Broadcom 10-Q 2023-04-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(MARK ONE)

For the quarterly period ended April 30, 2023

OR

For the transition period from to

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

As of May 26, 2023, there were 412,685,405 shares of our common stock outstanding.

BROADCOM INC.

Quarterly Report on Form 10-Q

For the Quarterly Period Ended April 30, 2023

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

BROADCOM INC.

INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED

BROADCOM INC.

CONDENSED CONSOLIDATED BALANCE SHEETS — UNAUDITED

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

BROADCOM INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS — UNAUDITED

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The following discussion and analysis of the financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q (“Form 10-Q”) and the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the fiscal year ended October 30, 2022 (“fiscal year 2022”) included in our Annual Report on Form 10-K for fiscal year 2022 (“2022 Annual Report on Form 10-K”). References to “Broadcom,” “we,” “our,” and “us” are to Broadcom Inc. and its consolidated subsidiaries, unless otherwise specified or the context otherwise requires. This Form 10-Q may contain predictions, estimates and other forward-looking statements that involve a number of risks and uncertainties, which are made under the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements may include our pending acquisition of VMware, Inc.; projections of financial information; statements about historical results that may suggest trends for our business; statements of the plans, strategies and objectives of management for future operations; and statements of expectation or belief regarding future events (including any acquisitions we may make), technology developments, our products, product sales, expenses, liquidity, cash flow and growth rates, customer concentration and relationships, or enforceability of our intellectual property (“IP”) rights. Such statements are based on current expectations, estimates, forecasts and projections of our industry performance and macroeconomic conditions, based on management’s judgment, beliefs, current trends and market conditions, and involve risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements. We derive most of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Accordingly, we caution you not to place undue reliance on these statements. Important factors that could cause actual results to differ materially from our expectations are disclosed under “Risk Factors” in Part II, Item 1A of this Form 10-Q, and in other documents we file from time to time with the Securities and Exchange Commission (the “SEC”). All of the forward-looking statements in this Form 10-Q are qualified in their entirety by reference to the factors listed above and those discussed under the heading “Risk Factors” below. We undertake no intent or obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as otherwise required by law.

Overview

We are a global technology leader that designs, develops and supplies a broad range of semiconductor and infrastructure software solutions. We develop semiconductor devices with a focus on complex digital and mixed signal complementary metal oxide semiconductor based devices and analog III-V based products. We have a history of innovation in the semiconductor industry and offer thousands of products that are used in end products such as enterprise and data center networking, home connectivity, set-top boxes, broadband access, telecommunication equipment, smartphones and base stations, data center servers and storage systems, factory automation, power generation and alternative energy systems, and electronic displays. Our infrastructure software solutions enable customers to plan, develop, automate, manage and secure applications across mainframe, distributed, mobile and cloud platforms. Our portfolio of industry-leading infrastructure and security software is designed to modernize, optimize, and secure the most complex hybrid environments, enabling scalability, agility, automation, insights, resiliency and security. We also offer mission critical fibre channel storage area networking (“FC SAN”) products and related software in the form of modules, switches and subsystems incorporating multiple semiconductor products.

We have two reportable segments: semiconductor solutions and infrastructure software. Our semiconductor solutions segment includes all of our product lines and IP licensing. Our infrastructure software segment includes our mainframe, distributed and cyber security solutions, and our FC SAN business.

Quarterly Highlights

Highlights during the fiscal quarter ended April 30, 2023 include the following:

• We generated $4,502 million of cash from operations.

• We paid $1,914 million in cash dividends.

• We repurchased $2,806 million of common stock.

Pending Acquisition of VMware, Inc.

On May 26, 2022, we entered into an Agreement and Plan of Merger (the “VMware Merger Agreement”) to acquire all of the outstanding shares of VMware, Inc. (“VMware”) in a cash-and-stock transaction (the “VMware Merger”) that values VMware at approximately $61 billion, based on the closing price of Broadcom common stock on May 25, 2022. We will also assume VMware’s closing date outstanding debt, net of expected cash.

