Signal management

MARVELL TECHNOLOGY, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), which are subject to the "safe harbor" created by
those sections. These statements involve known and unknown risks, uncertainties
and other factors, which may cause our actual results to differ materially from
those implied by the forward-looking statements. Words such as "anticipates,"
"expects," "intends," "plans," "projects," "believes," "seeks," "estimates,"
"forecasts," "targets," "may," "can," "will," "would" and similar expressions
identify such forward-looking statements.

Forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ materially from those indicated in the
forward-looking statements. Factors that could cause actual results to differ
materially from those predicted include, but are not limited to:

•risks related to the impact of the COVID-19 pandemic or other future pandemics,
on the global economy and on our customers, suppliers, employees and business;
•risks related to our ability to scale our business;
•risks related to the extension of lead time due to supply chain disruptions,
component shortages that impact the costs and production of our products and
kitting process, and constrained availability from other electronic suppliers
impacting our customers' ability to ship their products, which in turn may
adversely impact our sales to those customers;
•risks related to changes in general economic conditions such as economic
slowdowns, inflation, stagflation, rising interest rates, and recessions or
political conditions, such as the tariffs and trade restrictions with China,
Russia and other foreign nations, and specific conditions in the end markets we
address, including the continuing volatility in the technology sector and
semiconductor industry and the U.S. National Science and Technology Council's
designation of semiconductors as a critical and emerging technology;
•risks related to the ability of our customers, particularly in jurisdictions
such as China that may be subject to trade restrictions (including the need to
obtain export licenses) to develop their own solutions or acquire fully
developed solutions from third-parties;
•risks related to cancellations, rescheduling or deferrals of significant
customer orders or shipments, as well as the ability of our customers to manage
inventory;
•risks related to our ability to successfully integrate and to realize
anticipated benefits or synergies, on a timely basis or at all, in connection
with our past, current, or any future acquisitions, divestitures, significant
investments or strategic transactions;
•risks related to our debt obligations;
•risks related to the highly competitive nature of the end markets we serve,
particularly within the semiconductor and infrastructure industries;
•risks related to our dependence on a few customers for a significant portion of
our revenue;
•risks related to our ability to execute on changes in strategy and realize the
expected benefits from restructuring activities;
•risks related to our ability to maintain a competitive cost structure for our
manufacturing and assembly and test processes and our reliance on third parties
to produce our products;
•risks related to our ability to attract, retain and motivate a highly skilled
workforce, especially engineering, managerial, sales and marketing personnel;
•risks related to any current and future litigation, regulatory investigations,
and contractual disputes with customers that could result in substantial costs
and a diversion of management's attention and resources that are needed to
successfully maintain and grow our business;
•risks related to gain or loss of a design win or key customer;
•risks related to seasonality or volatility related to sales into the
infrastructure market or other end markets;
•risks related to failures to qualify our products or our suppliers'
manufacturing lines;
•risks related to our ability to develop and introduce new and enhanced
products, in particular in the 5G and Cloud markets, in a timely and effective
manner, as well as our ability to anticipate and adapt to changes in technology;
•risks related to failures to protect our intellectual property, particularly
outside the United States;
                                       27
--------------------------------------------------------------------------------
  Table of Contents
•risks related to the potential impact of a significant events or natural
disasters, or the effects of climate change (such as droughts, flooding,
wildfires, increased storm severity, sea level rise, and power outages),
particularly in certain regions in which we operate or own buildings, such as
Santa Clara, California, and where our third-party manufacturing partners or
suppliers operate, such as Taiwan and elsewhere in the Pacific Rim;
•risks related to our Environmental, Social and Governance (ESG) programs;
•risks related to severe financial hardship or bankruptcy or other attrition of
one or more of our major customers, particularly as our major customers comprise
an increasing percentage of our revenue; and
•risks related to failures of our customers to agree to pay for NRE
(non-recurring engineering) costs, failure to pay enough to cover the costs we
incur in connection with NREs, or non-payment of previously agreed NRE costs due
to us.

Additional factors which could cause actual results to differ materially include
those set forth in the following discussion, as well as the risks discussed in
Part II, Item 1A, "Risk Factors," and other sections of this Quarterly Report on
Form 10-Q. These forward-looking statements speak only as of the date hereof. We
undertake no obligation to update any forward-looking statements.

