Monolithic Power Systems Annual Report 2020

Plain-text annual report

Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K (Mark One) ☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 or ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 000-51026 Monolithic Power Systems, Inc.(Exact name of registrant as specified in its charter) Delaware77-0466789(State or other jurisdiction ofincorporation or organization)(I.R.S. EmployerIdentification Number) 5808 Lake Washington Blvd. NE, Kirkland, Washington 98033(Address of principal executive offices)(Zip Code) (425) 296-9956(Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol Name of each exchange on which registeredCommon Stock, par value $0.001 per share MPWR The NASDAQ Global Select Market Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ 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 thepreceding 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 90days. Yes ☒ No ☐ 1Table of Contents 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 ☒ No ☐ 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 growthcompany. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the ExchangeAct. Large accelerated filer ☒Accelerated filer ☐Non-accelerated filer ☐Smaller reporting company ☐ Emerging growth company ☐ 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 revisedfinancial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ 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 overfinancial 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. ☒ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No 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 onthe Nasdaq Global Select Market on June 30, 2020, was $8.1 billion.* There were 45,621,000 shares of the registrant’s common stock issued and outstanding as of February 22, 2021. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant’s Proxy Statement for the 2021 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-Kwhere 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, 2020. *Excludes 10,601,000 shares of the registrant’s common stock held by executive officers, directors and stockholders whose ownership exceeds 5% (“affiliates”) of thecommon stock outstanding at June 30, 2020. Exclusion of such shares should not be construed to indicate that any such person possesses the power, direct orindirect, 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 theregistrant. 2Table of Contents MONOLITHIC POWER SYSTEMS, INC.TABLE OF CONTENTS Page PART I Item 1.Business5 Information about Executive Officers10Item 1A.Risk Factors11Item 1B.Unresolved Staff Comments28Item 2.Properties28Item 3.Legal Proceedings28Item 4.Mine Safety Disclosures28 PART II Item 5.Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities29Item 6.Selected Financial Data30Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations30Item 7A.Quantitative and Qualitative Disclosures About Market Risk40Item 8.Financial Statements and Supplementary Data41Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure76Item 9A.Controls and Procedures76Item 9B.Other Information76 PART III Item 10.Directors, Executive Officers and Corporate Governance77Item 11.Executive Compensation77Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters77Item 13.Certain Relationships and Related Transactions, and Director Independence77Item 14.Principal Accountant Fees and Services77 PART IV Item 15.Exhibits and Financial Statement Schedules78Item 16.Form 10-K Summary80 Signatures81 3Table of Contents FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E ofthe Securities Exchange Act of 1934, as amended, that have been made pursuant to and in reliance on the provisions of the Private Securities Litigation Reform Act of1995. These statements include, among others, statements concerning: •the above-average industry growth of product and market areas that we have 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 andfamilies, •our belief that we may incur significant legal expenses that vary with the level of activity in each of our current or future legal proceedings, •the effect that liquidity of our investments has on our capital resources, •the continuing application of our products in the computing and storage, automotive, industrial, communications and consumer markets, •estimates of our future liquidity requirements, •the cyclical nature of the semiconductor industry, •the effects of the COVID-19 pandemic on the global economy, the semiconductor industry and our business; •protection of our proprietary technology, •business outlook for 2021 and beyond, •the factors that we believe will impact our business, operations and financial condition, as well as our ability to achieve revenue growth, •the percentage of our total revenue from various end markets, •our ability to identify, acquire and integrate companies, businesses and products, and achieve the anticipated benefits from such acquisitions and integrations, •the impact of various tax laws and regulations on our income tax provision, financial position and cash flows, •our plan to repatriate cash from our subsidiary in Bermuda, •our intention and ability to pay future cash dividends and dividend equivalents, and •the factors that differentiate us from our competitors. In some cases, words such as “would,” “could,” “may,” “should,” “predict,” “potential,” “targets,” “continue,” “anticipate,” “expect,” “intend,” “plan,” “believe,”“seek,” “estimate,” “project,” “forecast,” “will,” the negative of these terms or other variations of such terms and similar expressions relating to the future identifyforward-looking statements. All forward-looking statements are based on our current outlook, expectations, estimates, projections, beliefs and plans or objectives aboutour business and our industry, including our expectations regarding the potential impacts of the COVID-19 pandemic on our business. These statements are notguarantees of future performance and are subject to risks and uncertainties. Actual events or results could differ materially and adversely from those expressed in anysuch forward-looking statements. Risks and uncertainties that could cause actual results to differ materially include those set forth throughout this Annual Report onForm 10-K and, in particular, in the section entitled “Item 1A. Risk Factors.” Except as required by law, we disclaim any duty to, and undertake no obligation to, updateany forward-looking statements, whether as a result of new information relating to existing conditions, future events or otherwise or to release publicly the results of anyfuture revisions we may make to forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.Readers are cautioned not to place undue reliance on such statements, which speak only as of the date of this Annual Report on Form 10-K. Readers should carefullyreview future reports and documents that we file from time to time with the Securities and Exchange Commission (“SEC”), such as our Annual Reports on Form 10-K,Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K. 4Table of Contents Except as the context otherwise requires, the terms “Monolithic Power Systems,” “MPS,” “Registrant,” “Company,” “we,” “us,” or “our” as used herein are referencesto Monolithic Power Systems, Inc. and its consolidated subsidiaries. PART I ITEM 1.BUSINESS General Monolithic Power Systems (“MPS”) is a leading semiconductor company that designs, develops and markets high-performance power solutions. Incorporated in 1997,our core strengths include deep system-level and applications knowledge, strong analog design expertise and innovative proprietary process technologies. Thesecombined strengths enable us to deliver highly integrated monolithic products that offer energy-efficient, cost-effective, easy-to-use solutions for systems foundin computing and storage, automotive, industrial, communications and consumer applications. Our mission is to reduce total energy consumption in our customers’systems with green, practical and compact solutions. We believe that we differentiate ourselves by offering solutions that are more highly integrated, smaller in size,more energy-efficient, more accurate with respect to performance specifications and, consequently, more cost-effective than many competing solutions. We plan tocontinue to introduce new products within our existing product families, as well as in new innovative product categories. Our principal executive office is located in Kirkland, Washington. We have over 2,200 employees worldwide, with locations in Asia (primarily in China, India, Japan,Korea, Singapore and Taiwan), Europe (primarily in France, Germany, Spain, Switzerland and the United Kingdom), and the United States. Industry Overview Semiconductors comprise the basic building blocks of electronic systems and equipment. Within the semiconductor industry, components can be classified either asdiscrete devices, such as individual transistors or integrated circuits (“ICs”), in which a number of transistors and other elements are combined to form a morecomplicated electronic circuit. ICs can be further divided into three primary categories: digital, analog, and mixed-signal. Digital ICs, such as memory devices andmicroprocessors, can store or perform arithmetic functions on data that is represented by a series of ones and zeroes. Analog ICs, in contrast, handle real world signalssuch as temperature, pressure, light, sound, or