Under the terms of the VMware Merger Agreement, each share of VMware common stock issued and outstanding immediately prior to the effective time of the VMware Merger will be indirectly converted into the right to receive, at the election of the holder of such share of VMware common stock, either $142.50 in cash, without interest, or 0.2520 shares of Broadcom common stock. The stockholder election will be subject to proration, such that the total number of shares of VMware common stock entitled to receive cash and the total number of shares of VMware common stock entitled to receive Broadcom common stock, will, in each case, be equal to 50% of the aggregate number of shares of VMware common stock issued and outstanding immediately prior to the effective time of the VMware Merger.

We will assume all outstanding VMware restricted stock unit (“RSU”) awards and performance stock unit awards held by continuing employees. The assumed awards will be converted into RSU awards for shares of Broadcom common stock. All outstanding in-the-money VMware stock options and RSU awards held by non-employee directors will be accelerated and converted into the right to receive cash and shares of Broadcom common stock, in equal parts.

Effective upon the effective time of the VMware Merger, one member of the VMware Board of Directors, to be mutually agreed by us and VMware, will be added to our Board of Directors.

In connection with the execution of the VMware Merger Agreement, we entered into a commitment letter on May 26, 2022, with certain financial institutions that committed to provide, subject to the terms and conditions of the commitment letter, a senior unsecured bridge facility in an aggregate principal amount of $32 billion.

The VMware Merger, which is expected to be completed in our fiscal year ending October 29, 2023 (“fiscal year 2023”), is subject to satisfaction or waiver of customary closing conditions, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976 and clearance under the antitrust laws of the European Union and certain other jurisdictions. On October 3, 2022, we registered approximately 59 million shares of our common stock. On November 4, 2022, VMware stockholders adopted the VMware Merger Agreement. We and VMware each have termination rights under the VMware Merger Agreement and, under specified circumstances, upon termination of the agreement, we and VMware would be required to pay the other a termination fee of $1.5 billion.

Critical Accounting Estimates

The preparation of financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. Our actual financial results may differ materially and adversely from our estimates. Our critical accounting estimates are those that affect our historical financial statements materially and involve difficult, subjective or complex judgments by management. Those estimates include revenue recognition, valuation of goodwill and long-lived assets, and income taxes.

There were no significant changes in our critical accounting estimates during the two fiscal quarters ended April 30, 2023 compared to those previously disclosed in “Critical Accounting Estimates” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the 2022 Annual Report on Form 10-K.

Results of Operations

Fiscal Quarter and Two Fiscal Quarters Ended April 30, 2023 Compared to Fiscal Quarter and Two Fiscal Quarters Ended May 1, 2022

The following tables set forth our results of operations for the periods presented:

Net Revenue

A relatively small number of customers account for a significant portion of our net revenue. Direct sales to WT Microelectronics Co., Ltd., a distributor, accounted for 17% and 19% of our net revenue for the fiscal quarter and two fiscal quarters ended April 30, 2023, respectively, and 17% and 20% of our net revenue for the fiscal quarter and two fiscal quarters ended May 1, 2022, respectively.

We believe aggregate sales to our top five end customers, through all channels, accounted for approximately 35% of our net revenue for each of the fiscal quarter and two fiscal quarters ended April 30, 2023 and May 1, 2022. We believe aggregate sales to Apple Inc., through all channels, accounted for approximately 18% and 20% of our net revenue for the fiscal quarter and two fiscal quarters ended April 30, 2023, respectively, and approximately 20% of our net revenue for each of the fiscal quarter and two fiscal quarters ended May 1, 2022. We expect to continue to experience significant customer concentration in future periods. The loss of, or significant decrease in demand from, any of our top five end customers could have a material adverse effect on our business, results of operations and financial condition.

From time to time, some of our key semiconductor customers place large orders or delay orders, causing our quarterly net revenue to fluctuate significantly. This is particularly true of our wireless products as fluctuations may be magnified by the timing of launches, and seasonal variations in sales, of mobile devices. In addition, the macroeconomic environment remains uncertain and may cause our net revenue to fluctuate significantly and impact our results of operations.