Insight

We are a leading supplier of infrastructure semiconductor solutions, spanning
the data center core to network edge. We are a fabless semiconductor supplier of
high-performance standard and semi-custom products with core strengths in
developing and scaling complex System-on-a-Chip architectures, integrating
analog, mixed-signal and digital signal processing functionality. Leveraging
leading intellectual property and deep system-level expertise, as well as highly
innovative security firmware, our solutions are empowering the data economy and
enabling the data center, carrier infrastructure, enterprise networking,
consumer, and automotive/industrial end markets.

Net revenue in the second quarter of fiscal 2023 was $1.5 billion and was 41%
higher than net revenue of $1.1 billion in the second quarter of fiscal 2022.
This was due to an increase in sales from a majority of our end markets. Revenue
increased from the data center end market by 48%, from the carrier
infrastructure end market by 45%, from the enterprise networking end market by
53%, and from the automotive/industrial end market by 46% compared to the three
months ended July 31, 2021. The sales from the consumer end market were
relatively flat for the three months ended July 30, 2022 compared to the three
months ended July 31, 2021. The overall increase in net revenue of 41% was
primarily driven by an increase in demand for our products that led to higher
unit shipments. In addition, our average selling prices increased year-over-year
driven by relatively higher sales of products which had higher content and more
features.

In response to increased demand from customers for our products, our operations
team is continuing to ramp production with our global supply chain partners.
However, we are continuing to experience a number of industry-wide supply
constraints affecting the type of high complexity products we provide for data
infrastructure. These supply challenges are currently limiting our ability to
fully satisfy the increase in demand for some of our products. To secure
additional capacity, we entered into and continue to enter into capacity
reservation arrangements with certain foundries and test & assembly partners.
See "Note 5 - Commitments and Contingencies" in the Notes to the Unaudited
Condensed Consolidated Financial Statements for additional information.

Securing capacity for growth remains a high priority for our operations team,
even as this supply expansion comes with an increase in input costs. As we have
done throughout this period of supply constraints, we are working with our
customers to adjust prices to offset the impact of these cost increases, which
lets us jointly benefit from sustained growth.

We continue to monitor the impact of COVID-19 on our business. While our offices
around the world generally remained open to enable critical on-site business
functions in accordance with local government guidelines, in response to the
COVID-19 pandemic we modified our workplace practices globally, which resulted
in many of our employees working remotely for extended periods of time. As a
result, many of our employees have expressed a preference to continue to work
from home two to three days a week post-pandemic. In response, we adopted a
hybrid work policy where most employees split their time between home and the
office. We expect COVID-19 to continue to impact our business, for a further
discussion of the uncertainties and business risks associated with the COVID-19
pandemic, see Part II, Item 1A, "Risk Factors," including but not limited to the
risk detailed under the caption "We face risks related to the COVID-19 pandemic
which currently has, and may continue in the future to, significantly disrupt
and adversely impact our manufacturing, research and development, operations,
sales and financial results."

                                       28
--------------------------------------------------------------------------------
  Table of Contents
We expect that the U.S. government's export restrictions on certain Chinese
customers will continue to impact our revenue in fiscal 2023. Moreover, concerns
that U.S. companies may not be reliable suppliers as a result of these and other
actions has caused, and may in the future cause, some of our customers in China
to amass large inventories of our products well in advance of need or cause some
of our customers to replace our products in favor of products from other
suppliers. Customers in China may also choose to develop indigenous solutions,
as replacements for products that are subject to U.S. export controls. In
addition, there may be indirect impacts to our business that we cannot easily
quantify such as the fact that some of our other customers' products which use
our solutions may also be impacted by export restrictions.

Capital Return Program. We remain committed to delivering stockholder value
through our stock repurchase and dividend programs. Under the program authorized
by our Board of Directors, we may repurchase shares of stock in the open-market
or through privately negotiated transactions. The extent to which we repurchase
our stock and the timing of such repurchases will depend upon market conditions,
legal rules and regulations, and other corporate considerations, as determined
by our management team. We resumed our stock repurchase program in the first
quarter of fiscal 2023, which had been temporarily suspended in fiscal 2021 to
preserve cash during the COVID-19 pandemic. During the six months ended July 30,
2022, we repurchased 1.2 million shares of our common stock for $65.0 million,
including 0.9 million shares of our common stock repurchased for $50.0 million
pursuant to a 10b5-1 trading plan during the second quarter of fiscal 2023. As
of July 30, 2022, there was $499.5 million remaining available for future stock
repurchases.

