclude, which
may reduce our revenues and cash resources available for other purposes, such as
research and development, in the periods prior to conclusion.
Additionally, although our license agreements provide us with the right to audit
the books and records of licensees, audits can be expensive, time consuming,
incomplete and subject to dispute. Further, certain licensees may not comply
with the obligation to provide full access to their books and records. To the
extent we do not aggressively enforce our rights under our license agreements,
licensees may not comply with their existing license agreements, and to the
extent we do not aggressively pursue unlicensed companies to enter into license
agreements with us for their use of our intellectual property, other unlicensed
companies may not enter into license agreements. Similarly, we provide access to
certain of our intellectual property and proprietary and confidential business
information to our direct and indirect customers and licensees, who have in the
past and may in the future wrongfully use such intellectual property and
information or wrongfully disclose such intellectual property and information to
third parties, including our competitors. See also the Risk Factor titled
"Efforts by some OEMs to avoid paying fair and reasonable royalties for the use
of our intellectual property may require the investment of substantial
management time and financial resources and may result in legal decisions or
actions by governments, courts, regulators or agencies, Standards Development
Organizations (SDOs) or other industry organizations that harm our business."
Claims by other companies that we infringe their intellectual property could
adversely affect our business.
From time to time, companies have asserted, and may again assert, patent,
copyright and other intellectual property claims against our products or
products using our technologies or other technologies used in our industry.
These claims have resulted and may again result in our involvement in
litigation. We may not prevail in such litigation given, among other factors,
the complex technical issues and inherent uncertainties in intellectual property
litigation. If any of our products were found to infringe another company's
intellectual property, we could be subject to an injunction or be required to
redesign our products, or to license such intellectual property or pay damages
or other compensation to such other company (any of which could be costly). If
we are unable to redesign our products, license such intellectual property used
in our products or otherwise distribute our products (e.g., through a licensed
supplier), we could be prohibited from making and selling our products.
Similarly, our suppliers could be found to infringe another company's
intellectual property, and such suppliers could then be enjoined from providing
products or services to us.
In any potential dispute involving us and another company's patents or other
intellectual property, our chipset foundries, semiconductor assembly and test
providers and customers could also become the targets of litigation. We are
contingently liable under certain product sales, services, license and other
agreements to indemnify certain customers, chipset foundries and semiconductor
assembly and test service providers against certain types of liability and
damages arising from qualifying claims of patent infringement by products sold
by us, or by intellectual property provided by us to our chipset foundries and
semiconductor assembly and test service providers. Reimbursements under
indemnification arrangements could have an adverse effect on our results of
operations and cash flows. Furthermore, any such litigation could severely
disrupt the supply of our products and the businesses of our chipset customers
and their customers, which in turn could harm our relationships with them and
could result in a decline in our chipset sales or a reduction in our licensees'
sales, causing a corresponding decline in our chipset or licensing revenues. Any
claims, regardless of their merit, could be time consuming to address, result
                                       45
--------------------------------------------------------------------------------

in costly litigation, divert the efforts of our technical and management
personnel or cause product release or shipment delays, any of which could have
an adverse effect on our results of operations and cash flows.
We may continue to be involved in litigation and may have to appear in front of
administrative bodies (such as the United States International Trade Commission)
to defend against patent assertions against our products by companies, some of
whom are attempting to gain competitive advantage or leverage in licensing
negotiations. We may not be successful in such proceedings, and if we are not,
the range of possible outcomes is very broad and may include, for example,
monetary damages or fines or other orders to pay money, royalty payments,
injunctions on the sale of certain of our integrated circuit products (or on the
sale of our customers' devices using such products) or the issuance of orders to
cease certain conduct or modify our business practices. Further, a governmental
body in a particular country or region may assert, and may be successful in
imposing, remedies with effects that extend beyond the borders of that country
or region. In addition, a negative outcome in any such proceeding could severely
disrupt the business of our chipset customers and their wireless operator
customers, which in turn could harm our relationships with them and could result
in a decline in our chipset sales or a reduction in our licensees' sales to
wireless operators, causing corresponding declines in our chipset or licensing
revenues.