The following tables set forth net revenue by segment for the periods presented:

Net revenue from our semiconductor solutions segment increased in the fiscal quarter and two fiscal quarters ended April 30, 2023 compared to the prior year fiscal periods due to strong product demand, primarily for networking, server storage and broadband products, partially offset by lower demand for wireless products. Net revenue from our infrastructure software segment increased in the fiscal quarter and two fiscal quarters ended April 30, 2023 compared to the prior year fiscal periods primarily due to increases in sales from our mainframe solutions products, partially offset by lower demand for our FC SAN products.

Gross Margin

Gross margin was $6,115 million, or 70% of net revenue, for the fiscal quarter ended April 30, 2023 compared to $5,439 million, or 67% of net revenue, for the fiscal quarter ended May 1, 2022, and $12,119 million, or 69% of net revenue, for the two fiscal quarters ended April 30, 2023 compared to $10,488 million, or 66% of net revenue, for the two fiscal quarters ended May 1, 2022.

The increases were primarily due to lower amortization of acquisition-related intangible assets, mainly from our 2016 acquisition of Broadcom Corporation, slightly offset by less favorable margin within our semiconductor solutions segment driven primarily by product mix.

Research and Development Expense

Research and development expense increased $51 million, or 4%, and $40 million, or 2%, for the fiscal quarter and two fiscal quarters ended April 30, 2023, respectively, compared to the prior year fiscal periods. The increases were primarily due

to higher stock-based compensation expense as a result of annual employee equity awards granted at higher grant-date fair values and an increase in headcount, partially offset by lower variable employee compensation expense.

Selling, General and Administrative Expense

Selling, general and administrative expense increased $70 million, or 19%, and $97 million, or 14%, for the fiscal quarter and two fiscal quarters ended April 30, 2023, respectively, compared to the prior year fiscal periods. The increases were primarily due to higher costs incurred in connection with the pending VMware Merger and higher stock-based compensation expense as a result of annual employee equity awards granted at higher grant-date fair values, partially offset by lower variable employee compensation expense.

Amortization of Acquisition-Related Intangible Assets

Amortization of acquisition-related intangible assets recognized in operating expenses decreased $50 million, or 13%, and $99 million, or 12%, for the fiscal quarter and two fiscal quarters ended April 30, 2023, respectively, compared to the prior year fiscal periods. The decreases were primarily due to lower amortization of customer-related intangible assets from our acquisition of LSI Corporation.

Restructuring, Impairment and Disposal Charges

Restructuring, impairment and disposal charges recognized in operating expenses decreased $9 million, or 50%, and $16 million, or 46%, for the fiscal quarter and two fiscal quarters ended April 30, 2023, respectively, compared to the prior year fiscal periods. The decreases were primarily due to lower lease-related charges following the completion of key restructuring activities from acquisitions.

Stock-Based Compensation Expense

Total stock-based compensation expense was $513 million and $904 million for the fiscal quarter and two fiscal quarters ended April 30, 2023, respectively, and $386 million and $773 million for the fiscal quarter and two fiscal quarters ended May 1, 2022, respectively. The increases were primarily due to annual employee equity awards granted at higher grant-date fair values during the fiscal quarter ended April 30, 2023.

The following table sets forth the total unrecognized compensation cost related to unvested stock-based awards outstanding and expected to vest as of April 30, 2023. The remaining weighted-average service period was 3.8 years.

During the first quarter of fiscal year ended November 3, 2019 (“fiscal year 2019”), our Compensation Committee approved a broad-based program of multi-year equity grants of time- and market-based RSUs (the “Multi-Year Equity Awards”) in lieu of our annual employee equity awards historically granted on March 15 of each year. Each Multi-Year Equity Award vests on the same basis as four annual grants made on March 15 of each year, beginning in fiscal year 2019, with successive four-year vesting periods. We recognize stock-based compensation expense related to the Multi-Year Equity Awards from the grant date through their respective vesting date, ranging from 4 years to 7 years.

Segment Operating Results

Operating income from our semiconductor solutions segment increased in the fiscal quarter and two fiscal quarters ended April 30, 2023 compared to the prior year fiscal periods primarily due to higher net revenue from networking, server storage, and broadband products, partially offset by lower net revenue from wireless products. Operating income from our infrastructure software segment increased in the fiscal quarter and two fiscal quarters ended April 30, 2023 compared to the prior year fiscal periods primarily due to higher net revenue from our mainframe solutions products, partially offset by lower net revenue from our FC SAN products.