As of July 30, 2022, a total of 309.3 million shares have been repurchased to
date under our current and previous share repurchase programs for an aggregate
total of $4.3 billion in cash. We returned $167.0 million to stockholders in the
six months ended July 30, 2022, including our repurchases of common stock and
$102.0 million in cash dividends.

Cash and short-term investments. Our cash and cash equivalents were $617.1 million at July 30, 2022what was $3.6 million greater than our balance at the end of our fiscal year January 29, 2022 of $613.5 million.

Sales and Customer Composition. Our accounts receivable was concentrated with
four customers at July 30, 2022, who comprise a total of 56% of gross accounts
receivable, compared with six customers at July 31, 2021, who represented 51% of
gross accounts receivable, respectively. This presentation is at the customer
consolidated level. During the three and six months ended July 30, 2022 and
July 31, 2021, there was no net revenue attributable to a single customer, other
than one distributor, whose revenue as a percentage of net revenue was 10% or
greater of total net revenue. Net revenue attributable to a distributor whose
revenue as a percentage of net revenue was 10% or greater of total net revenue
is presented in the following table:

                       Three Months Ended                            Six Months Ended
                     July 30,           July 31,                                              July 30,      July 31,
                       2022               2021                                                  2022          2021

Distributor:
Distributor A                 24  %         15  %                                                 22  %         17  %



We continuously monitor the creditworthiness of our customers and distributors
and believe these distributors' sales to diverse end customers and geographies
further serve to mitigate our exposure to credit risk.

Most of our sales are made to customers located outside of the United States,
primarily in Asia, and majority of our products are manufactured outside the
United States. Sales shipped to customers with operations in Asia represented
approximately 76% of our net revenue in the three and six months ended July 30,
2022, and approximately 80% of net revenue in the three and six months ended
July 31, 2021. Because many manufacturers and manufacturing subcontractors of
our customers are located in Asia, we expect that most of our net revenue will
continue to be represented by sales to our customers in that region. For risks
related to our global operations, see Part II, Item 1A, "Risk Factors,"
including but not limited to the risk detailed under the caption "We face
additional risks due to the extent of our global operations since a majority of
our products, and those of our customers, are manufactured and sold outside of
the United States. The occurrence of any or a combination of the additional
risks described below would significantly and negatively impact our business and
results of operations."

The development process for our products is long, which may cause us to
experience a delay between the time we incur expenses and the time revenue is
generated from these expenditures. We anticipate that the rate of new orders may
vary significantly from quarter to quarter. For risks related to our sales
cycle, see Part II, Item 1A, "Risk Factors," including but not limited to the
risk detailed under the caption "We are subject to order and shipment
uncertainties. If we are unable to accurately predict customer demand, we may
hold excess or obsolete inventory, which would reduce our gross margin.
Conversely, we may have insufficient inventory, which would result in lost
revenue opportunities and potential loss of market share as well as damaged
customer relationships."

                                       29
--------------------------------------------------------------------------------
  Table of Contents
Critical Accounting Policies and Estimates

There have been no material changes during the three months ended July 30, 2022
to our critical accounting policies and estimates from the information provided
in the "Critical Accounting Policies and Estimates" section of our Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in our Annual Report on Form 10-K for the fiscal year ended January 29,
2022.

In the current macroeconomic environment, our estimates could require increased
judgment and carry a higher degree of variability and volatility. We continue to
monitor and assess our estimates in light of developments, and as events
continue to evolve and additional information becomes available, our estimates
may change materially in future periods.