speed. In addition, analog ICs also perform power management functions, such as regulating or converting voltages, forelectronic devices. Mixed-signal ICs combine digital and analog functions onto a single chip and play an important role in bridging real world to digital systems. Analog and Mixed-Signal Markets. We focus on the market for high performance analog and mixed-signal ICs. High performance products generally are differentiatedby functionality and performance factors, which include integration of higher levels of functionality onto a single chip, greater precision, higher speed and lower heatand noise. There are several key factors that distinguish the analog and mixed-signal IC markets from digital IC markets. These factors include longer product lifecycles, numerous market segments, technology that is difficult to replicate, relative complexity of design and process technologies, importance of experienced designengineers, lower capital requirements and diversity of end markets. We have targeted product and market areas that we believe have the ability to offer above-averagegrowth over the long term compared to the semiconductor industry as a whole. End Markets and Applications We design and develop our products for the computing and storage, automotive, industrial, communications and consumer markets, with the computing and storagemarket representing the largest portion of our revenue in 2020. The following table is a summary of the various end market applications for our products, and thosemarkets’ contribution as a percentage of our total revenue: Percentage of Total Revenue End Markets Applications 2020 2019 2018 Computing andstorage Storage networks, computers and notebooks,printers, servers and workstations 30.0% 30.1% 27.3%Automotive Infotainment, safety and connectivityapplications 12.9% 14.4% 13.8%Industrial Power sources, security, point-of-sale systems,smart meters and other industrial equipment 14.2% 15.8% 15.2%Communications Networking and telecommunicationinfrastructure, routers and modems, wirelessaccess points and voice over IP 16.8% 13.5% 12.1%Consumer Set-top boxes, monitors, gaming, lighting,chargers, home appliances, cellular handsets,wearables, digital video players, GPS, televisions,stereos and cameras 26.1% 26.2% 31.6% 5Table of Contents Product Families Our proprietary process technologies enable us to design and deliver smaller, single-chip power management ICs. These technologies simplify the design process, andare applicable across a wide range of analog applications within the computing and storage, automotive, industrial, communications and consumer markets. Our productfamilies are differentiated with respect to their high degree of integration and strong levels of accuracy and efficiency, making them cost-effective relative to manycompeting solutions. Our key product families include the following: Direct Current (“DC”) to DC Products. DC to DC ICs are used to convert and control voltages within a broad range of electronic systems, such as portable electronicdevices, wireless LAN access points, computers and notebooks, monitors, infotainment applications and medical equipment. We believe that our DC to DC products aredifferentiated in the market, particularly with respect to their high degree of integration, high voltage operation, high load current, high switching speed and smallfootprint. These features are important to our customers as they result in fewer components, a smaller form factor, more accurate regulation of voltages, and, ultimately,lower system cost and increased reliability through the elimination of many discrete components and power devices. The DC to DC product family accounted for 95%,94% and 92% of our total revenue in 2020, 2019 and 2018, respectively. Lighting Control Products. Lighting control ICs are used in backlighting and general illumination products. Lighting control ICs for backlighting are used in systemsthat provide the light source for LCD panels typically found in computers and notebooks, monitors, car navigation systems and televisions. Backlighting solutions aretypically either white light emitting diode lighting sources or cold cathode fluorescent lamps. The Lighting Control product family accounted for 5%, 6% and 8% of ourtotal revenue in 2020, 2019 and 2018, respectively. In the future, we plan to continue to introduce additional new products within our existing product families, as well as expand our newer product families. Our ability toachieve revenue growth will depend in part upon our ability to enter new market segments, gain market share, grow in regions outside of China, Taiwan and other Asianmarkets, expand our customer base and continue to secure manufacturing capacity. Customers, Sales and Marketing We sell our products through third-party distributors, value-added resellers and directly to original equipment manufacturers (“OEMs”), original designmanufacturers (“ODMs”), electronic manufacturing service (“EMS”) providers and other end customers. Our third-party distributors are subject to distributionagreements with us, which allow the distributors to sell our products to end customers and other resellers, including OEMs, ODMs or EMS providers. Our value-addedresellers may second source our products and provide other services to customers. ODMs typically design and manufacture electronic products on behalf of OEMs,and EMS providers typically provide manufacturing services for OEMs and other electronic product suppliers. Sales to our largest distributor accounted for 24% of our total revenue in 2020, 23% in 2019, and 22% in 2018. In addition, one other distributor accounted for 11% of ourtotal revenue in 2020 and 10% in 2018. No other distributors or end customers accounted for more than 10% of our full-year, total revenue in any of the periodspresented. Current distribution agreements with several of our major distributors provide that each distributor has the non-exclusive right to sell and use its best efforts to promoteand develop a market for our products. These agreements provide that payment for purchases from us will generally occur within 30 to 90 days from the date ofinvoice. In addition, we allow for limited stock rotation in certain agreements. We have sales offices located in China, India, Japan, Korea, Singapore, Taiwan, the United States and throughout Europe. Our products typically require a highlytechnical sales and applications engineering effort where we assist our customers in the design and use of our products in their application. We maintain a staff ofapplications engineers who work directly with our customers’ engineers in the development of their systems’ electronics containing our products. Because our sales are primarily billed and payable in United States dollars, our sales are generally not subject to fluctuating currency exchange rates. However, becausea majority of our revenue is attributable to sales to customers in Asia, changes in the relative value of the dollar may create pricing pressures for our products. In 2020,2019 and 2018, our revenue from sales to customers in Asia was 91%, 89% and 88%, respectively. Our sales are made primarily pursuant to standard individual purchase orders. Our backlog consists of orders that we have received from customers which have not yetshipped. Because orders in backlog are subject to cancellation or postponement, and backlog at any particular date is not necessarily representative of actual sales forany succeeding period, we believe that our backlog is not necessarily a reliable indicator of future revenue. 6Table of Contents Our manufacturing lead times are generally 16 to 26 weeks and we often build inventory in advance of customer orders based on our forecast of future customer orders.This subjects us to certain risks, most notably the possibility that sales will not meet our forecast, which could lead to inventories in excess of demand. If excessinventory exists, it may be necessary for us to sell it at a substantial discount, take a significant write-down or dispose of it altogether, all of which would negativelyaffect our profit margins. In addition, in response to market conditions, we may slow the rate of manufacturing our products, which could result in insufficient inventorylevels if we underestimate the demand for our products. We operate in the cyclical semiconductor industry where there is seasonal demand for certain of our products. While we are not immune from current and futureindustry downturns, we have targeted product and market areas that we believe have the ability to offer above average industry performance over the long term. Research and Development We have assembled a qualified team of engineers primarily in China, Spain, Taiwan and the United States, with core competencies in analog and mixed-signal design.Through our research and development efforts, we have developed a collection of intellectual property and know-how that we are able to leverage across our productsand markets. These include the development of high efficiency power devices, the design of precision analog circuits, expertise in mixed-signal integration and thedevelopment of proprietary semiconductor process technologies. Our research and development efforts are generally targeted at three areas: systems architecture, circuit design and implementation, and process technologies. In thearea of systems architecture, we are exploring new ways