Monolithic Power Systems (MPWR) 10-K risk factor changes: FY2022 vs FY2021

For the fiscal year ended December 31, [removed: 2021][added: 2022]

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

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: 2021,] [added: 2022,] was [removed: $12.7] [added: $13.3] billion.*

There were [removed: 46,509,000] [added: 47,305,000] shares of the registrant’s common stock issued and outstanding as of February [removed: 18, 2022.][added: 17, 2023.]

Portions of the registrant’s Proxy Statement for the [removed: 2022] [added: 2023] 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: 2021.][added: 2022.]

| * | Excludes [removed: 11,808,000] [added: 12,110,000] 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: 2021.] [added: 2022.] 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")TABLE] [added: TABLE] OF CONTENTS

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

| Item 1. | [removed: [Business](#a1)] [added: [Business](#item1)] | [removed: 5] [added: [5](#item1)] |

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

| Item 1A. | [Risk [removed: Factors](#a1a)] [added: Factors](#item1a)] | [removed: 11] [added: [10](#item1a)] |

| Item 1B. | [Unresolved Staff [removed: Comments](#a1b)] [added: Comments](#item1b)] | [removed: 29] [added: [29](#item1b)] |

| Item 2. | [removed: [Properties](#a2)] [added: [Properties](#item2)] | [removed: 29] [added: [29](#item2)] |

| Item 3. | [Legal [removed: Proceedings](#a3)] [added: Proceedings](#item3)] | [removed: 29] [added: [29](#item3)] |

| Item 4. | [Mine Safety [removed: Disclosures](#a4)] [added: Disclosures](#item4)] | [removed: 29] [added: [29](#item4)] |

| Item 5. | [Market for [removed: Registrant's] [added: Registrant’s] Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#a5)] [added: Securities](#item5)] | [removed: 30] [added: [30](#item5)] |

| Item 6. | [removed: [Reserved](#a6)] [added: [\[Reserved\]](#item6)] | [removed: 31] [added: [31](#item6)] |

| Item 7. | [removed: [Management's] [added: [Management’s] Discussion and Analysis of Financial Condition and Results of [removed: Operations](#a7)] [added: Operations](#item7)] | [removed: 31] [added: [31](#item7)] |

| Item 7A. | [Quantitative and Qualitative Disclosures About Market [removed: Risk](#a7a)] [added: Risk](#item7a)] | [removed: 39] [added: [39](#item7a)] |

| Item 8. | [Financial Statements and Supplementary [removed: Data](#a8)] [added: Data](#item8)] | [removed: 40] [added: [40](#item8)] |

| Item 9. | [Changes in and Disagreements with Accountants on Accounting and Financial [removed: Disclosure](#a9)] [added: Disclosure](#item9)] | [removed: 73] [added: [75](#item9)] |

| Item 9A. | [Controls and [removed: Procedures](#a9a)] [added: Procedures](#item9a)] | [removed: 74] [added: [75](#item9a)] |

| Item 9B. | [Other [removed: Information](#a9b)] [added: Information](#item9b)] | [removed: 74] [added: [75](#item9b)] |

| Item 9C | [Disclosure Regarding Foreign Jurisdictions that Prevent [removed: Inspections](#a9c)] [added: Inspections](#item9c)] | [removed: 74] [added: [75](#item9c)] |

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

| Item 10. | [Directors, Executive Officers and Corporate [removed: Governance](#a10)] [added: Governance](#item10)] | [removed: 75] [added: [76](#item10)] |

| Item 11. | [Executive [removed: Compensation](#a11)] [added: Compensation](#item11)] | [removed: 75] [added: [76](#item11)] |

| Item 12. | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#a12)] [added: Matters](#item12)] | [removed: 75] [added: [76](#item12)] |

| Item 13. | [Certain Relationships and Related Transactions, and Director [removed: Independence](#a13)] [added: Independence](#item13)] | [removed: 75] [added: [76](#item13)] |

| Item 14. | [Principal Accountant Fees and [removed: Services](#a14)] [added: Services](#item14)] | [removed: 75] [added: [76](#item14)] |

| Item 15. | [Exhibits and Financial Statement [removed: Schedules](#a15)] [added: Schedules](#item15)] | [removed: 76] [added: [77](#item15)] |

| Item 16. | [Form 10-K [removed: Summary](#a16)] [added: Summary](#summary)] | [removed: 78] [added: [79](#summary)] |

| | [Signatures](#signatures) | [removed: 79] [added: [80](#signatures)] |

| | • | the above-average industry growth of product and market areas that we have [removed: targeted,] [added: targeted;] |