Operating results

The following table sets forth information derived from our Unaudited Condensed
Consolidated Statements of Operations expressed as a percentage of net revenue:

                                                           Three Months Ended                               Six Months Ended
                                                    July 30,               July 31,                                                        July 30,                July 31,
                                                      2022                   2021                                                            2022                    2021
Net revenue                                             100.0  %                100.0  %                                                        100.0  %                100.0  %
Cost of goods sold                                       48.2                    65.4                                                            48.1                    58.6
Gross profit                                             51.8                    34.6                                                            51.9                    41.4
Operating expenses:
Research and development                                 29.6                    34.1                                                            30.1                    34.2
Selling, general and administrative                      14.0                    24.1                                                            14.6                    24.1
Legal settlement                                          5.6                       -                                                             3.4                       -
Restructuring related charges                             0.1                     1.1                                                             0.1                     1.3
Total operating expenses                                 49.3                    59.3                                                            48.2                    59.6
Operating income (loss)                                   2.5                   (24.7)                                                            3.7                   (18.2)
Interest income                                           0.1                       -                                                               -                       -
Interest expense                                         (2.6)                   (3.1)                                                           (2.6)                   (3.6)
Other income (loss), net                                  0.2                    (0.2)                                                            0.3                       -
Income (loss) before income taxes                         0.2                   (28.0)                                                            1.4                   (21.8)
Provision (benefit) for income taxes                        -                    (2.4)                                                            6.9                    (2.8)
Net income (loss)                                         0.2  %                (25.6) %                                                         (5.5) %                (19.0) %



Three and six months ended July 30, 2022 and July 31, 2021

Net Revenue

                                   Three Months Ended                                                                Six Months Ended
                               July 30,             July 31,                %                                                                     July 30,           July 31,               %
                                 2022                 2021                Change                                                                    2022               2021              Change

                                                 (in millions, except percentage)
Net revenue                $     1,516.9          $ 1,075.9               41.0%                                                                 $ 2,963.8          $ 1,908.2              55.3%



Our net revenue for the three months ended July 30, 2022 increased by $441.0
million compared to net revenue for the three months ended July 31, 2021. This
was due to an increase in sales from a majority of our end markets. Revenue
increased from the data center end market by 48%, from the carrier
infrastructure end market by 45%, from the enterprise networking end market by
53%, and from the automotive/industrial end market by 46% compared to the three
months ended July 31, 2021. The sales from the consumer end market were
relatively flat for the three months ended July 30, 2022 compared to the three
months ended July 31, 2021.

                                       30
--------------------------------------------------------------------------------
  Table of Contents
Our net revenue for the six months ended July 30, 2022 increased by $1.1 billion
compared to net revenue for the six months ended July 31, 2021. This was due to
an increase in sales from all our end markets. Revenue increased from the data
center end market by 81%, from the carrier infrastructure end market by 47%,
from the enterprise networking end market by 58%, from the consumer end market
by 3%, and from the automotive/industrial end market by 67% compared to the six
months ended July 31, 2021.

The overall increases in net revenue of 41% for the three months was primarily
driven by an increase in demand for our products that led to higher unit
shipment. The overall increase in net revenue of 55% for the six months was
primarily driven by an increase in demand for our products and the
year-over-year impact of acquisitions in fiscal 2022, with both factors
contributing to higher unit shipments. In addition, our average selling prices
increased year-over-year driven by relatively higher sales of products which had
higher content and more features.


Cost of goods sold and gross profit

                               Three Months Ended                                                             Six Months Ended
                           July 30,             July 31,               %                                                                   July 30,           July 31,               %
                             2022                 2021              Change                                                                   2022               2021              Change

                                           (in millions, except percentage)
Cost of goods sold     $       730.9           $  704.1              3.8%                                                                $ 1,426.9          $ 1,118.2              27.6%
% of net revenue                48.2   %           65.4  %                                                                                    48.1  %            58.6  %
Gross profit           $       786.0           $  371.8             111.4%                                                               $ 1,536.9          $   790.0              94.5%
% of net revenue                51.8   %           34.6  %                                                                                    51.9  %            41.4  %



Cost of goods sold as a percentage of net revenue decreased for the three and
six months ended July 30, 2022 compared to the three and six months ended
July 31, 2021, which is primarily due to lower amortization of inventory fair
value adjustment. As a result, gross margin for the three and six months ended
July 30, 2022 increased 17.2 and 10.5 percentage points compared to the three
and six months ended July 31, 2021.


Research and development

                                   Three Months Ended                                                                Six Months Ended
                               July 30,             July 31,                %                                                                    July 30,          July 31,               %
                                 2022                 2021                Change                                                                   2022              2021              Change

                                                 (in millions, except percentage)
Research and development   $       449.0           $  367.0               22.3%                                                                 $  893.1          $  653.1              36.7%
% of net revenue                    29.6   %           34.1  %                                                                                      30.1  %           34.2  %



Research and development expense increased by $82.0 million in the three months
ended July 30, 2022 compared to the three months ended July 31, 2021. The
increase was primarily due to $76.9 million of higher employee personnel-related
costs as a result of headcount increases including new employees from our recent
acquisitions.