of solving our customers’ system design challenges and are investing in the development of systems expertisein new markets and applications that align well with our core capabilities. In the area of circuit design and implementation, our initiatives include expanding our portfolioof products and adding new features to our products. In the area of process technologies, we are investing research and development resources to provide leading-edge analog power processes for our next generation of integrated circuits. Process technologies are key strategic components to our future growth. Patents and Intellectual Property Matters We rely on our proprietary technologies, which include both our proprietary circuit designs for our products and our proprietary manufacturing process technologies.Our future success and competitive position depend in part upon our ability to obtain and maintain protection of our proprietary technologies. In general, we have elected to pursue patent protection for aspects of our circuit and device designs that we believe are patentable and to protect our manufacturingprocess technologies by maintaining those process technologies as trade secrets. As of December 31, 2020, we had 1,327 patents/applications issued or pending, ofwhich 475 patents have been issued in the United States. Our issued patents are scheduled to expire at various times through December 2039. Our patents are material toour business, but we do not rely on any one particular patent for our success. We also rely on a combination of nondisclosure agreements and other contractualprovisions, as well as our employees’ commitment to confidentiality and loyalty, to protect our technology, know-how and processes. We also seek to register certain ofour trademarks as we deem appropriate. We have not registered any of our copyrights and do not believe registration of copyrights is material to our business. Despiteprecautions that we take, it may be possible for unauthorized third parties to copy aspects of our current or future technology or products or to obtain and useinformation that we regard as proprietary. There can be no assurance that the steps we take will be adequate to protect our proprietary rights, that our patentapplications will lead to issued patents, that others will not develop or patent similar or superior products or technologies, or that our patents will not be challenged,invalidated or circumvented by others. Furthermore, the laws of the countries in which our products are or may be developed, manufactured or sold may not protect ourproducts and intellectual property rights to the same extent as laws in the United States. Our failure to adequately protect our proprietary technologies could materiallyharm our business. The semiconductor industry is characterized by frequent claims of infringement and litigation regarding patent and other intellectual property rights. Patent infringementis an ongoing risk, in part because other companies in our industry could have patent rights that may not be identifiable when we initiate development efforts. Litigationmay be necessary to enforce our intellectual property rights, and we may have to defend ourselves against infringement claims. Any such litigation could be very costlyand may divert our management resources. Further, we have agreed to indemnify certain of our customers and suppliers in some circumstances against liability frominfringement by our products. In the event any third party were to make an infringement claim against us or our customers, we could be enjoined from selling selectedproducts, could be required to indemnify our customers or suppliers, or could pay royalties or other damages to third parties. If any of our products are found to infringeand we are unable to obtain necessary licenses or other rights on acceptable terms, we would either have to change our product so that it does not infringe or stopmaking the infringing product, which could have a material adverse effect on our operating results, financial condition and cash flows. 7Table of Contents Manufacturing We utilize a fabless business model, working with third parties to manufacture and assemble our ICs. This fabless approach allows us to focus our engineering anddesign resources on our strengths and to reduce our fixed costs and capital expenditures. In contrast to many fabless semiconductor companies, which utilize standardprocess technologies and design rules established by their foundry partners, we have developed our own proprietary process technologies and collaborate with ourfoundry partners to install our technologies on their equipment in their facilities for use on our behalf. This close collaboration and control over the manufacturingprocess has historically resulted in favorable yields and product performance for our ICs. We currently contract with several suppliers to manufacture our wafers in foundries located in China, Taiwan and Korea. Once our silicon wafers have been produced,they are shipped to our facility in Chengdu, China for wafer sort, which is a testing process performed to identify non-functioning dies. Our semiconductor products arethen assembled and packaged by independent subcontractors in China and Malaysia. The assembled ICs are then sent either for final testing at our Chengdu facility, orto other turnkey providers who perform final testing based on our standards prior to shipping to our customers. We have a 60,000 square-foot manufacturing facility located in Chengdu, China, which enables us to benefit from shorter manufacturing cycle times and lower labor andoverhead costs. We have expanded our product testing capabilities in this facility and are able to take advantage of the rich pool of local engineering talent to expandour manufacturing support and engineering operations. Competition The analog and mixed-signal semiconductor industry is highly competitive, and we expect competitive pressures to continue. Our ability to compete effectively and toexpand our business will depend on our ability to continue to recruit both applications engineering and design engineering personnel, our ability to introduce newproducts, and our ability to maintain the rate at which we introduce these new products. Our industry is characterized by decreasing average selling prices over the lifeof a product. We compete with domestic and international semiconductor companies, many of which have substantially greater financial and other resources with whichto pursue engineering, manufacturing, marketing, and distribution of their products and, in some cases, have a broader number of product offerings that may enablethem to more effectively market and sell to customers. We are in direct and active competition, with respect to one or more of our product lines, with severalmanufacturers of such products, of varying size and financial strength. We consider our primary competitors to include Analog Devices, Infineon Technologies, MaximIntegrated Products, NXP Semiconductors, ON Semiconductor, Power Integrations, Renesas Electronics, ROHM Semiconductor, Semtech and Texas Instruments. We expect continued competition from existing competitors as well as competition from new entrants into the semiconductor market. We believe that we are competitivein the markets in which we sell, particularly because our ICs typically are smaller in size, are highly integrated, possess higher levels of power managementfunctionalities and achieve high performance specifications at lower price points than most of our competition. However, there is no assurance that our products willcontinue to compete favorably or that we will be successful in the face of increasing competition from new products and enhancements introduced by existingcompetitors or new companies entering this market. In addition, there has recently been a high level of consolidation in the semiconductor industry. If these or futureacquisitions are successful, competition may intensify and our competitors may have additional resources to compete against us. 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; thetreatment, transport, and disposal of hazardous wastes; recycling and product packaging; worker health and safety; and other activities affecting the environment, ourworkforce, and the management of our manufacturing operations. We believe that our operations and facilities comply in all material respects with applicableenvironmental laws and worker health and safety laws. 8Table of Contents 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 dobusiness. 