Monolithic Power Systems (MPWR) 10-K risk factor changes: FY2020 vs FY2019

For the [removed: fiscal year] [added: fiscal year] ended December 31, [removed: 2019][added: 2020]

[removed: 5808 Lake] [added: 5808 Lake] Washington Blvd.

[removed: NE,] [added: NE,] Kirkland, Washington 98033

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based upon the closing price of the common stock on the Nasdaq Global Select Market on June [removed: 28, 2019,] [added: 30, 2020,] was [removed: $4.3] [added: $8.1] billion.*

There were [removed: 44,602,000] [added: 45,621,000] shares of the registrant’s common stock issued and outstanding as of February [removed: 19, 2020.][added: 22, 2021.]

Portions of the registrant’s Proxy Statement for the [removed: registrant’s 2020] [added: 2021] Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated.

The Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended December 31, [removed: 2019.][added: 2020.]

| * | Excludes [removed: 11,709,000] [added: 10,601,000] shares of the registrant’s common stock held by executive officers, directors and stockholders whose ownership exceeds 5% (“affiliates”) of the common stock outstanding at June [removed: 28, 2019.] [added: 30, 2020.] Exclusion of such shares should not be construed to indicate that any such person possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the registrant or that such person is controlled by or under common control with the registrant. |

[removed: [](#)MONOLITHIC] [added: [](# "toc")MONOLITHIC] POWER SYSTEMS, INC.

| [PART [removed: I](#part1)] [added: I](#p1)] | | |

| Item 1. | [Business](#business) | [removed: 5] [added: [5](#business)] |

| | [Information about Executive [removed: Officers](#infoeo)] [added: Officers](#infoexec)] | [removed: 9] [added: [10](#infoexec)] |

| Item 1A. | [Risk Factors](#riskfactors) | [removed: 9] [added: [11](#riskfactors)] |

| Item 1B. | [Unresolved Staff [removed: Comments](#unresolved)] [added: Comments](#unresolvedstaff)] | [removed: 26] [added: [28](#unresolvedstaff)] |

| Item 2. | [Properties](#properties) | [removed: 27] [added: [28](#properties)] |

| Item 3. | [Legal [removed: Proceedings](#legal)] [added: Proceedings](#legalproc)] | [removed: 27] [added: [28](#legalproc)] |

| Item 4. | [Mine Safety [removed: Disclosures](#minesafety)] [added: Disclosures](#minesafe)] | [removed: 27] [added: [28](#minesafe)] |

| [PART [removed: II](#partii)] [added: II](#p2)] | | |

| Item 5. | [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#marketfor)] [added: Securities](#market)] | [removed: 28] [added: [29](#market)] |

| Item 6. | [Selected Financial [removed: Data](#selectedfin)] [added: Data](#ITEM_6._SELECTED_FINANCIAL_DATA)] | [removed: 29] [added: [30](#ITEM_6._SELECTED_FINANCIAL_DATA)] |

| Item 7. | [Management's Discussion and Analysis of Financial Condition and Results of Operations](#mda) | [removed: 30] [added: [30](#mda)] |

| Item 7A. | [Quantitative and Qualitative Disclosures About Market [removed: Risk](#quanandqual)] [added: Risk](#qandq)] | [removed: 39] [added: [40](#qandq)] |

| Item 8. | [Financial Statements and Supplementary [removed: Data](#finstatements)] [added: Data](#finstate)] | [removed: 41] [added: [41](#finstate)] |

| Item 9. | [Changes in and Disagreements with Accountants on Accounting and Financial [removed: Disclosure](#changesindis)] [added: Disclosure](#changes)] | [removed: 78] [added: [76](#changes)] |

| Item 9A. | [Controls and [removed: Procedures](#controlsandproc)] [added: Procedures](#controls)] | [removed: 78] [added: [76](#controls)] |

| Item 9B. | [Other Information](#otherinfo) | [removed: 78] [added: [76](#otherinfo)] |

| [PART [removed: III](#partiii)] [added: III](#p3)] | | |

| Item 10. | [Directors, Executive Officers and Corporate [removed: Governance](#directorsexec)] [added: Governance](#directors)] | [removed: 79] [added: [77](#directors)] |

| Item 11. | [Executive Compensation](#execcomp) | [removed: 79] [added: [77](#execcomp)] |

| Item 12. | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#secown)] [added: Matters](#secowner)] | [removed: 79] [added: [77](#secowner)] |