Research and development expense increased by $240.0 million in the six months
ended July 30, 2022 compared to the six months ended July 31, 2021. The increase
was primarily due to additional costs from our acquisitions of Inphi and
Innovium in fiscal 2022, including $202.0 million of higher employee
personnel-related costs recognized in the current period.
                                       31

————————————————– ——————————

Contents

Selling, general and administrative expenses

                                      Three Months Ended                                                                 Six Months Ended
                                  July 30,             July 31,                 %                                                                    July 30,          July 31,               %
                                    2022                 2021                Change                                                                    2022              2021              Change

                                                    (in millions, except percentage)
Selling, general and
administrative                $       211.7           $  259.2               (18.3)%                                                                $  432.4          $  460.7             (6.1)%
% of net revenue                       14.0   %           24.1  %                                                                                       14.6  %           24.1  %



Selling, general and administrative expense decreased by $47.5 million in the
three months ended July 30, 2022 compared to the three months ended July 31,
2021. The decrease was primarily due to $30.3 million of lower integration costs
associated with our acquisition of Inphi in fiscal 2022 and $21.5 million of
lower intangibles amortization expense related to intangibles that were fully
amortized during the first quarter of fiscal 2023. The decrease was partially
offset by $2.5 million of higher employee personnel-related costs as a result of
headcount increases including new employees from our recent acquisitions.

Selling, general and administrative expense decreased by $28.3 million in the
six months ended July 30, 2022 compared to the six months ended July 31, 2021.
The decrease was reflective of $65.5 million of lower transaction and
integration costs associated with our acquisition of Inphi and $32.1 million of
lower stock based compensation expense mainly related to accelerated vesting of
Inphi equity awards incurred in the prior year when the deal was closing. The
decrease was partially offset by $41.7 million of higher intangibles
amortization expense and $17.6 million of higher employee personnel-related
costs associated with our acquisitions of Inphi and Innovium in fiscal 2022, as
well as acquisitions in the current period.

Legal Settlement

                                  Three Months Ended                                                             Six Months Ended
                             July 30,             July 31,                %                                                                  July 30,           July 31,                %
                               2022                 2021               Change                                                                  2022               2021               Change

                                              (in millions, except percentage)
Legal settlement          $      85.0           $       -                 *                                                                 $  100.0          $       -                 *
% of net revenue                  5.6   %               -   %                                                                                    3.4  %               -   %


*Not meaningful

We recorded a charge of $85.0 million and $100.0 million in the three and six
months ended July 30, 2022 related to a settlement in principle of a contractual
dispute. Refer to "Note 5 - Commitments and Contingencies" for further
information.

Restructuring charges

                                       Three Months Ended                                                               Six Months Ended
                                July 30,                 July 31,               %                                                                    July 30,           July 31,               %
                                  2022                     2021               Change                                                                   2022               2021               Change

                                                   (in millions, except percentage)
Restructuring related
charges                      $      1.2                $    12.3             (90.2)%                                                               $     2.5          $    25.2             (90.1)%
% of net revenue                    0.1    %                 1.1  %                                                                                      0.1  %             1.3  %



We recognized $1.2 million and $2.5 million of total restructuring related
charges in the three and six months ended July 30, 2022 as we continue to
evaluate our existing operations to increase operational efficiency, decrease
costs, and increase profitability. See "Note 9 - Restructuring" in the Notes to
the Unaudited Condensed Consolidated Financial Statements for further
information.

                                       32
--------------------------------------------------------------------------------
  Table of Contents
Interest Income

                                  Three Months Ended                                                                 Six Months Ended
                           July 30,                 July 31,                %                                                                     July 30,           July 31,               %
                             2022                     2021                Change                                                                    2022               2021              Change

                                               (in millions, except percentage)
Interest income         $      0.8                $     0.2               300.0%                                                                $     1.3          $     0.4             225.0%
% of net revenue               0.1   %                    -  %                                                                                          -  %               -  %



Interest income increased by $0.6 million and $0.9 million in the three and six
months ended July 30, 2022 compared to the three and six months ended July 31,
2021 due to higher interest rates on our invested cash.