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 withfuture 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. Refer to“Item 1A. Risk Factors” for further discussion of material risks related to government policies and regulations on environmental laws, international trade policies andrestrictions, including tariffs on imports of foreign goods and regulations restricting the export of goods and services between the U.S. and China. Human Capital Our performance is substantially dependent on the performance of our executive officers and key employees. Due to the relative complexity of the design of ouranalog and mixed-signal ICs, our engineers generally have many years of experience and greater circuit design aptitude. Analog engineers with advanced skills arelimited in number and difficult to replace. The loss of the services of key officers, managers, engineers and other technical personnel would materially harm ourbusiness. Our future success depends, in part, on our ability to attract, train, retain, and motivate highly qualified technical and managerial personnel. We may not besuccessful in attracting and retaining such personnel. Our employees are not represented by a collective bargaining organization, and we have never experienced awork stoppage or strike. As of December 31, 2020, we employed 2,209 employees primarily located in Asia, Europe and the United States, compared with 2,002employees as of December 31, 2019.Competition for talent in the semiconductor industry is strong, and compensation is critical to our recruiting and retention philosophy, especially given our rapidgrowth and our need to attract talented employees with a broad range of skills. Our total compensation packages are competitive, fair, and structured to encourageemployees 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 safeenvironment for all our workers. Our Worker Health and Safety Plan is certified to ISO45001 standards, the world’s voluntary, international standard for occupationalhealth and safety. We believe that certifying to these standards enables our company to provide safe and healthy workplaces by preventing work-related injury andhealth issues. 9Table of Contents Available Information Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports that are filed or furnished pursuantto Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge. They may be obtained from our website atwww.monolithicpower.com under “Investor Relations” as soon as reasonably practicable after we electronically file such documents with, or furnish them to, the SEC, orat the SEC website at www.sec.gov. We also make available on our website the charters for our audit committee, compensation committee, and nominating and corporategovernance committee, our code of ethics, our director voting policy and our code of social responsibility. In addition, we intend to disclose on our website anyamendments to, or waivers from, our codes of business conduct, our code of social responsibility and our report on environment, social responsibility and governance. Information contained on our website is not a part of this Annual Report on Form 10-K. Information About Executive Officers Information regarding our executive officers as of March 1, 2021 is as follows: Name Age PositionMichael Hsing 61 President, Chief Executive Officer and DirectorBernie Blegen 63 Vice President and Chief Financial OfficerDeming Xiao 58 President of Asia OperationsMaurice Sciammas 61 Senior Vice President of Worldwide Sales and MarketingSaria Tseng 50 Vice President, Strategic Corporate Development, General Counsel and Corporate SecretaryMichael Hsing has served on our Board of Directors and has served as our President and Chief Executive Officer since founding MPS in August 1997. Prior to foundingMPS, Mr. Hsing was a Senior Silicon Technology Developer at several analog IC companies, where he developed and patented key technologies, which set newstandards in the power electronics industry. Mr. Hsing is an inventor on numerous patents related to the process development of bipolar mixed-signal semiconductormanufacturing. Mr. Hsing holds a B.S.E.E. from the University of Florida. Bernie Blegen has served as our Chief Financial Officer since July 2016 and is responsible for finance, accounting, tax, treasury and investor relations. From August2011 to June 2016, Mr. Blegen served as our Corporate Controller. Prior to joining MPS, Mr. Blegen held a number of executive finance and accounting positions for otherpublicly traded technology companies, including Xilinx, Inc. and Credence Systems. Mr. Blegen holds a B.A. from the University of California, Santa Barbara. Deming Xiao has served as our President of Asia Operations since January 2008. Since joining us in May 2001, Mr. Xiao has held several executive positions, includingFoundry Manager and Senior Vice President of Operations. Before joining MPS, from June 2000 to May 2001, Mr. Xiao was Engineering Account Manager at CharteredSemiconductor Manufacturing, Inc. Prior to that, Mr. Xiao spent six years as the Manager of Process Integration Engineering at Fairchild Imaging Sensors. Mr. Xiaoholds a B.S. in Semiconductor Physics from Sichuan University, Chengdu, China and an M.S.E.E. from Wayne State University. Maurice Sciammas has served as our Senior Vice President of Worldwide Sales and Marketing since 2007. Mr. Sciammas joined MPS in July 1999 and served as VicePresident of Products and Vice President of Sales (excluding greater China) until he was appointed to his current position. Before joining MPS, he was Director of ICProducts at Supertex from 1990 to 1999. He has also held positions at Micrel, Inc. He holds a B.S.E.E. degree from San Jose State University. Saria Tseng has served as our Vice President, General Counsel and Corporate Secretary since 2004 and additionally as our Vice President, Strategic CorporateDevelopment since 2009. Ms. Tseng joined the Company from MaXXan Systems, Inc., where she was Vice President and General Counsel from 2001 to 2004. Previously,Ms. Tseng was an attorney at Gray Cary Ware & Freidenrich, LLP and Jones, Day, Reavis & Pogue. Ms. Tseng is a member of the state bar in both California and NewYork and is a member of the bar association of the Republic of China (Taiwan). Ms. Tseng currently serves on the Board of Directors of Super Micro Computer, Inc., aglobal leader in high performance server technology. Ms. Tseng holds Masters of Law degrees from the University of California at Berkeley and the Chinese CultureUniversity in Taipei. 10Table of Contents ITEM 1A. RISK FACTORS Our business involves numerous risks and uncertainties. You should carefully consider the risks described below, together with all of the other information in thisAnnual Report on Form 10-K and other filings with the SEC in evaluating our business. If any of the following risks actually occur, our business, financial condition,operating results, and growth prospects would likely be materially and adversely affected. In such an event, the trading price of our common stock could decline, andyou could lose all or part of your investment in our common stock. Our past financial performance should not be considered to be a reliable indicator of futureperformance, and investors should not use historical trends to anticipate results or trends in future periods. These risks involve forward-looking statements and ouractual results may differ substantially from those discussed in these forward-looking statements. 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 notpurport to be complete and is qualified in its entirety by reference to the full risk factor discussion immediately following this summary description. We encourage youto read the full risk factor discussion carefully. Our revenue and expenses are difficult to predict, have varied significantly in the past and will continue to fluctuate significantly in the future due to numerous risks anduncertainties, many of which are beyond our control. As a result, we may not be profitable on a quarterly or annual basis. Our business, results of operations andfinancial 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; •changes in general economic conditions in the countries where our products are sold or used, in particular China; •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; •changes in international trade policy, such as tariffs on imports of foreign goods and regulations restricting the export of goods and services, between the U.S. andChina; •adverse movements in foreign exchange rates, including the Renminbi; •our ability to experience grow rates comparable to past years; •changes in general demand for electronic products as a result of worldwide macroeconomic conditions, and the seasonality and variability in the end markets thatwe serve; •our ability to accurately forecast sales and expenses due to the nature of our business as a component supplier; •our and our competitors’ ability to timely develop and introduce new products, and the acceptance of our new products in the marketplace; •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; •availability of adequate manufacturing capacity from our suppliers, and our ability to increase product sales and revenue resulting from capacity issues; •increases in unanticipated costs as a result of increasing manufacturing capacity; •our dependency on third-party suppliers for wafer purchases and potential increases in prices for wafers due to general capacity shortages; •our ability to deliver products on a timely basis due to disruptions in our relationships with assembly and test subcontractors; •our ability to manage our inventory levels, including the levels of inventory held by our distributors; •increases in manufacturing costs due to commodity price increases; 11Table of Contents •the highly cyclical nature of the semiconductor industry, and increased competition due to industry consolidation; •competition from companies with greater financial and technological resources and customers developing products internally; •the impact of system upgrades, cyber attacks or other system security, data protection and privacy breaches on our business operations; •our significant investment of resources on research and development; •our ability to realize