| Item 13. | [Certain Relationships and Related Transactions, and Director [removed: Independence](#certainrelat)] [added: Independence](#certainrelations)] | [removed: 79] [added: [77](#certainrelations)] |

| Item 14. | [Principal [removed: Accounting] [added: Accountant] Fees and Services](#principal) | [removed: 79] [added: [77](#principal)] |

| [PART [removed: IV](#partiv)] [added: IV](#p4)] | | |

| Item 15. | [removed: [Exhibits,] [added: [Exhibits and] Financial Statement Schedules](#exhibits) | [removed: 80] [added: [78](#exhibits)] |

| Item 16. | [Form 10-K [removed: Summary](#summary)] [added: Summary](#a10ksummary)] | [removed: 82] [added: [80](#a10ksummary)] |

| | [removed: [Signatures](#signatures)] [added: [Signatures](#sig)] | [removed: 83] [added: [81](#sig)] |

| | • | business outlook for [removed: 2020] [added: 2021] and beyond, |

| | • | our ability to identify, acquire and integrate [removed: the] companies, businesses and [removed: products that we acquire] [added: products,] and achieve the anticipated benefits from such [removed: acquisitions,] [added: acquisitions and integrations,] |

| | • | the impact of [removed: the U.S. Tax Cuts and Jobs Act enacted in December 2017 (the “2017 Tax Act”) and other] [added: various] tax laws [added: and regulations] on our income tax provision, financial position and cash flows, |

All forward-looking statements are based on our current outlook, expectations, estimates, projections, beliefs and plans or objectives about our business and our [removed: industry.][added: industry, including our expectations regarding the potential impacts of the COVID-19 pandemic on our business.]

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

| | • | the effects of the COVID-19 pandemic on the global economy, the semiconductor industry and our business; |

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Seasonality

Our revenue and operating results tend to vary seasonally.

Historically, our revenue has generally been higher in the second half of the year than in the first half, although various factors, such as market conditions and the timing of key product introductions, could impact this trend.

Government Regulations

We are subject to international, federal and local legislation, regulations, and other requirements relating to the discharge of substances into the environment; the treatment, transport, and disposal of hazardous wastes; recycling and product packaging; worker health and safety; and other activities affecting the environment, our workforce, and the management of our manufacturing operations.

We believe that our operations and facilities comply in all material respects with applicable environmental laws and worker health and safety laws.

We are also subject to import/export controls, tariffs, and other trade-related regulations and restrictions in the countries in which we have operations or otherwise do business.

In recent years, these controls, tariffs, regulations, and restrictions have had, and we believe may continue to have, a material impact on our business, including our ability to sell products and to manufacture or source components.

Government regulations can be complex and are subject to change in the future, and accordingly, we are unable to assess the possible effect of compliance with future requirements.

Our efforts to comply with these government regulations could have material impacts on our capital expenditures and operating expenses, resource allocation, competitive position, or financial condition, though the magnitude and duration of such impacts are uncertain and difficult to quantify.

Risk Factors” for further discussion of material risks related to government policies and regulations on environmental laws, international trade policies and restrictions, including tariffs on imports of foreign goods and regulations restricting the export of goods and services between the U.S. and China.

Human Capital

Competition for talent in the semiconductor industry is strong, and compensation is critical to our recruiting and retention philosophy, especially given our rapid growth and our need to attract talented employees with a broad range of skills.

Our total compensation packages are competitive, fair, and structured to encourage employees to invest in our future.

Our employee benefits programs include a combination of supplemental benefits including paid time off for holidays and vacations, health insurance and other plan benefits.

We are an equal-opportunity employer, and we make employment decisions based on merit and business needs.

We are committed to providing a healthy and safe environment for all our workers.

Our Worker Health and Safety Plan is certified to ISO45001 standards, the world’s voluntary, international standard for occupational health and safety.

We believe that certifying to these standards enables our company to provide safe and healthy workplaces by preventing work-related injury and health issues.

We also make available on our website the charters for our audit committee, compensation committee, and nominating and corporate governance committee, our code of ethics, our director voting policy and our code of social responsibility.

In addition, we intend to disclose on our website any amendments to, or waivers from, our codes of business conduct, our code of social responsibility and our report on environment, social responsibility and governance.

[](# "riskfactors")ITEM 1A.

Risk Factors Summary

The following summary description sets forth an overview of the material risks we are exposed to in the normal course of our business activities.