Interest Expense

                                Three Months Ended                                                                Six Months Ended
                            July 30,             July 31,                %                                                                    July 30,          July 31,               %
                              2022                 2021                Change                                                                   2022              2021              Change

                                              (in millions, except percentage)
Interest expense        $       (39.8)          $  (33.8)              17.8%                                                                 $  (76.1)         $  (68.9)             10.4%
% of net revenue                 (2.6)  %           (3.1) %                                                                                      (2.6) %           (3.6) %



Interest expense increased by $6.0 million and $7.2 million in the three and six
months ended July 30, 2022 compared to the three and six months ended July 31,
2021. The increase was primarily due to higher interest expense and amortization
of debt issuance costs associated with the 2024 and 2026 Term Loans and 2026,
2028 and 2031 Senior Notes, partially offset by prior period costs associated
with the bridge loan termination.


Other Income, Net

                                 Three Months Ended                                                                   Six Months Ended
                          July 30,                 July 31,                 %                                                                      July 30,           July 31,                %
                            2022                     2021                 Change                                                                     2022               2021               Change

                                               (in millions, except percentage)
Other income, net      $      3.7                $    (1.7)              (317.6)%                                                                $     8.9          $    (0.5)           (1,880.0)%
% of net revenue              0.2    %                (0.2) %                                                                                          0.3  %               -  %


Other income, net, increased by $5.4 million and $9.4 million in the three months and six months ended July 30, 2022 compared to the three and six months ended July 31, 2021. The increase is mainly due to the gain on equity investments.

Provision (benefit) for income taxes

                                    Three Months Ended                                                                    Six Months Ended
                              July 30,                  July 31,                 %                                                                     July 30,           July 31,               %
                                2022                      2021                Change                                                                     2022               2021               Change

                                                  (in millions, except percentage)
Provision (benefit) for
income taxes             $      (0.5)                 $   (25.6)              (98.0)%                                                                $   204.4          $   (53.4)            (482.8)%



Our income tax benefit for the three months ended July 30, 2022 was $0.5 million
compared to a tax benefit of $25.6 million for the three months ended July 31,
2021. Our income tax benefit $0.5 million for the three months ended July 30,
2022 differed from the 21% federal income tax rate, primarily because of
discrete income tax benefits for stock-based compensation. Our income tax
benefit for the three months ended July 31, 2021 differed from the U.S. federal
tax rate of 21% primarily because of the recognition of a $10.0 million tax
benefit for tax basis on the transfer of certain intellectual property from the
Inphi acquisition to a subsidiary in Singapore as well as discrete tax benefits
related to stock-based compensation.

                                       33
--------------------------------------------------------------------------------
  Table of Contents
Our income tax expense for the six months ended July 30, 2022, was $204.4
million compared to a tax benefit of $53.4 million for the six months ended July
31, 2021. Our income tax expense of $204.4 million for the six months ended
July 30, 2022, differs from the federal statutory tax rate of 21% primarily due
to the $213.6 million tax impact of the remeasurement of deferred taxes in
Singapore, offset by the recognition of discrete tax benefits related to
stock-based compensation. Our income tax benefit of $53.4 million for the
quarter ended July 31, 2021, differed from the 21% federal statutory tax rate
primarily because of the recognition of a $10.0 million tax benefit attributable
to Singapore tax basis in intellectual property, tax benefits related to
stock-based compensation, and benefits from expirations of the statutes of
limitations related to certain previously unrecognized tax benefits that were
recorded in prior periods.

Our provision for incomes taxes may be affected by changes in the geographic mix
of earnings with different applicable tax rates, acquisitions, changes in the
realizability of deferred tax assets, accruals related to contingent tax
liabilities and period-to-period changes in such accruals, the results of income
tax audits, the expiration of statutes of limitations, the implementation of tax
planning strategies, tax rulings, court decisions, settlements with tax
authorities and changes in tax laws and regulations.