the anticipated benefits of any business acquisitions and other strategic investments; •risks associated with financial reporting, including the impact of new tax laws on our tax provision and tax planning; •our failure to comply with various governmental laws and regulations; •our ability to successfully defend ourselves in legal proceedings and protect our intellectual property, and the significant increase in legal expenses as a result ofsuch proceedings; •the loss of key personnel; and •risks associated with owning our stock, including volatility in our trading price due to our business and financial performance, analyst downgrades, elimination ofour dividend program, and dilution from issuance of additional shares. Risks Associated with Global Pandemics on Our Business The effects of global pandemics such as COVID-19 could adversely affect our business, results of operations and financial condition. We face various risks related to epidemics and pandemics, including the global outbreak of COVID-19 first identified in December 2019. In March 2020, the World HealthOrganization characterized the COVID-19 outbreak as a pandemic. Since then, governments around the world have imposed various mandatory measures and the privatesectors 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 substantialoperations, have enacted shelter-in-place or similar restrictive orders. These events have led to significant disruptions and uncertainties in the global economy andin the financial markets, which could materially and adversely affect our financial condition and results of operations. Uncertainties regarding the economic impact of thepandemic is likely to result in sustained market turmoil and could adversely impact the semiconductor industry, which could in turn negatively and materially impact ourbusiness, financial condition and results of operations. The extent of the impact of the pandemic on our operational and financial performance will depend on numerous evolving developments, including the duration andmagnitude of the pandemic, and the effects on our customers, employees, suppliers and other partners, all of which are uncertain and difficult to predict at this time. Asustained or prolonged outbreak could exacerbate the adverse impact on our business, which may include: •unpredictability in demand, pricing and costs for our products, and losses of significant contracts or key customers as a result of a global economic downturncaused by the pandemic; •our ability to accurately forecast our results of operation, including products sales and market demand for our products; •negative impacts on our business operations, including reductions or delays in production levels, qualification activities with our customers, and valuation of ourinventory due to changes in forecasted demand and our outlook on market conditions; •disruptions to our distribution channels and supply chain in connection with the sourcing of materials from geographic areas that have been impacted by thepandemic; •facility closures and increased costs resulting from work-from-home and other measures we have enacted at certain of our locations around the world to mitigate theimpact of the pandemic and protect our employees' health and well-being; and •losses on our investments due to defaults on payments by the issuers, write-offs of our accounts receivable due to defaults and insolvency, or significant delays inpayments by our customers. 12Table of Contents We are working with our stakeholders, including customers, suppliers and employees, to address the impact of this global pandemic. We continue to monitor thesituation, to assess further possible implications to our business, supply chain and customers, and to take actions in an effort to mitigate adverse consequences. Shouldsuch disruption continue for an extended period of time, or if and when the pandemic ends, the resumption of normal business operations may be delayed orconstrained by lingering effects of the pandemic (including limitations imposed by governmental authorities on our ability to return to normal operating practices).These effects, alone or taken together, could have a material adverse impact on our business, results of operations or financial condition. Risks Associated with Our Significant Operations in Asia, in Particular China Our business has been and may be significantly impacted by worldwide economic conditions, in particular changing economic conditions in China. In recent years, global credit and financial markets experienced disruptions, and may experience disruptions in the future, including diminished liquidity and creditavailability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, and uncertainty about economic stability. Economicuncertainty affects businesses such as ours in a number of ways, making it difficult to accurately forecast and plan our future business activities. The tightening ofcredit in financial markets may lead consumers and businesses to postpone spending, which may cause our customers to cancel, decrease or delay their existing andfuture orders with us. In addition, financial difficulties experienced by our suppliers or distributors could result in product delays, increased accounts receivable defaultsand inventory challenges. Volatility in the credit markets could severely diminish liquidity and capital availability. Demand for our products is a function of the health of the economies in the United States, Europe, China and the rest of Asia. We cannot predict the timing, strength orduration of any economic disruptions, such as those resulting from the COVID-19 pandemic, or subsequent economic recovery worldwide, in our industry, or in thedifferent markets that we serve. We also may not accurately assess the impact of changing market and economic conditions on our business and operations. These andother economic factors have had, and may in the future have, a material adverse effect on demand for our products and on our financial condition and operating results. In particular, since we have significant operations in China, our business development plans, results of operations and financial condition may be materially andadversely affected by significant political, social and economic developments in China. A slowdown in economic growth in China could adversely impact our customers,prospective customers, suppliers, distributors and partners in China, which could have a material adverse effect on our results of the operations and financial condition.There is no guarantee that economic downturns, whether actual or perceived, any further decrease in economic growth rates or an otherwise uncertain economicoutlook in China will not occur or persist in the future, that they will not be protracted, or that governments will respond adequately to control and reverse suchconditions, any of which could materially and adversely affect our business, financial condition and results of operations. We derive most of our revenue from direct or indirect sales to customers in Asia and have significant operations in Asia, which may expose us to political, cultural,regulatory, economic, foreign exchange, and operational risks. We derive most of our revenue from customers located in Asia through direct sales or indirect sales through distribution arrangements and value-added reselleragreements with parties located in Asia. As a result, we are subject to increased risks due to this geographic concentration of business and operations. For the yearended December 31, 2020, 91% of our revenue was from customers in Asia. There are risks inherent in doing business in Asia, and internationally in general, including: •changes in, or impositions of, legislative or regulatory requirements, including tax laws in the U.S. and in the countries in which we manufacture or sell our products,and government action to restrict our ability to sell to foreign customers where sales of products may require export license; •trade restrictions, including restrictions imposed by the United States on trading with parties in foreign countries; •currency exchange rate fluctuations impacting intra-company transactions; •the fluctuations in the value of the U.S. Dollar relative to other foreign currencies, which could affect the competitiveness of our products; •transportation delays; •changes in tax regulations in China that may impact our tax status in Chengdu, Hangzhou and other regions where we have significant operations; •tariffs imposed by China and the United States that may impact our sales; 13Table of Contents •export controls, trade and economic sanctions and regulations, and other regulatory or contractual limitations on our ability to sell or develop our products inChina; •multi-tiered distribution channels that lack visibility to end customer pricing and purchase patterns; •international political relationships and threats of war; •terrorism and threats of terrorism; •epidemics and illnesses, such as the COVID-19 pandemic; •work stoppages and infrastructure problems due to adverse weather conditions or natural disasters; •work stoppages related to employee dissatisfaction; •economic, social and political instability; •longer accounts receivable collection cycles and difficulties in collecting accounts receivables; •enforcing contracts generally; and •less effective protection of intellectual property and contractual arrangements. If we fail to expand our customer