Unallocated expenses include amortization of acquisition-related intangible assets; stock-based compensation expense; restructuring, impairment and disposal charges; acquisition-related costs; and other costs that are not used in evaluating the results of, or in allocating resources to, our segments. Unallocated expenses decreased 9% and 12% for the fiscal quarter and two fiscal quarters ended April 30, 2023, respectively, compared to the prior year fiscal periods, primarily due to lower amortization of acquisition-related intangible assets, partially offset by higher stock-based compensation expense.

Non-Operating Income and Expenses

Interest expense. Interest expense was $405 million and $811 million for the fiscal quarter and two fiscal quarters ended April 30, 2023, respectively, compared to $518 million and $925 million for the fiscal quarter and two fiscal quarters ended May 1, 2022, respectively. The decreases were primarily due to losses on extinguishment of debt related to debt transactions incurred in the fiscal quarter ended May 1, 2022. We expect to incur additional interest expense in future periods as a result of indebtedness associated with the pending VMware Merger.

Other income (expense), net. Other income (expense), net, includes interest income, gains or losses on investments, foreign currency remeasurement and other miscellaneous items. Other income, net, was $113 million and $256 million for the fiscal quarter and two fiscal quarters ended April 30, 2023, respectively, compared to other expense, net, of $86 million and $100 million for the fiscal quarter and two fiscal quarters ended May 1, 2022, respectively. The changes were primarily due to higher interest income as a result of higher interest rates and changes in investment gains or losses.

Provision for income taxes. The provision for income taxes was $235 million and $301 million for the fiscal quarter and two fiscal quarters ended April 30, 2023, respectively, compared to $200 million and $415 million for the fiscal quarter and two fiscal quarters ended May 1, 2022, respectively. The increase for the fiscal quarter ended April 30, 2023 compared to the prior year fiscal period was primarily due to higher income before income taxes, partially offset by the recognition of uncertain tax benefits as a result of lapses of statutes of limitations. The decrease for the two fiscal quarters ended April 30, 2023 compared to the prior year fiscal period was primarily due to the recognition of uncertain tax benefits as a result of lapses of statutes of limitations, partially offset by higher income before income taxes.

Liquidity and Capital Resources

The following section discusses our principal liquidity and capital resources as well as our principal liquidity requirements and uses of cash. Our cash and cash equivalents are maintained in highly liquid investments with remaining maturities of 90 days or less at the time of purchase. We believe our cash equivalents are liquid and accessible.

Our primary sources of liquidity as of April 30, 2023 consisted of: (i) $11,553 million in cash and cash equivalents, (ii) cash we expect to generate from operations and (iii) available capacity under our $7.5 billion unsecured revolving credit facility. In addition, we may also generate cash from the sale of assets and debt or equity financing from time to time.

Our short-term and long-term liquidity requirements primarily arise from: (i) business acquisitions and investments we may make from time to time, including the pending VMware Merger, (ii) working capital requirements, (iii) research and development and capital expenditure needs, (iv) cash dividend payments (if and when declared by our Board of Directors), (v) interest and principal payments related to our $40,958 million of outstanding indebtedness, (vi) share repurchases, and (vii) payment of income taxes. Our ability to fund these requirements will depend, in part, on our future cash flows, which are determined by our future operating performance and, therefore, subject to prevailing global macroeconomic conditions and financial, business and other factors, some of which are beyond our control. We expect capital expenditures to be higher in fiscal year 2023 as compared to fiscal year 2022. Our debt and liquidity needs will increase as a result of the pending VMware Merger, and we intend to fund the cash portion of the consideration with $32 billion in new, fully committed debt financing.

We believe that our cash and cash equivalents on hand, cash flows from operations, our revolving credit facility, as well as the committed debt funding related to the pending VMware Merger, will provide sufficient liquidity to operate our business and fund our current and assumed obligations for at least the next 12 months. For additional information regarding our cash requirement from contractual obligations and indebtedness, see Note 11. “Commitments and Contingencies” and Note 7. “Borrowings” in Part I, Item 1 of this Form 10-Q.