| | • | our plan to increase our revenue through the introduction of new products within our existing product families as well as in new product categories and [removed: families,] [added: families;] |

| | • | our belief that we may incur significant legal expenses that vary with the level of activity in each of our current or future legal [removed: proceedings,] [added: proceedings;] |

| | • | the effect that liquidity of our investments has on our capital [removed: resources,] [added: resources;] |

| | • | the continuing application of our products in the [removed: computing] [added: storage] and [removed: storage,] [added: computing, enterprise data,] automotive, industrial, communications and consumer [removed: markets,] [added: markets;] |

| | • | estimates of our future liquidity [removed: requirements,] [added: requirements;] |

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to § 240.10D-1(b).

FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2022

| [PART IV](#partiv) | | |

[](# "parti")PART I

Our mission is to reduce energy and material consumption to improve all aspects of quality of life.

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Storage and computing | | Storage applications, enterprise notebooks, computers and printers | | | 25.3 | % | | | 21.2 | % | | | 21.4 | % |

| Enterprise Data | | Data center and workstation computing | | | 14.0 | % | | | 9.6 | % | | | 8.6 | % |

Our growth is fueled by our customers’ need for our power efficient solutions.

Consequently, we focus on continually improving the energy efficiency of our products in our research and development efforts in all three targeted areas.

Our products are principally positioned as achieving lower power loss and enabling significant reductions in circuit board space and shrinking or eliminating many passive components that are otherwise needed by competitors’ offerings.

In addition, the life cycles of our products are typically over 10 years, reducing the manufacturing needs and associated carbon emissions associated with production of replacement products.

We operate in the cyclical semiconductor industry.

| • | climate crises and other natural disasters, health risks, and economic and geopolitical uncertainties, including the Russia-Ukraine conflict. |

| • | adverse weather conditions or other natural disasters such as extreme heatwaves, affecting energy supply in our facilities in China and causing work stoppages; |

Our operations and performance depend significantly on global economic conditions.

Adverse macroeconomic conditions, including inflation, slower growth, recession, stagflation, new or increased tariffs and other barriers to trade, tighter credit, higher interest rates, higher unemployment and currency fluctuations can materially adversely affect logistics or demand for our products.

For example, in recent months, some of our customers have cancelled, decreased or delayed their existing and future orders with us.

China has continued to experience COVID-19 outbreaks, specifically in Shanghai and Chengdu where we have business operations and where many of our customers and suppliers are located.

In response to the outbreaks, local governments have implemented, and may continue to implement, strict measures including quarantines, shutdowns and other business restrictions, which have resulted in logistics challenges throughout China.

These strict measures, and the disruptions as a result thereof, did not have a material adverse impact on our operations for the year ended December 31, 2022.

However, the impact of any new outbreaks on our business and financial results for 2023 will depend on future developments, which are highly uncertain and cannot be predicted.

If governmental restrictions are re-imposed or additional measures are imposed to contain the spread of the virus, we could experience significant disruptions in our operations and reduced capacity available to us at some of our suppliers, all of which could limit our ability to meet customer demand and could have a material adverse effect on our financial condition and results of operations.

We will continue to monitor the situation, assess further possible implications to our business, supply chain and customers, and take actions to mitigate adverse consequences to the extent feasible.

| • | natural disasters such as severe heatwaves or droughts, which could result in prolonged power shortages or water restrictions in our facilities; |

| • | Shutdowns or reduced operations due to COVID-19 outbreaks or government restrictions; |

Additionally, the imposition of tariffs is dependent upon the classification of goods under the U.S. Harmonized Tariff System (“HTS”) and the country of origin of the goods.

Determination of the HTS and the origin of the goods is a technical matter that can be subjective in nature.

Accordingly, although we believe our classifications of both HTS and origin are appropriate, there is no certainty that our assessment will be consistent with that of the U.S. government.

If the U.S. government does not agree with our determinations, we could be required to pay additional amounts, including potential penalties.

In connection with the global economic downturn, there has been an increased level of global currency fluctuation and volatility.

While we could partner with other distributors or value-added resellers to replace any of our customers, the change in business partners could interrupt our operations and have a materially adverse impact on our business, financial condition and result of operations.

Some of our customers and distributors may nevertheless cancel orders as a result of the impacts of the global economic downturn, their own specific business challenges or for other reasons.

In addition, from time to time, governments may provide subsidies or make other investments that could give competitive advantages to many semiconductor companies.