base and significantly reduce the geographic concentration of our customers, we will continue to be subject to the foregoing risks,which could materially and adversely affect our business, financial condition and results of operations. We and our manufacturing partners are or will be subject to extensive Chinese government regulation, and the benefit of various incentives from Chinesegovernments that we and our manufacturing partners receive may be reduced or eliminated, which could increase our costs or limit our ability to sell products andconduct activities in China. We have manufacturing and testing facilities in China and most of our manufacturing partners are located in China. The Chinese government has broad discretion andauthority to regulate the technology industry in China. Additionally, China’s government has implemented policies from time to time to regulate economic expansion inChina. It exercises significant control over China’s economic growth through the allocation of resources, controlling payment of foreign currency-denominatedobligations, setting monetary policy and providing preferential treatment to particular industries or companies. Personal privacy, cyber security, and data protection are becoming increasingly significant issues in China. To address these issues, the Standing Committee of theNational People’s Congress promulgated the Cyber Security Law of the People’s Republic of China (the “Cyber Security Law”), which took effect on June 1, 2017. TheCyber Security Law sets forth various requirements relating to the collection, use, storage, disclosure and security of data, among other things. Various Chineseagencies are expected to issue additional regulations in the future to define these requirements more precisely. These requirements may increase our costs ofcompliance. We cannot assure you that we will be able to comply with all of these regulatory requirements. Any failure to comply with the Cyber Security Law and therelevant regulations and policies could result in further cost and liability to us and could adversely affect our business and results of operations. Additionally, increasedcosts 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 additional new regulations or the amendment or modification of previously implemented regulations could require us and our manufacturing partners to change ourbusiness plans, increase our costs, or limit our ability to sell products and conduct activities in China, which could adversely affect our business and operating results. The Chinese government and provincial and local governments also have provided, and continue to provide, various incentives to encourage the development of thesemiconductor industry in China. Such incentives include tax rebates, reduced tax rates, favorable lending policies and other measures, some or all of which may beavailable to our manufacturing partners and to us with respect to our facilities in China. Any of these incentives could be reduced or eliminated by governmentalauthorities at any time. Any such reduction or elimination of incentives currently provided to us and our manufacturing partners could adversely affect our businessand operating results. 14Table of Contents There are inherent risks associated with the operation of our manufacturing and testing facilities in China, which could increase product costs or cause a delay inproduct shipments. We have manufacturing and testing facilities in China. We face the following risks, among others, with respect to our operations in China: •inability to hire and maintain a qualified workforce; •inability to maintain appropriate and acceptable manufacturing controls; and •higher than anticipated overhead and other costs of operation. If we are unable to maintain our facilities in China at fully operational status with qualified workers, appropriate manufacturing controls and reasonable cost levels, wemay incur higher costs than our current expense levels, which would affect our gross margins. In addition, if capacity restraints result in significant delays in productshipments, our business and results of operations would be adversely affected. We are subject to export laws, trade policies and restrictions including international tariffs that could materially and adversely affect our business and results ofoperations. As a global company headquartered in the United States, we are subject to U.S. laws and regulations that could limit and restrict the export of some of our products andservices and may restrict our transactions with certain customers, business partners and other persons, including, in certain cases, dealings with or between ouremployees and subsidiaries. In certain circumstances, export control and economic sanctions regulations may prohibit the export of certain products, services andtechnologies, and in other circumstances we may be required to obtain an export license before exporting the controlled item. Compliance with these laws andregulations has not materially limited our operations or our sales, but could materially limit them in the future, which would materially and adversely affect our businessand results of operations. We maintain an export compliance program but there are risks that the compliance controls could be circumvented, exposing us to legalliabilities. We must also comply with export restrictions and laws imposed by other countries affecting trade and investments. Although these restrictions and laws havenot materially restricted our operations in the recent past, there is a significant risk that they could do so in the future, which would materially and adversely affect ourbusiness and results of operations. In addition, U.S. laws and regulations and sanctions, or threat of sanctions, that could limit and restrict the export of some of ourproducts and services to our customers may also encourage our customers to develop their own solutions to replace our products, or seek to obtain a greater supply ofsimilar or substitute products from our competitors that are not subject to these restrictions, which could materially and adversely affect our business, financialcondition and results of operations. Since the beginning of 2018, there has been increasing rhetoric, in some cases coupled with legislative or executive action, from several U.S. and foreign leadersregarding tariffs against foreign imports of certain materials. More specifically, there have been several rounds of U.S. tariffs on Chinese goods taking effect in thepast few years, some of which prompted retaliatory Chinese tariffs on U.S. goods. The institution of trade tariffs both globally and between the U.S. and Chinaspecifically carries the risk of negatively affecting both countries’ overall economic condition. If these tariffs continue or additional new tariffs are imposed in thefuture, they could have a negative impact on us as we have significant operations in China and the U.S. Fluctuations in the value of the U.S. Dollar relative to other foreign currencies, including the Renminbi, may adversely affect results of operations. Our manufacturing and packaging suppliers are and will continue to be primarily located in China for the foreseeable future. If the value of the Renminbi rises against theU.S. Dollar, there could be an increase in our manufacturing costs relative to competitors who have manufacturing facilities located in the U.S., which could adverselyaffect our operations. In addition, our sales are primarily denominated in the U.S. Dollar. If the value of the U.S Dollar rises against other currencies, it may adverselyaffect the demand for our products in international markets, which could negatively impact our business and results of operations. 15Table of Contents We incur foreign currency exchange gains or losses related to the timing of payments for transactions between the U.S. and our foreign subsidiaries, which are reportedin interest and other income in the statements of operations. Fluctuations in the value of the U.S. Dollar relative to the foreign currencies could increase the amount offoreign currency exchange losses we record, which could have an adverse impact on our results of operations. Risks Associated with Product Demand and Sales We may not experience growth rates comparable to past years. In the past, our revenue increased significantly in certain years due to increased sales of certain of our products. We are subject to numerous risks and factors thatcould cause a decrease in our growth rates compared to past periods, including increased competition, loss of certain of our customers, unfavorable changes in ouroperations, reduced global electronics demand, a deterioration in market conditions, end-customer market downturn, market acceptance and penetration of our currentand future products, and litigation. A material decrease in our growth rates could adversely affect our stock price and results of operations. If demand for our products declines in the major end markets that we serve, our revenue will decrease and our results of operations and financial condition wouldbe materially and adversely affected. We believe that the application of our products in the computing and storage, automotive, industrial, communications and consumer markets will continue to accountfor the majority of our revenue. If the demand for our products declines in the major end markets that we serve, our revenue will decrease and our results