From time to time, we engage in discussions with third parties regarding potential acquisitions of, or investments in, businesses, technologies and product lines. Any such transaction, or evaluation of potential transactions, could require significant use of our cash and cash equivalents, or require us to increase our borrowings to fund such transactions. If we do not have sufficient cash to fund our operations or finance growth opportunities, including acquisitions, or unanticipated capital expenditures, our business and financial condition could suffer. In such circumstances, we may seek to obtain new debt or equity financing. However, we cannot assure you that such additional financing will be available on terms acceptable to us or at all. Our ability to service our senior unsecured notes and any other indebtedness we may incur will depend on our ability to generate cash in the future. We may also elect to sell additional debt or equity securities for reasons other than those specified above.

In addition, we may, at any time and from time to time, seek to retire or purchase our outstanding debt through cash tenders and/or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or otherwise. Such tenders, exchanges or purchases, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

Working Capital

Working capital decreased to $10,360 million at April 30, 2023 from $11,452 million at October 30, 2022. The decrease was primarily attributable to the following:

• Cash and cash equivalents decreased to $11,553 million at April 30, 2023 from $12,416 million at October 30, 2022, primarily due to $3,994 million of common stock repurchases, $3,840 million of dividend payments, $947 million of employee withholding tax payments related to net settled equity awards, and $260 million of a debt payment, substantially offset by $8,538 million in net cash provided by operating activities.

• Current portion of long-term debt increased to $1,117 million at April 30, 2023 from $440 million at October 30, 2022 due to certain debt instruments becoming due within the next twelve months, partially offset by a repayment.

• Other current liabilities increased to $4,929 million at April 30, 2023 from $4,412 million at October 30, 2022, primarily due to increases in contract liabilities and derivative liabilities.

These decreases in working capital were offset in part by the following:

• Employee compensation and benefits decreased to $634 million at April 30, 2023 from $1,202 million at October 30, 2022, primarily due to the timing of employee bonus plan payments.

• Other current assets increased to $1,401 million at April 30, 2023 from $1,205 million at October 30, 2022, primarily due to purchases of short-term investments and an increase in contract assets, offset in part by a decrease in prepaid income taxes.

• Accounts payable decreased to $831 million at April 30, 2023 from $998 million at October 30, 2022, primarily due to the timing of vendor payments.

Capital Returns

On September 30, 2019, we issued approximately 4 million shares of 8.00% Mandatory Convertible Preferred Stock, Series A, $0.001 par value per share. These shares were converted into shares of our common stock during fiscal year 2022.

In December 2021, our Board of Directors authorized a stock repurchase program to repurchase up to $10 billion of our common stock from time to time through December 31, 2022, which was subsequently extended to December 31, 2023 (the “December 2021 Authorization”). In May 2022, our Board of Directors authorized another stock repurchase program to repurchase up to an additional $10 billion of our common stock from time to time through December 31, 2023 (the “May 2022 Authorization”). As of April 30, 2023, $9,006 million of the authorized amount remained available for repurchases.

During the two fiscal quarters ended April 30, 2023 and May 1, 2022, we repurchased and retired approximately 7 million and 9 million shares of our common stock for $3,994 million and $5,500 million, respectively, under these stock repurchase programs.

Repurchases under our stock repurchase programs may be effected through a variety of methods, including open market or privately negotiated purchases. The timing and amount of shares repurchased will depend on the stock price, business and market conditions, corporate and regulatory requirements, alternative investment opportunities, acquisition opportunities, and other factors. We are not obligated to repurchase any specific amount of shares of common stock, and the stock repurchase programs may be suspended or terminated at any time.

During the two fiscal quarters ended April 30, 2023 and May 1, 2022, we paid approximately $947 million and $889 million, respectively, in employee withholding taxes due upon the vesting of net settled equity awards. We withheld approximately 2 million shares of common stock from employees in connection with such net share settlements during each of the two fiscal quarters ended April 30, 2023 and May 1, 2022.

Cash Flows

Operating Activities

Cash provided by operating activities consisted of net income adjusted for certain non-cash and other items and changes in assets and liabilities. The $809 million increase in cash provided by operations during the two fiscal quarters ended April 30, 2023 compared to the prior year fiscal period was primarily due to $2,193 million higher net income and a $267 million increase resulting from changes in operating assets and liabilities, offset in part by $1,651 million lower non-cash adjustments including deferred taxes and other non-cash taxes, and amortization of intangible assets.