The ultimate realization of deferred tax assets depends upon the generation of
future taxable income during the periods in which those assets become deductible
or creditable. We evaluate the recoverability of these assets, weighing all
positive and negative evidence, and provide or maintain a valuation allowance
for these assets if it is more likely than not that some, or all, of the
deferred tax assets will not be realized. If negative evidence exists,
sufficient positive evidence is necessary to support a conclusion that a
valuation allowance is not needed. We consider all available evidence such as
our earnings history including the existence of cumulative income or losses,
reversals of taxable temporary differences, projected future taxable income, and
tax planning strategies. In future periods, it is possible that significant
positive or negative evidence could arise that results in a change in our
judgment with respect to the need for a valuation allowance, which could result
in a tax benefit, or adversely affect our income tax provision, in the period of
such change in judgment.

We also continuously evaluate potential changes to our legal structure in response to the guidelines and requirements of the various international tax jurisdictions in which we operate. In addition, please see the information under “Item 1A: Risk Factors” under the heading “Changes in existing tax benefits, rules or practices may adversely affect our financial results”.

Cash and capital resources

Our principal source of liquidity as of July 30, 2022 consisted of approximately
$617.1 million of cash and cash equivalents, of which approximately $431.3
million was held by subsidiaries outside of the United States. We manage our
worldwide cash requirements by, among other things, reviewing available funds
held by our foreign subsidiaries and the cost effectiveness by which those funds
can be accessed in the United States. See "Note 10 - Income Taxes" in the Notes
to the Unaudited Condensed Consolidated Financial Statements for further
information.

In December 2020, to fund the Inphi acquisition, we executed a debt agreement to
obtain a 3-year term loan of $875.0 million and a 5-year term loan of
$875.0 million. For the six months ended July 30, 2022, we repaid $21.8 million
of the principal outstanding of the 5-year term loan.

In December 2020, we also executed a debt agreement to obtain a $750.0 million
revolving credit facility ("2020 Revolving Credit Facility"). During the quarter
ended July 30, 2022, we drew down $200.0 million on the 2020 Revolving Credit
Facility of which $130.0 million was repaid in the same quarter and $70.0
million of aggregate principal amount of borrowings remained outstanding at
July 30, 2022.

In April 2021, we completed an offering and issued (i) 5-year $500.0 million
senior notes due in 2026, (ii) 7-year $750.0 million senior notes due in 2028,
and (iii) 10-year $750.0 million senior notes due in 2031 (collectively, the
"Senior Notes"). On October 8, 2021, the Senior Notes issued in April 2021 were
exchanged for new notes.

See “Note 4 – Debt” in the notes to the unaudited condensed consolidated financial statements for additional information.

We believe that our existing cash, cash equivalents, together with cash
generated from operations, and funds from our 2020 Revolving Credit Facility
will be sufficient to cover our working capital needs, capital expenditures,
investment requirements and any declared dividends, repurchase of our common
stock and commitments for at least the next twelve months. Our capital
requirements will depend on many factors, including our rate of sales growth,
market acceptance of our products, costs of securing access to adequate
manufacturing capacity, the timing and extent of research and development
projects and increases in operating expenses, all of which are subject to
uncertainty.
                                       34

————————————————– ——————————

Contents

To the extent that our existing cash and cash equivalents, together with cash
generated by operations, and funds available under our 2020 Revolving Credit
Facility are insufficient to fund our future activities, we may need to raise
additional funds through public or private debt or equity financing. We may also
acquire additional businesses, purchase assets or enter into other strategic
arrangements in the future, which could also require us to seek debt or equity
financing. Additional equity financing or convertible debt financing may be
dilutive to our current stockholders. If we elect to raise additional funds, we
may not be able to obtain such funds on a timely basis or on acceptable terms,
if at all. In addition, the equity or debt securities that we issue may have
rights, preferences or privileges senior to our common stock.

Future payment of a regular quarterly cash dividend on our common stock and our
planned repurchases of common stock will be subject to, among other things, the
best interests of the Company and our stockholders, our results of operations,
cash balances and future cash requirements, financial condition, developments in
ongoing litigation, statutory requirements under Delaware law, U.S. securities
laws and regulations, market conditions and other factors that our Board of
Directors may deem relevant. Our dividend payments and repurchases of common
stock may change from time to time, and we cannot provide assurance that we will
continue to declare dividends or repurchase stock at all or in any particular
amounts.