Certain legal matters, which may include certain claims by other companies that
we infringe their intellectual property, are described more fully in this
Quarterly Report in "Notes to Condensed Consolidated Financial Statements, Note
5. Commitments and Contingencies."
Our use of open source software may harm our business.
Certain of our software and our suppliers' software may contain or may be
derived from "open source" software, and we have seen, and believe that we will
continue to see, an increase in customers requesting that we develop products,
including software associated with our integrated circuit products, that
incorporate open source software elements and operate in an open source
environment, which, under certain open source licenses, may offer accessibility
to a portion of our products' source code and may expose our related
intellectual property to adverse licensing conditions. Licensing of such
software may impose certain obligations on us if we were to distribute
derivative works of that software. For example, these obligations may require us
to make source code for the derivative works available to our customers in a
manner that allows them to make such source code available to their customers or
license such derivative works under a particular type of license that is
different than what we customarily use to license our software. Furthermore, in
the course of product development, we may make contributions to third-party open
source projects that could obligate our intellectual property to adverse
licensing conditions. For example, to encourage the growth of a software
ecosystem that is interoperable with our products, we may need to contribute
certain implementations under the open source licensing terms that govern such
projects, which may adversely impact our associated intellectual property.
Developing open source products, while adequately protecting the intellectual
property upon which our licensing program depends, may prove burdensome and
time-consuming under certain circumstances, thereby placing us at a competitive
disadvantage, and we may not adequately protect our intellectual property. Also,
our use and our customers' use of open source software may subject our products
and our customers' products to governmental and third-party scrutiny and delays
in product certification, which could cause customers to view our products as
less desirable than our competitors' products. While we believe we have taken
appropriate steps and employ adequate controls to protect our intellectual
property, our contributions to and use of open source software presents risks
that could have an adverse effect on these and on our business.
RISKS RELATED TO HUMAN CAPITAL MANAGEMENT
We may not be able to attract and retain qualified employees.
Our future success depends upon the continued service of our executive officers
and other key management and technical personnel, and on our ability to continue
to identify, attract, retain and motivate them. Implementing our business
strategy requires specialized engineering and other talent, as our revenues are
highly dependent on technological and product innovations. The market for
employees in our industry is extremely competitive, and competitors for talent,
particularly engineering talent, increasingly attempt to hire, and to varying
degrees have been successful in hiring, our employees, including by establishing
local offices near our headquarters in San Diego, California. A number of such
competitors for talent are significantly larger than us and are able to offer
compensation in excess of what we are able to offer. Further, existing
immigration laws make it more difficult for us to recruit and retain highly
skilled foreign national graduates of universities in the United States, making
the pool of available talent even smaller. If we are unable to attract and
retain qualified employees, our business may be harmed.
RISKS RELATED TO PRODUCT DEFECTS OR SECURITY VULNERABILITIES
Failures in our products, or in the products of our customers or licensees,
including those resulting from security vulnerabilities, defects or errors,
could harm our business.
                                       46
--------------------------------------------------------------------------------

Our products (including related software) are complex and may contain defects,
errors or security vulnerabilities, or experience failures or unsatisfactory
performance, due to any number of issues, including issues in materials, design,
fabrication, packaging and/or use within a system. Further, because of the
complexity of our products, defects or errors might only be detected when the
products are in use. Development of products in new domains of technology, such
as the transition to 5G, and the migration to integrated circuit technologies
with smaller geometric feature sizes, increases complexity and adds risk to
manufacturing yields and reliability, and increases the likelihood of product
defects or errors. Risks associated with product defects, errors or security
vulnerabilities are exacerbated by the fact that our customers typically
integrate our products into consumer and other devices.