Investing Activities

Cash flows from investing activities primarily consisted of cash used for acquisitions, capital expenditures and purchases of investments. The $198 million decrease in cash used in investing activities during the two fiscal quarters ended April 30, 2023 compared to the prior year fiscal period was primarily due to $234 million in cash paid for acquisitions in the prior year fiscal period.

Financing Activities

Cash flows from financing activities primarily consisted of our stock repurchases, dividend payments, proceeds and payments related to our long-term borrowings, and employee withholding tax payments related to net settled equity awards. The $1,288 million decrease in cash used in financing activities during the two fiscal quarters ended April 30, 2023 compared to the prior year fiscal period was primarily due to a $1,506 million decrease in stock repurchases and a $157 million change in net borrowing activities, offset in part by a $326 million increase in dividend payments.

Accounting Changes and Recent Accounting Standards

For a description of accounting changes and recent accounting standards, including the expected dates of adoption and estimated effects, if any, in our condensed consolidated financial statements, see Note 1. “Overview, Basis of Presentation and Significant Accounting Policies” in Part I, Item 1 of this Form 10-Q.

There have been no material changes in market risks from the information presented in Part II, Item 7A. “Quantitative and Qualitative Disclosures About Market Risk,” in the 2022 Annual Report on Form 10-K, except as disclosed below.

Interest Rate Risk

Changes in interest rates affect the fair value of our outstanding debt. As of April 30, 2023, we had $41.0 billion in principal amount of debt outstanding, and the estimated aggregate fair value of debt was $35.6 billion. As of April 30, 2023, a hypothetical 50 basis points increase or decrease in market interest rates would change the fair value of debt, by a decrease or increase of approximately $1.5 billion. However, this hypothetical change in interest rates would not impact the interest expense on our debt as we only had fixed rate senior notes outstanding. To hedge variability of cash flows due to changes in the benchmark interest rate of anticipated future debt issuances, we have entered, and in the future may enter, into treasury rate lock contracts.

(a) Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures as of April 30, 2023. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act filings is properly and timely recorded, processed, summarized and reported. These disclosure controls and procedures are also intended to ensure that information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures. Based on this evaluation, our CEO and CFO concluded that, as of April 30, 2023, our disclosure controls and procedures were effective at the reasonable assurance level.

In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

(b) Changes in Internal Control over Financial Reporting. There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

The information set forth under Note 11. “Commitments and Contingencies” included in Part I, Item 1 of this Form 10-Q, is incorporated herein by reference. For additional discussion of certain risks associated with legal proceedings, see “Risk Factors” immediately below.

Our business, operations and financial results are subject to various risks and uncertainties, including those described below, that could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock. The following material factors, among others, could cause our actual results to differ materially from historical results and those expressed in forward-looking statements made by us or on our behalf in filings with the SEC, press releases, communications with investors and oral statements.

Risk Factors Summary

The following is a summary of the principal risks that could adversely affect our business, operations and financial results.

Risks Related to Our Business

• Adverse global economic conditions could have a negative effect on us.

• We operate in the highly cyclical semiconductor industry.

• The majority of our sales come from a small number of customers and a reduction in demand or loss of one or more of our significant customers may adversely affect our business.

• Dependence on contract manufacturing and suppliers of critical components within our supply chain may adversely affect our ability to bring products to market.

• We purchase a significant amount of the materials used in our products from a limited number of suppliers.

• Our business is subject to various governmental regulations and trade restrictions. Compliance with these regulations may cause us to incur significant expense and, if we fail to maintain compliance, we may be forced to cease manufacture and distribution of certain products or subjected to administrative proceedings and civil or criminal penalties.

• Global political and economic conditions and other factors related to our international operations could adversely affect us.

• We are subject to risks associated with our distributors and other channel partners, including product inventory levels and product sell-through.

• We are dependent on senior management and if we are unable to attract and retain qualified personnel, we may not be able to execute our business strategy effectively.