Cash flow from operating activities

Net cash flow provided by operating activities for the six months ended July 30,
2022 was $526.3 million. We had a net loss of $161.4 million adjusted for the
following non-cash items: amortization of acquired intangible assets of $544.3
million, stock-based compensation expense of $275.6 million, deferred income tax
expense of $178.4 million, depreciation and amortization of $152.6 million,
amortization of inventory fair value adjustment associated with the Innovium
acquisition of $15.6 million, and $24.2 million net loss from other non-cash
items. Cash outflow from working capital of $503.0 million for the six months
ended July 30, 2022 was primarily driven by increases in accounts receivable,
inventory, and prepaid expenses and other assets and decrease in accrued
employee compensation, partially offset by increases in accrued liabilities and
other non-current liabilities and accounts payable. The increase in accounts
receivable was primarily due to increased sales, as well as the timing of
shipments due to ongoing supply chain challenges. The increase in inventory was
to better support unfulfilled backlog, future customer demand and new product
ramps. The increase in prepaid expenses and other assets was primarily due to
prepayments on supply capacity reservation agreements. The decrease in accrued
employee compensation was due to bonus payout. The increase in accrued
liabilities and other non-current liabilities was mainly due to an accrual
related to a settlement in principle of a contractual dispute and an increase in
ship and debit claim reserve due to price increase and stock replenishment. The
increase in accounts payable was mainly due to timing of payments.

Net cash flow provided by operating activities for the six months ended July 31,
2021 was $208.4 million. We had a net loss of $364.6 million adjusted for the
following non-cash items: amortization of acquired intangible assets of $405.3
million, stock-based compensation expense of $206.8 million, amortization of
inventory fair value adjustment associated with the Inphi acquisition of $169.6
million, depreciation and amortization of $118.0 million, deferred income tax
benefit of $51.6 million, and $66.1 million net loss from other non-cash items.
Cash outflow from working capital of $341.2 million for the six months ended
July 31, 2021 was primarily driven by an increase in accounts receivable and
inventory and a decrease in accrued employee compensation. The increase in
accounts receivable was primarily due to increased sales, as well as the timing
of shipments due to ongoing supply chain challenges. The increase in inventory
was to better support unfulfilled backlog, future customer demand and new
product ramps. The decrease in accrued employee compensation was due to our
annual bonus payment.

Cash flow from investing activities

For the six months ended July 30, 2022, net cash used in investing activities of
$212.3 million was primarily driven by purchases of property and equipment of
$109.5 million, net cash paid for business acquisitions of $98.6 million, and
purchases of technology licenses of $4.2 million.

For the six months ended July 31, 2021, net cash used in investing activities of
$3.7 billion was primarily driven by the net cash paid to acquire Inphi of
$3.6 billion, purchases of property and equipment of $53.6 million and purchases
of technology licenses of $6.6 million.

Cash flow from financing activities

For the six months ended July 30, 2022, net cash used in financing activities of
$310.4 million was primarily attributable to $171.7 million tax withholding
payments on behalf of employees for net share settlements, $151.9 million
repayment of debt, $102.0 million for payment of our quarterly dividends, $71.2
million payments for technology license obligations, and $65.0 million of
repurchases of common stock, partially offset by $200.0 million drawdown from
2020 Revolving Credit Facility and $51.4 million proceeds from employee stock
plans.
                                       35

————————————————– ——————————

Contents

For the six months ended July 31, 2021, net cash provided by financing
activities of $3.3 billion was primarily attributable to proceeds from issuance
of debt of $3.8 billion, proceeds from capped calls of $160.3 million, partially
offset by $275.0 million repayment of debt principal, $180.9 million of
repurchase and settlement of convertible notes, $116.2 million tax withholding
payments on behalf of employees for net share settlements, $89.9 million for
payment of our quarterly dividends and $67.3 million payments for technology
license obligations.

Capital resources and material cash requirements

A summary of our capital resources and material cash requirements is presented
in Part II, Item 7, Management's Discussion and Analysis of Financial Condition
and Results of Operations, in our Annual Report on Form 10-K for the fiscal year
ended January 29, 2022. We also discuss updates of our significant commitments
in "Note 5 - Commitments and Contingencies" in the Notes to the Unaudited
Condensed Consolidated Financial Statements. Other than as described above,
there were no material changes to our capital resources and material cash
requirements during the six months ended July 30, 2022.

Indemnification obligations

See “Note 5 – Commitments and Contingencies” in the Notes to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

                                       36

————————————————– ——————————

Contents

© Edgar Online, source Previews