Monolithic Power Systems (MPWR) 10-K risk factor changes: FY2021 vs FY2020

For the [removed: fiscal year] [added: fiscal year] ended December 31, [removed: 2020][added: 2021]

| [removed: ☐] [added: ☐] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |

5808 Lake Washington [removed: Blvd.][added: Blvd. NE, Kirkland, Washington 98033]

[removed: (425) 296-9956][added: (425) 296-9956]

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 30, [removed: 2020,] [added: 2021,] was [removed: $8.1] [added: $12.7] billion.*

There were [removed: 45,621,000] [added: 46,509,000] shares of the registrant’s common stock issued and outstanding as of February [removed: 22, 2021.][added: 18, 2022.]

Portions of the registrant’s Proxy Statement for the [removed: 2021] [added: 2022] 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: 2020.][added: 2021.]

| * | Excludes [removed: 10,601,000] [added: 11,808,000] 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 30, [removed: 2020.] [added: 2021.] 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: [](# "toc")MONOLITHIC] [added: MONOLITHIC] POWER SYSTEMS, INC.

[removed: TABLE] [added: [](# "toc")TABLE] OF CONTENTS

| | | [removed: Page] [added: Page] |

| [PART [removed: I](#p1)] [added: I](#a1)] | | |

| Item 1. | [removed: [Business](#business)] [added: [Business](#a1)] | [removed: [5](#business)] [added: 5] |

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

| Item 1A. | [Risk [removed: Factors](#riskfactors)] [added: Factors](#a1a)] | [removed: [11](#riskfactors)] [added: 11] |

| [removed: Item 1B. | [Unresolved Staff Comments](#unresolvedstaff)] [added: [](# "1b")ITEM 1B.] | [removed: [28](#unresolvedstaff)] [added: UNRESOLVED STAFF COMMENTS] |

| Item 2. | [removed: [Properties](#properties)] [added: [Properties](#a2)] | [removed: [28](#properties)] [added: 29] |

| Item 3. | [Legal [removed: Proceedings](#legalproc)] [added: Proceedings](#a3)] | [removed: [28](#legalproc)] [added: 29] |

| Item 4. | [Mine Safety [removed: Disclosures](#minesafe)] [added: Disclosures](#a4)] | [removed: [28](#minesafe)] [added: 29] |

[removed: | [PART II](#p2) | | |][added: [](# "1")PART I]

| Item 5. | [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#market)] [added: Securities](#a5)] | [removed: [29](#market)] [added: 30] |

| Item [removed: 6.] [added: 8.] | [removed: [Selected Financial Data](#ITEM_6._SELECTED_FINANCIAL_DATA)] [added: [Financial Statements and Supplementary Data](#a8)] | [removed: [30](#ITEM_6._SELECTED_FINANCIAL_DATA)] [added: 40] |

| Item 7. | [Management's Discussion and Analysis of Financial Condition and Results of [removed: Operations](#mda)] [added: Operations](#a7)] | [removed: [30](#mda)] [added: 31] |

| [removed: Item 7A. | [Quantitative and Qualitative Disclosures About Market Risk](#qandq)] [added: [](# "7a")ITEM 7A.] | [removed: [40](#qandq)] [added: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK] |

[removed: | Item 8. | [Financial Statements and Supplementary Data](#finstate) | [41](#finstate) |][added: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA]

| Item 9. | [Changes in and Disagreements with Accountants on Accounting and Financial [removed: Disclosure](#changes)] [added: Disclosure](#a9)] | [removed: [76](#changes)] [added: 73] |

[removed: | Item 9A. | [Controls and Procedures](#controls) | [76](#controls) |][added: [](# "9a")ITEM 9A. CONTROLS AND PROCEDURES]

[removed: | Item 9B. | [Other Information](#otherinfo) | [76](#otherinfo) |][added: [](# "9b")ITEM 9B.   OTHER INFORMATION]

| [PART [removed: III](#p3)] [added: III](#part3)] | | |

[removed: | Item 10. | [Directors, Executive Officers and Corporate Governance](#directors) | [77](#directors) |][added: [](# "10")ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE]

[removed: | Item 11. | [Executive Compensation](#execcomp) | [77](#execcomp) |][added: [](# "11")ITEM 11.    EXECUTIVE COMPENSATION]

[removed: | Item 12. | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](#secowner) | [77](#secowner) |][added: [](# "12")ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS]

[removed: | Item 13. | [Certain Relationships and Related Transactions, and Director Independence](#certainrelations) | [77](#certainrelations) |][added: [](# "13")ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE]