• The failure to complete or realize the expected benefits of our acquisition of VMware may adversely affect our business and our stock price.

• We may pursue acquisitions, investments, joint ventures and dispositions, which could adversely affect our results of operations.

• We may be involved in legal proceedings, including IP, securities litigation, and employee-related claims that could adversely affect our business.

• Our operating results are subject to substantial quarterly and annual fluctuations.

• Failure to adjust our manufacturing and supply chain to accurately meet customer demand could adversely affect our results of operations.

• Winning business in the semiconductor solutions industry is subject to a lengthy process that often requires us to incur significant expense, from which we may ultimately generate no revenue.

• Competition in our industries could prevent us from growing our revenue.

• A prolonged disruption of our manufacturing facilities, research and development facilities, warehouses or other significant operations, or those of our suppliers, could have a material adverse effect on us.

• We may be unable to maintain appropriate manufacturing capacity or product yields at our own manufacturing facilities.

• An impairment of the confidentiality, integrity, or availability of our information technology (“IT”) systems, or those of one or more of our corporate infrastructure vendors, could have a material adverse effect on our business.

• Our ability to maintain or improve gross margin.

• Our ability to protect the significant amount of IP in our business.

• Incompatibility of our software products with operating environments, platforms, or third-party products, demand for our products and services could decrease.

• Failure to enter into software license agreements on a satisfactory basis could adversely affect us.

• Licensed third party software used in our products may not be available to us in the future, which may delay product development and production or cause us to incur additional expense.

• Use of open source code sources, which, under certain circumstances could materially adversely affect us.

• Failure of our software products to manage and secure IT infrastructures and environments could have a material adverse effect on our business.

• We are subject to warranty claims, product recalls and product liability.

• The complexity of our products could result in unforeseen delays or expense or undetected defects or bugs.

• We make substantial investments in research and development and unsuccessful investments could materially adversely affect our business, financial condition and results of operations.

• We collect, use, store, or otherwise process personal information, which subjects us to privacy and data security laws and contractual commitments, and our actual or perceived failure to comply with such laws and commitments could harm our business.

• The COVID-19 pandemic has disrupted normal business activity.

• We are subject to environmental, health and safety laws, which could increase our costs, restrict our operations and require expenditures.

• Environmental, social and governance matters may adversely affect our relationships with customers and investors.

• The average selling prices of semiconductor products in our markets have often decreased rapidly and may do so in the future.

• Fluctuations in foreign exchange rates could result in losses.

Risks Relating to Taxes

• Changes in tax legislation or policies could materially impact our financial position and results of operations.

• Our corporate income taxes could significantly increase if we are unable to maintain our tax concessions or if our assumptions and interpretations regarding tax laws and concessions prove to be incorrect.

• Our income taxes and overall cash tax costs are affected by a number of factors that could materially adversely affect financial results.

Risks Relating to Our Indebtedness

• Our substantial indebtedness could adversely affect our financial health and our ability to execute our business strategy.

• The instruments governing our indebtedness impose certain restrictions on our business.

• Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flows from our business to pay our substantial debt.

Risks Relating to Owning Our Common Stock

• Volatility of our stock price could result in substantial losses for our investors as well as class action litigation against us and our management.

• The amount and frequency of our stock repurchases may fluctuate.

• A substantial amount of our stock is held by a small number of large investors.

• There can be no assurance that we will continue to declare cash dividends.

For a more complete discussion of the material risks facing our business, see below.

Risks Related to Our Business

Adverse global economic conditions could have a negative effect on our business, results of operations and financial condition and liquidity.

A general slowdown in the global economy, including a recession, or in a particular region or industry, an increase in trade tensions with U.S. trading partners, inflation or a tightening of the credit markets could negatively impact our business, financial condition and liquidity. Adverse global economic conditions have from time to time caused or exacerbated significant slowdowns in the industries and markets in which we operate, which have adversely affected our business and results of operations. Macroeconomic weakness and uncertainty also make it more difficult for us to accurately forecast revenue, gross margin and expenses, and may make it more difficult to raise or refinance debt. An escalation of trade tensions between the U.S. and China has resulted in trade restriction

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None.

EXHIBIT INDEX

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: June 7, 2023