The use of devices containing our products to interact with untrusted systems or
otherwise access untrusted content creates a risk of exposing the system
hardware and software in those devices to malicious attacks. Security
vulnerabilities in our products could expose our customers or end users to
hackers or other unscrupulous third parties who develop and deploy viruses,
worms and other malicious software programs that could attack our products or
those of our customers. While we continue to focus on this issue and take
measures to safeguard our products from cybersecurity threats, device
capabilities continue to evolve, enabling more elaborate functionality and
applications, and increasing the risk of security failures.
Our products may be responsible for critical functions in our customers'
products and networks. Failure of our products to perform to specifications, or
other product defects, errors or security vulnerabilities, could lead to
substantial damage to the products we sell to our customers, the devices into
which our products are integrated and to the end users of such devices. Such
defects, errors or security vulnerabilities could give rise to significant
costs, including costs related to developing solutions, recalling products,
repairing or replacing defective products, writing down defective inventory, or
the indemnification clauses in our agreements, and could result in the loss of
sales and divert the attention of our engineering personnel from our product
development efforts. In addition, defects, errors or security vulnerabilities in
our products could result in failure to achieve market acceptance, a loss of
design wins, a shifting of business to our competitors, and litigation or
regulatory action against us, and could harm our reputation, our relationships
with customers and partners and our ability to attract new customers, as well as
the perceptions of our brand. Other potential adverse impacts of product
defects, errors or security vulnerabilities include shipment delays, write-offs
of property, plant and equipment and intangible assets, and losses on
unfavorable purchase commitments. In addition, defects, errors or security
vulnerabilities in the products of our customers or licensees could cause a
delay or decrease in demand for the products into which our products are
integrated, and thus for our products.
In addition, the occurrence of defects may give rise to product liability
claims, particularly if defects in our products or the products into which they
are integrated result in personal injury or death, and could result in
significant costs, expenses and losses. If a product liability claim is brought
against us, the cost of defending the claim could be significant, and could
divert the efforts of our technical and management personnel and harm our
business, even if we are successful. We may be named in product liability claims
even if there is no evidence that our products caused the damage in question,
and even though we may have indemnity from our customers, and such claims could
result in significant costs and expenses. Further, our business liability
insurance may be inadequate, or future coverage may be unavailable on acceptable
terms, which could adversely impact our financial results. The above is
exacerbated by the fact that our products may be used, and perform critical
functions, in various high-risk applications such as automobiles, including
autonomous driver assistance programs; cameras and artificial intelligence,
including home and enterprise security; home automation, including smoke and
noxious gas detectors; medical condition monitoring; location and asset tracking
and management, including wearables for child safety and elderly health;
robotics, including public safety drones and autonomous municipality vehicles;
and extended reality (XR) for treatment of phobias or PTSD, early detection of
disorders or special needs, among others.
Accordingly, defects, errors or security vulnerabilities in our products could
have an adverse impact on us, on our customers and the end users of our
customers' products. If any of these risks materialize, there could be a
material adverse effect on our business, results of operations and financial
condition.
GENERAL RISK FACTORS
We operate in the highly cyclical semiconductor industry, which is subject to
significant downturns. We are also susceptible to declines in global, regional
and local economic conditions generally. Our stock price and financial results
are subject to substantial quarterly and annual fluctuations due to these
dynamics, among others.
The semiconductor industry is highly cyclical, volatile, subject to downturns
and characterized by constant and rapid technological change, price erosion,
evolving technical standards, frequent new product introductions, short product
life cycles and fluctuations in product supply and demand. Periods of downturns
have been characterized by diminished demand for end-user products, high
inventory levels, excess or obsolete inventory adjustments, underutilization of
manufacturing capacity, changes in revenue mix and erosion of average selling
prices. We expect our business to continue to be subject to
                                       47
--------------------------------------------------------------------------------

such cyclical downturns. Consequently, our revenues may decline, and our results
of operations and financial condition may be adversely impacted.