of operationsand financial condition would be materially and adversely affected. In addition, as technology evolves, the ability to integrate the functionalities of various components,including our discrete semiconductor products, onto a single chip and/or onto other components of systems containing our products increases. Should our customersrequire integrated solutions that we do not offer, demand for our products could decrease, and our business, financial condition and results of operations would bematerially and adversely affected. Due to the nature of our business as a component supplier, we may have difficulty both in accurately predicting our future revenue and appropriately managingour expenses. Because we provide components for end products and systems, demand for our products is influenced by our customers’ end product demand. As a result, we mayhave difficulty in accurately forecasting our revenue and expenses. Our revenue depends on the timing, size, and speed of commercial introductions of end productsand systems that incorporate our products, all of which are inherently difficult to forecast, as well as the ongoing demand for previously introduced end products andsystems. In addition, demand for our products is influenced by our customers’ ability to manage their inventory. Our sales to distributors are subject to higher volatilitybecause they service demand from multiple levels of the supply chain which, in itself, is inherently difficult to forecast, all of which may be exacerbated by the adverseeffects of the COVID-19 pandemic. If our customers, including distributors, do not manage their inventory correctly or misjudge their customers’ demand, our shipmentsto and orders from our customers may vary significantly on a quarterly basis, which could reduce our revenue and adversely affect our financial condition and results ofoperations. We may be unsuccessful in developing and selling new products with margins similar to or better than what we have experienced in the past, which would impactour overall gross margin and financial performance. Our success depends on products that are differentiated in the market, which result in gross margins that have historically been above industry averages. Should we failto improve our gross margin in the future, and accordingly develop and introduce sufficiently differentiated products that result in higher gross margins than industryaverages, our business, financial condition and results of operations could be materially and adversely affected. We may be unsuccessful in developing and selling new products or in penetrating new markets required to maintain or expand our business. Our competitiveness and future success depend on our ability to design, develop, manufacture, assemble, test, market, and support new products and enhancements ona timely and cost-effective basis. A fundamental shift in technologies in any of our product markets could have a material adverse effect on our competitive positionwithin these markets. Our failure to timely develop new technologies or to react quickly to changes in existing technologies could materially delay our development ofnew products, which could result in product obsolescence, decreased revenue, and/or a loss of market share to competitors. As we develop new product lines, we must adapt to market conditions that are unfamiliar to us, such as competitors and distribution channels that are different fromthose we have known in the past. Some of our new product lines require us to re-equip our labs to test parameters we have not tested in the past. If we are unable toadapt rapidly to these new and additional conditions, we may not be able to successfully penetrate new markets. 16Table of Contents The success of a new product depends on accurate forecasts of long-term market demand and future technological developments, as well as on a variety of specificimplementation factors, including: •timely and efficient completion of process design and device structure improvements; •timely and efficient implementation of manufacturing, assembly, and test processes; •the ability to secure and effectively utilize fabrication capacity in different geometries; •product performance; •product availability; •product quality and reliability; and •effective marketing, sales and service. To the extent that we fail to timely introduce new products or to quickly penetrate new markets, our business, financial condition and results of operations could bematerially and adversely affected. 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 accountedfor 24% of our total revenue for the year ended December 31, 2020. 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, a decrease in demand or significant pricing pressure for our products fromany of our major customers for any reason (including due to competition, market conditions, catastrophic events or otherwise) could have a materially adverse impact onour business, financial condition and results of operations. We receive a significant portion of our revenue from distribution arrangements, value-added resellers and direct customers, and the loss of any one of thesedistributors, value-added resellers or direct customers or failure to collect a receivable from them could adversely affect our financial position and results ofoperations. We market our products through distribution arrangements and value-added resellers, and through our direct sales and applications support organization to customersthat include OEMs, ODMs and EMS providers. Receivables from our customers are generally not secured by any type of collateral and are subject to the risk of beinguncollectible. Sales to our largest distributor accounted for 24% of our total revenue for the year ended December 31, 2020. Significant deterioration in the liquidity orfinancial condition of any of our major customers or any group of our customers could have a material adverse impact on the collectability of our accounts receivableand our future operating results. We primarily conduct our sales on a purchase order basis, and we do not have any long-term supply commitments. Moreover, we believe a high percentage of our products are eventually sold to a number of OEMs. Although we communicate with OEMs in an attempt to achieve“design wins,” which are decisions by OEMs and/or ODMs to incorporate our products, we do not have purchase commitments from these end users. Therefore, therecan be no assurance that the OEMs and/or ODMs will continue to incorporate our ICs into their products. OEM technical specifications and requirements can changerapidly, and we may not have products that fit new specifications from an end customer for whom we have had previous design wins. We cannot be certain that we willcontinue to achieve design wins from large OEMs, that our direct customers will continue to be successful in selling to the OEMs, or that the OEMs will be successful inselling products which incorporate our ICs. The loss of any significant customer, any material reduction in orders by any of our significant customers or by their OEMcustomers, the cancellation of a significant customer order, or the cancellation or delay of a customer’s or an OEM’s significant program or product could reduce ourrevenue and adversely affect our financial condition and results of operations. 17Table of Contents Our products must meet specifications, and undetected defects and failures may occur, which may cause customers to return or stop buying our products and mayexpose us to product liability risk. Our customers generally establish demanding specifications for quality, performance, and reliability that our products must meet. ICs as complex as ours often encounterdevelopment delays and may contain undetected defects or failures when first introduced or after commencement of commercial shipments, which might require productreplacement or recall. Further, our third-party manufacturing processes or changes thereof, or raw material used in the manufacturing processes may cause our productsto fail. We have from time to time in the past experienced product quality, performance or reliability problems. Our standard warranty period is generally one to two years,which exposes us to significant risks of claims for defects and failures. If defects and failures occur in our products, we could experience lost revenue, increased costs,including warranty expense and costs associated with customer support, cancellations or rescheduling of orders or shipments, and product returns or discounts, any ofwhich would harm our operating results. In addition, product liability claims may be asserted by our customers with respect to our technology or products. Although we currently have insurance, there canbe no assurance that we have obtained a sufficient amount of insurance coverage or that asserted claims will be within the scope of coverage. Our insuranceproviders could deny or challenge these claims, and as a result, reimbursement to us is not guaranteed or could be delayed. If coverage is denied, we may not havesufficient resources to pay for these claims. Furthermore, due to recent changes in the insurance industry, we may experience a significant increase in premiums andtherefore decide to self-insure, which may not meet the expectations or requirements of certain customers. All of these factors could have a material and adverseimpact on our business, financial