The summary does not purport to be complete and is qualified in its entirety by reference to the full risk factor discussion immediately following this summary description.

We encourage you to read the full risk factor discussion carefully.

Our business, results of operations and financial condition, as well as your investment in our common stock, could be materially and adversely affected by any of the following material risks:

| • | the effect of epidemics and pandemics, such as the COVID-19 pandemic, on our business; |

| • | our dependence on the Asian markets for our customer base and our significant manufacturing operations in China, which may expose us to political, cultural, regulatory, economic, foreign currency and operational risks; |

| • | the impact of extensive Chinese government regulation on us and our manufacturing partners; |

| • | our ability to experience grow rates comparable to past years; |

| • | our ability to accurately forecast sales and expenses due to the nature of our business as a component supplier; |

| • | our dependency on a limited number of customers, including distributors, for a significant portion of our revenue; |

| • | potential product liability risks due to defects or failures to meet specifications; |

| • | lengthy sales cycles for our products balanced against the fixed nature of a substantial portion of our expenses; |

| • | increases in unanticipated costs as a result of increasing manufacturing capacity; |

| • | our ability to deliver products on a timely basis due to disruptions in our relationships with assembly and test subcontractors; |

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Our management considers employee relations to be good.

| | |

We expect our operating results to fluctuate from quarter to quarter and year over year, which may make it difficult to predict our future performance and could cause our stock price to decline and be volatile.

We expect fluctuations to continue for a number of reasons, including:

| • | changes in business conditions at our distributors, value-added resellers and/or end-customers; |

| • | adverse changes in laws and government regulations, such as tariffs on imports of foreign goods, export regulations and export classifications, including in foreign countries where we have offices or operations; |

| • | the timing of developments and related expenses in our litigation matters; |

| • | the loss of key customers or our inability to attract new customers due to customer and prospective customer concerns about being litigation targets; |

| • | continued dependence on turns business (orders received and shipped within the same fiscal quarter); |

| • | continued dependence on the Asian markets for our customer base; |

| • | the timing of new product introductions by us and our competitors; |

| • | changes in our revenue mix between OEMs, ODMs, distributors and value-added resellers; |

| • | changes in product mix, product returns, and actual and potential product liability; |

| • | our ability to develop new process technologies and achieve volume production; |

| • | our ability to meet customer product demand in a timely manner; |

| • | the scheduling, rescheduling, or cancellation of orders by our customers; |

| • | the cyclical nature of demand for our customers’ products; |

| • | fluctuations in our estimate for stock rotation reserves; |

| • | product obsolescence; |

| • | seasonality and variability in the computing and storage, automotive, industrial, communications and consumer markets; |

| • | the potential loss of future business resulting from capacity issues; |

| • | changes in manufacturing yields; |

| • | the impact of tariffs on imports of foreign goods; |

| • | stock-based compensation charges primarily resulting from performance and market-based equity awards granted to our employees. |

Due to the factors noted above and other risks described in this section, many of which are beyond our control, you should not rely on quarter-to-quarter or year-over-year comparisons to predict our future financial performance.

Unfavorable changes in any of the above factors may seriously harm our business, financial condition and results of operations, and may cause our stock price to decline and be volatile.

Recent changes in international trade policy and rising concern of international tariffs, including tariffs applied to goods traded between the United States and China, could materially and adversely affect our business and results of operations.

Furthermore, imposition of tariffs could cause a decrease in the sales of our products to customers located in China or other customers selling to Chinese end users, which would directly impact our business, financial condition and results of operations.

Moreover, U.S. government’s actions targeting exports of certain technologies to China are becoming more pervasive.

For example, in May 2019, President Trump issued an executive order that invoked national emergency economic powers to implement a framework to regulate the acquisition or transfer of information communications technology in transactions that imposed undue national security risks.

These actions could lead to additional restrictions on the export of products that include or enable certain technologies, including products we provide to China-based customers.

The semiconductor industry is currently experiencing such a downturn.

Our profitability is dependent on many factors, including:

| • | our sales, which because of our turns business, are difficult to accurately forecast; |

| • | the cancellation or rescheduling of our customers’ orders, which may occur without significant penalty to our customers; |

| • | changes in revenue mix between OEMs, ODMs, distributors and value-added resellers; |

| • | changes in product mix, and actual and potential product liability; |

| • | changes in revenue mix between end market segments (i.e. computing and storage, automotive, industrial, communications and consumer); |