A decline in global, regional or local economic conditions or a slow-down in
economic growth, particularly in geographic regions with high concentrations of
wireless voice and data users or high concentrations of our customers or
licensees, could have adverse, wide-ranging effects on our business and
financial results, including a decrease in demand for our products and
technologies; a decrease in demand for the products and services of our
customers or licensees; the inability of our suppliers to deliver on their
supply commitments to us, our inability to supply our products to our customers
and/or the inability of our customers or licensees to supply their products to
end users; the insolvency of key suppliers, customers or licensees; delays in
reporting or payments from our customers or licensees; failures by
counterparties; and/or negative effects on wireless device inventories. In
addition, our customers' and licensees' ability to purchase or pay for our
products and intellectual property and network operators' ability to upgrade
their wireless networks could be adversely affected, potentially leading to a
reduction, cancellation or delay of orders for our products.
Our stock price and financial results have fluctuated in the past and are likely
to fluctuate in the future. Factors that may have a significant impact on the
market price of our stock and our financial results include those identified
above and throughout this Risk Factors section; volatility of the stock market
in general and technology and semiconductor companies in particular;
announcements concerning us, our suppliers, our competitors or our customers or
licensees; and variations between our actual financial results or guidance and
expectations of securities analysts or investors, among others. In the past,
securities class action litigation has been brought against companies following
periods of volatility in the market price of their securities, among other
reasons. We are and may in the future be the target of securities litigation.
Securities litigation could result in substantial uninsured costs and divert
management's attention and our resources. Certain legal matters, including
certain securities litigation brought against us, are described more fully in
this Quarterly Report in "Notes to Condensed Consolidated Financial Statements,
Note 5. Commitments and Contingencies."
Our business may suffer due to the impact of, or our failure to comply with, the
various existing, new or amended laws, regulations, policies or standards to
which we are subject.
Our business and products, and those of our customers and licensees, are subject
to various laws, rules and regulations globally as well as government policies
and the specifications of international, national and regional communications
standards bodies (collectively, Regulations). Compliance with, or changes in the
interpretation of, existing Regulations, changes in the oversight of our
activities by governments or standards bodies, or rulings in court, regulatory,
administrative or other proceedings relating to such Regulations, including,
among others, Regulations affecting patent licensing practices; antitrust,
competition and competitive business practices; the flow of funds out of certain
countries (e.g., China); cybersecurity; import and export regulations such as
the U.S. Export Administration Regulations administered by the U.S. Department
of Commerce; protection of intellectual property; trade and trade protection
including tariffs; foreign policy and national security; environmental
protection, health and safety; supply chain, responsible sourcing, including the
use of conflict minerals, and human rights; spectrum availability and license
issuance; adoption of standards; taxation; privacy and data protection; labor,
employment and human capital; corporate governance; public disclosure; or
business conduct, could have an adverse effect on our business and results of
operations. See also the Risk Factors titled "Our business may suffer as a
result of adverse rulings in government investigations or proceedings," "Changes
in our patent licensing practices, whether due to governmental investigations or
private legal proceedings challenging those practices, or otherwise, could
adversely impact our business and results of operations," "A significant portion
of our business is concentrated in China, and the risks of such concentration
are exacerbated by U.S./China trade and national security tensions," "There are
numerous risks associated with the operation and control of our manufacturing
facilities, including a higher portion of fixed costs relative to a fabless
model, environmental compliance and liability, issues related to climate change,
exposure to natural disasters, timely supply of equipment and materials, and
various manufacturing issues," and "Tax liabilities could adversely affect our
results of operations."
Regulations are complex and changing (which may create uncertainty regarding
compliance), are subject to varying interpretations, and their application in
practice may evolve over time. As a result, our efforts to comply with
Regulations may fail, particularly if there is ambiguity as to how they should
be applied in practice. Failure to comply with any Regulation may adversely
affect our business, results of operations and cash flows. New Regulations or
evolving interpretations thereof, may cause us to incur higher costs as we
revise current practices, policies or procedures and may divert management time
and attention to compliance activities.