[removed: | Item 14. | [Principal Accountant Fees and Services](#principal) | [77](#principal) |][added: [](# "14")ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES]

| [PART [removed: IV](#p4)] [added: II](#part2)] | | |

| Item 15. | [Exhibits and Financial Statement [removed: Schedules](#exhibits)] [added: Schedules](#a15)] | [removed: [78](#exhibits)] [added: 76] |

| Item 16. | [Form 10-K [removed: Summary](#a10ksummary)] [added: Summary](#a16)] | [removed: [80](#a10ksummary)] [added: 78] |

| | [removed: [Signatures](#sig)] [added: [Signatures](#signatures)] | [removed: [81](#sig)] [added: 79] |

| | • | the effects of the COVID-19 pandemic on the global economy, the semiconductor industry and our [removed: business;] [added: business,] |

| Item 6. | [Reserved](#a6) | 31 |

| Item 9C | [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](#a9c) | 74 |

Monolithic Power Systems, Inc. (“MPS”) is a global company that provides high-performance, semiconductor-based power electronics solutions.

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Our manufacturing lead times are generally 16 to 26 weeks.

Recently, we have experienced high customer demand, which has resulted in longer than usual lead times.

| • | political and other risks in Taiwan and Hong Kong due to their tense relationships with China; |

| • | the impact of various U.S. and international laws and regulations regarding data protection on our business operations; |

| • | trade restrictions imposed by the U.S. related to goods imported from regions in China with records of forced labor and other human rights issues; |

| • | transportation delays and other supply chain issues; |

_Uncertainties with respect to China_’_s legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in policies, laws and regulations in China could adversely affect our operations._

China’s legal system is a civil law system based on written statutes.

Unlike the common law system, prior court decisions under the civil law system may be cited for reference but have limited precedential value.

Since China’s legal system continues to rapidly evolve, the interpretations and enforcement of these laws and regulations are not always uniform and involve uncertainties.

In addition, any new or amended laws and regulations related to, among other things, foreign investment and manufacturing could have a material adverse effect on our business and our ability to operate our business in China.

From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights.

Any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention.

Since China’s administrative and court authorities have significant discretion in interpreting and implementing statutory provisions and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection than those that may be provided in other jurisdictions.

These uncertainties may impede our ability to enforce contracts in China and could materially and adversely affect our business and results of operations.

Furthermore, China’s legal system is based in part on government policies and internal rules, some of which are not published on a timely basis, or at all, and may have retroactive effect.

As a result, we may not be aware of our violation of any of these policies and rules until sometime after the violation may have occurred.

Such unpredictability towards our contractual, property and procedural rights and any failure to quickly respond to changes in the regulatory environment in China could adversely affect our business and impede our ability to continue our operations and proceed with our future business plans in China.

_We face political and other risks conducting business in Taiwan and Hong Kong, particularly due to their tense relationships with China._

We have significant business operations in Taiwan, and many of our manufacturing partners and suppliers are located in Taiwan.

Accordingly, our business, financial condition and results of operations may be affected by changes in governmental and economic policies in Taiwan, social instability and diplomatic and social developments in or affecting Taiwan due to its unique international political status.

Although significant economic and cultural relations have been established between Taiwan and China, we cannot assure that relations between Taiwan and China will not face political or economic uncertainties in the future.

Any deterioration in the relations between Taiwan and China, and other factors affecting military, political or economic conditions in Taiwan, could disrupt our business operations and materially and adversely affect our results of operations.

Recently, the Chinese government has promulgated new regulations impacting economic and political stability within Hong Kong where many of our customers are located.

Due to the sensitive political climate these regulations created, there are increasing risks that the national security law may trigger sanctions or other forms of restrictions by foreign governments including the U.S., which could affect companies conducting business in Hong Kong.

It is difficult for us to predict the impact, if any, the implementation of the national security law will have on our business, as such impact will depend on future developments, which are highly uncertain and cannot be predicted.

| • | delays in identifying and negotiating agreements with new foundries and suppliers; and |

In addition, adverse macroeconomic conditions, such as inflationary pressures resulting from worldwide supply chain constraints and other factors, could increase the prices we pay to our suppliers.

_We are subject to various U.S. and international laws, policies and other regulations regarding data protection._

On June 10, 2021, the National People’s Congress passed the Data Security Law of the People’s Republic of China (the “Data Security Law”), which became effective on September 1, 2021.

The Data Security Law is the first comprehensive data security legislation in China, which becomes a key supplement to the Cyber Security Law and aims to regulate a wide range of issues in relation to the collection, storage, processing, use, provision, transaction and publication of any kind of data.

For example, the Personal Information Protection Law (“PIPL”), took effect on November 1, 2021.

PIPL is aimed at protecting and controlling the use and transfer of personal information in China.