For example, in August 2022, the U.S. enacted the U.S. CHIPS and Science Act of 2022 (the “CHIPS Act”), which, among other things, provides funding to increase domestic production and research and development in the semiconductor industry.

Because we operate a fabless business model, we do not believe we will be eligible for such investments from the U.S. government.

Many of our competitors will benefit from the investments, which will help increase their production capacity, shorten their lead time and gain market share.

These competitive pressures could materially and adversely affect our business, financial condition and results of operations.

| --- | --- | --- | --- | --- |

| --- | --- | --- |

| [PART II](#part2) | | |

| [PART IV](#part4) | | |

Our mission is to reduce total energy and material consumption in our customers’ systems with green, practical and compact solutions.

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Computing and storage | Storage networks, computers and notebooks, printers, servers and workstations | | | 30.8 | % | | | 30.0 | % | | | 30.1 | % |

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

We operate in the cyclical semiconductor industry where there is seasonal demand for certain of our products.

Seasonality

Our revenue and operating results tend to vary seasonally.

Ms. Tseng currently serves on the Board of Directors of Super Micro Computer, Inc., a global leader in high performance server technology.

RISK FACTORS

In recent years, global credit and financial markets experienced disruptions, and may experience disruptions in the future, including diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, and uncertainty about economic stability.

Economic uncertainty affects businesses such as ours in a number of ways, making it difficult to accurately forecast and plan our future business activities.

The tightening of credit in financial markets may lead consumers and businesses to postpone spending, which may cause our customers to cancel, decrease or delay their existing and future orders with us.

In addition, financial difficulties experienced by our suppliers or distributors could result in product delays, increased accounts receivable defaults and inventory challenges.

| • | export controls, trade and economic sanctions and regulations, and other regulatory or contractual limitations on our ability to sell or develop our products in China; |

| • | work stoppages and infrastructure problems due to adverse weather conditions or natural disasters; |

_We depend on a limited number of customers, including distributors, for a significant percentage of our revenue._

Historically, we have generated most of our revenue from a limited number of customers, including distributors.

For example, sales to our largest distributor accounted for 26% of our total revenue for the year ended December 31, 2021.

We continue to rely on a limited number of customers for a significant portion of our revenue.

Because we rely on a limited number of customers for significant percentages of our revenue, the loss of any of these customers, a decrease in demand or significant pricing pressure for our products from any of our major customers for any reason (including due to competition, market conditions, catastrophic events or otherwise) could have a materially adverse impact on our business, financial condition and results of operations.

Sales to our largest distributor accounted for 26% of our total revenue for the year ended December 31, 2021, and 26% of our total accounts receivable as of December 31, 2021.

For example, the State of California enacted the California Consumer Privacy Act of 2018 (“CCPA”), effective on January 1, 2020, and is expected to enact new or amend current laws in the future.

In the event any third party makes a new infringement claim against us or our customers, we could incur additional ongoing and significant legal expenses.

| • | terrorist acts or acts of war; |

For example, the COVID-19 pandemic has resulted in disruptions in our business operations and global economic activities.

Any of these events may cause disruptions and have a material adverse impact on our business and results of operations.

[](# "part2")PART II

We operate in the cyclical semiconductor industry where there is seasonal demand for certain products.

While governmental measures such as travel-related restrictions, quarantines, shelter-in-place orders and business restrictions and shutdowns have begun to lift in recent months, the impact of the pandemic on the global economy continues to remain uncertain.

Some of the key developments and initiatives we have implemented include, but are not limited to, the following:

| | ● | _Employees:_ |

| | | Our top priority during the pandemic is protecting the health and safety of our employees. As governments continue to institute new guidelines on commercial operations, we continue to monitor new developments and work to ensure our compliance while also maintaining business continuity for essential operations. In the U.S. and certain international locations, we continue to implement work-from-home arrangements in accordance with local regulations. To date, we believe these arrangements have contributed to the health and safety of our employees, while allowing us to successfully maintain business operations and customer relations. |

| | ● | _Facilities and Supply Chain:_ |

| | | Our manufacturing facilities in China, Taiwan and South Korea are fully operational and have experienced minimal disruptions, as we continue to follow the guidance and requirements issued by governmental authorities. In addition, we have not experienced any major supply chain disruptions as a result of the pandemic. |

| | ● | _Customers:_ |

| | | Overall, we did not experience an adverse impact on customer demand during 2021 as a result of the pandemic. Our revenue increased in all of our end markets compared to 2020. Furthermore, there were no significant delays in payments by our customers. However, we cannot provide assurance that we will not experience a material and adverse impact on customer demand or payments in 2022 as a result of the pandemic. |