There are risks associated with our debt.
Our outstanding debt and any additional debt we incur may have negative
consequences on our business, including, among others: requiring us to use cash
to pay the principal of and interest on our debt, thereby reducing the amount of
cash
                                       48

--------------------------------------------------------------------------------

available for other purposes; limiting our ability to obtain additional
financing for working capital, capital expenditures, acquisitions, stock
repurchases, dividends, general corporate or other purposes; and limiting our
flexibility in planning for, or reacting to, changes in our business, industries
or the market. Our ability to make payments of principal and interest on our
indebtedness depends upon our future performance, which is subject to economic
and political conditions, industry cycles and financial, business and other
factors, many of which are beyond our control. If we are unable to generate
sufficient cash flow from operations to service our debt, we may be required to,
among other things: refinance or restructure all or a portion of our debt;
reduce or delay planned capital or operating expenditures; reduce, suspend or
eliminate our dividend payments and/or our stock repurchase program; or sell
selected assets. Such measures might not be sufficient to enable us to service
our debt. In addition, any such refinancing, restructuring or sale of assets
might not be available on economically favorable terms or at all, and if
prevailing interest rates at the time of any such refinancing or restructuring
are higher than our current rates, interest expense related to such refinancing
or restructuring would increase. Further, if there are adverse changes in the
ratings assigned to our debt securities by credit rating agencies, our borrowing
costs, our ability to access debt in the future and the terms of such debt could
be adversely affected.
Tax liabilities could adversely affect our results of operations.
We are subject to income taxes in the United States and numerous foreign
jurisdictions. Significant judgment is required in determining our provision for
income taxes. We regularly are subject to examination of our tax returns and
reports by taxing authorities in the United States federal jurisdiction and
various state and foreign jurisdictions, most notably in countries where we earn
a routine return and the tax authorities believe substantial value-add
activities are performed, as well as countries where we own intellectual
property. Although we believe that our tax estimates are reasonable, the final
determination of tax audits and any related legal proceedings could materially
differ from amounts reflected in our income tax provisions and accruals. In such
case, our income tax provision, results of operations and cash flows in the
period or periods in which that determination is made could be negatively
affected.
Tax rules may change in a manner that adversely affects our future reported
results of operations or the way we conduct our business. In response to the
2017 Tax Cuts and Jobs Act and to better align our profits with our activities,
we implemented certain restructuring in fiscal 2018 and 2019. After our
restructuring, most of our income is taxable in the United States with a
significant portion qualifying for preferential treatment as FDII
(foreign-derived intangible income). Beginning in fiscal 2027, the effective tax
rate for FDII increases from 13% to 16%. Further, if U.S. tax rates increase or
the FDII deduction is eliminated or reduced, our provision for income taxes,
results of operations and cash flows would be adversely affected. Also, if our
customers move manufacturing operations to the United States, our FDII deduction
may be reduced.
We have tax incentives in Singapore that require we meet specified employment
and other criteria. Although our profit in Singapore has declined as a result of
our 2018 restructuring, failure to meet these incentive requirements near the
end of March 2021 and March 2022 could result in a retroactive Singapore tax
increase for 2017 and 2018.
Further changes in the tax laws of foreign jurisdictions could arise as a result
of the base erosion and profit shifting (BEPS) project that was undertaken by
the Organization for Economic Co-operation and Development (OECD). The OECD,
which represents a coalition of member countries, recommended changes to
numerous long-standing tax principles related to transfer pricing and continues
to develop new proposals including allocating greater taxing rights to countries
where customers are located and establishing a minimum tax on global income.
These changes, as adopted by countries, may increase tax uncertainty and may
adversely affect our provision for income taxes, results of operations and cash
flows. Partially to address BEPS, we moved certain intellectual property from
Singapore to the United States as part of our 2018 and 2019 restructuring.

© Edgar Online, source Glimpses