Given its recent passage, there is significant uncertainty in how regulators will interpret and enforce the law, but it contains provisions that allow substantial government oversight and include fines for failure to obtain required approval from China’s cyber and data protection regulators for cross-border personal information-related data transfers.

In addition, an increasing number of states in the U.S. are enacting laws containing similar requirements to GDPR for businesses handling personal information of its customers.

Increased investments in research and development will increase our operating expenses, which may negatively impact our operating results, and we may not be able to reduce such expenses in a timely manner if we experience a downturn in sales.

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NE, Kirkland, Washington 98033

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Risks Associated with Global Pandemics on Our Business

In March 2020, the World Health Organization characterized the COVID-19 outbreak as a pandemic.

Since then, governments around the world have imposed various mandatory measures and the private sectors have taken actions in an effort to combat the spread of the disease, such as travel restrictions, quarantines and business shutdowns.

In addition, the U.S. government has declared a state of emergency or similar disaster declaration, and many states, including Washington and California where we have substantial operations, have enacted shelter-in-place or similar restrictive orders.

A sustained or prolonged outbreak could exacerbate the adverse impact on our business, which may include:

| • | trade restrictions, including restrictions imposed by the United States on trading with parties in foreign countries; |

| • | transportation delays; |

We cannot assure you that we will be able to comply with all of these regulatory requirements.

Additionally, increased costs to comply with, and other burdens imposed by, the Cyber Security Law and relevant regulations and policies that are applicable to the businesses of our suppliers, vendors and other service providers, as well as our customers, could adversely affect our business and results of operations.

Any such reduction or elimination of incentives currently provided to us and our manufacturing partners could adversely affect our business and operating results.

We primarily conduct our sales on a purchase order basis, and we do not have any long-term supply commitments.

| • | delays in bringing new foundry operations online to meet increased product demand; and |

_The highly cyclical nature of the semiconductor industry, which has produced significant and sometimes prolonged downturns, could materially and adversely affect our financial condition and results of operations._

Our failure to fully comply with GDPR, CCPA and other laws could lead to significant fines and require onerous corrective action.

If we have to invest more resources in research and development than we anticipate, we could see an increase in our operating expenses which may negatively impact our operating results.

Further, if we are not successful in any of our intellectual property defenses, our financial condition could be adversely affected and our business could be harmed.

| • | whether our guidance meets the expectations of our investors; |

| • | changes in securities analysts’ expectations or our failure to meet those expectations; |

| • | our ability to accurately forecast future demand for our products; |

SELECTED FINANCIAL DATA")ITEM 6.

SELECTED FINANCIAL DATA

[](# "mda")ITEM 7.

Governmental authorities have implemented numerous containment measures, including travel-related restrictions, quarantines, shelter-in-place orders, and business restrictions and shutdowns.

These measures have significantly affected the global economy and are disrupting business operations worldwide for an unknown period of time until the disease is contained.

Economic conditions remained uncertain as of the end of 2020.

| | Our automotive revenue was negatively affected by the pandemic in the second quarter of 2020 after a number of automotive OEMs temporarily shut down production. However, revenue has since returned to more normal ordering levels. We continue to receive significant interest from customers in our technology and design capabilities in applications including infotainment, smart lighting, advanced driver-assistance systems and autonomous driving. We believe we are well-positioned to accelerate growth as the automotive market conditions continue to improve. |

A prolonged economic slowdown as a result of the pandemic could materially and adversely impact our business, results of operations and financial condition for 2021 and beyond.

We generate revenue primarily from product sales, which include assembled and tested ICs, as well as dies in wafer form.

We recognize revenue when we satisfy a performance obligation by transferring control of the promised goods or services to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

Product sales consist of a single performance obligation that we satisfy at a point in time.

We recognize product revenue from distributors and direct end customers when the following events have occurred: (a) we have transferred physical possession of the products, (b) we have a present right to payment, (c) the customer has legal title to the products, and (d) the customer bears significant risks and rewards of ownership of the products.

In accordance with the shipping terms specified in the contracts, these criteria are generally met when the products are shipped from our facilities (such as the “Ex Works” shipping term) or delivered to the customers’ locations (such as the “Delivered Duty Paid” shipping term).

Under certain consignment agreements, revenue is not recognized when the products are shipped and delivered to be held at customers’ designated locations because we continue to control the products and retain ownership, and the customers do not have an unconditional obligation to pay.

We recognize revenue when the customers consume the products from the consigned inventory locations or, in some cases, after a 60-day period from the delivery date has passed, at which time control transfers to the customers and we invoice them for payment.

We record a credit against accounts receivable for the estimated price adjustments, with a corresponding reduction to revenue.