condition and results of operations. Because of the lengthy sales cycles for our products and the fixed nature of a significant portion of our expenses, we may incur substantial expenses before we earnassociated revenue and may not ultimately achieve our forecasted sales for our products. The introduction of new products presents significant business challenges because product development plans and expenditures may be made up to two years or morein advance of any sales. It generally takes us up to 12 months or more to design and manufacture a new product prototype. Only after we have a prototype do weintroduce the product to the market and begin selling efforts in an attempt to achieve design wins. This sales process requires us to expend significant sales andmarketing resources without any assurance of success. Volume production of products that use our ICs, if any, may not be achieved for an additional period of time afteran initial sale. Sales cycles for our products are lengthy for a number of reasons, including: •our customers usually complete an in-depth technical evaluation of our products before they place a purchase order; •the commercial adoption of our products by OEMs and ODMs is typically limited during the initial release of their product to evaluate product performance andconsumer demand; •our products must be designed into our customers’ products or systems; and •the development and commercial introduction of our customers’ products incorporating new technologies are frequently delayed. As a result of our lengthy sales cycles, we may incur substantial expenses before we earn associated revenue because a significant portion of our operating expenses isrelatively fixed and based on expected revenue. The lengthy sales cycles of our products also make forecasting the volume and timing of orders difficult. In addition, thedelays inherent in lengthy sales cycles raise additional risks that customers may cancel or change their orders. Our sales are made by purchase orders. Because industrypractice allows customers to reschedule or cancel orders on relatively short notice, backlog is not always a good indicator of our future sales. If customer cancellationsor product changes occur, we could lose anticipated sales and not have sufficient time to reduce our inventory and operating expenses. Risks Associated with Supply and Manufacturing Our ability to increase product sales and revenue may be constrained by the manufacturing capacity of our suppliers. Although we provide our suppliers with rolling forecasts of our production requirements, their ability to provide wafers to us is limited by the available capacity,particularly capacity in the geometries we require, at the facilities in which they manufacture wafers for us. For example, we believe the strong increase in industry-widedemand for electronic equipment for remote work arrangements as a result of the COVID-19 pandemic has resulted, and will continue to result, in capacity shortages ofour suppliers. As a result, this lack of capacity has at times constrained our product sales and revenue growth. In addition, an increased need for capacity to meetinternal demands or demands of other customers could cause our suppliers to reduce capacity available to us. Our suppliers may also require us to pay amounts inexcess of contracted or anticipated amounts for wafer deliveries or require us to make other concessions in order to acquire the wafer supply necessary to meet ourcustomer requirements. If our suppliers extend lead times, limit supplies or the types of capacity we require, or increase prices due to capacity constraints or otherfactors, our revenue and gross margin may materially decline. We may also be required to increase the prices of our products in order to remain profitable, which couldresult in a loss of customers. In addition, if we experience supply delays or limitations, our customers may reduce their purchase levels with us and/or seek alternativesolutions to meet their demand, which could materially and adversely impact our business and results of operations. Delays in increasing third-party manufacturingcapacity may also limit our ability to meet customer demand. 18Table of Contents There may be unanticipated costs associated with adding to or supplementing our third-party suppliers’ manufacturing capacity. We anticipate that future growth of our business will require increased manufacturing capacity on the part of third-party supply foundries, assembly shops, and testingfacilities for our products. In order to facilitate such growth, we may need to enter into strategic transactions, investments and other activities. Such activities aresubject to a number of risks, including: •the costs and expense associated with such activities; •the availability of modern foundries to be developed, acquired, leased or otherwise made available to us or our third-party suppliers; •the ability of foundries and our third-party suppliers to obtain the advanced equipment used in the production of our products; •delays in bringing new foundry operations online to meet increased product demand; and •unforeseen environmental, engineering or manufacturing qualification problems relating to existing or new foundry facilities, including delays in qualification of newfoundries by our customers. These and other risks may affect the ultimate cost and timing of any expansion of our third-party suppliers’ capacity. If our manufacturing costs increase, we may berequired to raise the prices for our products to remain profitable, which could result in a loss of customers. We currently depend on third-party suppliers to provide us with wafers for our products. If any of our wafer suppliers are acquired, become insolvent or capacityconstrained and are unable to provide us sufficient wafers at acceptable yields and at anticipated costs, our revenue and gross margin may decline or we may notbe able to fulfill our customer orders. We have a supply arrangement with certain suppliers for the production of wafers. Should any of our suppliers are acquired or become insolvent or capacityconstrained, we may not be able to fulfill our customer orders, which would likely cause a decline in our revenue. While certain aspects of our relationship with these suppliers are contractual, many important aspects of this relationship depend on our suppliers’ continuedcooperation and our management of the supplier relationships. Our relationships could also be negatively impacted by changes in control or changes in themanagement team of the suppliers. In addition, the fabrication of ICs is a highly complex and precise process. Problems in the fabrication process can cause asubstantial percentage of wafers to be rejected or numerous ICs on each wafer to be non-functional. This could potentially reduce yields. The failure of our suppliers tosupply us wafers at acceptable yields could prevent us from fulfilling our customer orders for our products and would likely cause a decline in our revenue. Further, as is common in the semiconductor industry, our customers may reschedule or cancel orders on relatively short notice. If our customers cancel orders after wesubmit a committed forecast to our suppliers for the corresponding wafers, we may be required to purchase wafers that we may not be able to resell, which wouldadversely affect our financial condition, results of operations and cash flows. We might not be able to deliver our products on a timely basis if our relationships with our assembly and test subcontractors are disrupted or terminated. We do not have direct control over product delivery schedules or product quality because all of our products are assembled by third-party subcontractors and a portionof our testing is currently performed by third-party subcontractors. Also, due to the amount of time typically required to qualify assembly and test subcontractors, wecould experience delays in the shipment of our products if we were forced to find alternate third parties to assemble or test our products. In addition, events such asglobal economic crises and the COVID-19 pandemic may materially impact our assembly suppliers’ ability to operate. Any future product delivery delays or disruptionsin our relationships with our subcontractors could have a material adverse effect on our financial condition, results of operations and cash flows. We purchase inventory in advance based on expected demand for our products, and if demand is not as expected, we may have insufficient or excess inventory,which could adversely impact our financial position. As a fabless semiconductor company, we purchase our inventory from third-party manufacturers in advance of selling our products. We place orders with ourmanufacturers based on existing and expected orders from our customers for particular products. While most of our contracts with our customers and distributorsinclude lead time requirements and cancellation penalties that are designed to protect us from misalignment between customer orders and inventory levels, we mustnonetheless make some predictions when we place orders with our manufacturers. In the event that our predictions are inaccurate due to unexpected increases in ordersor unavailability of product within the timeframe that is required, we may have insufficient inventory to meet our customer demands. In addition, a perceived negativetrend in market condition could lead us to decrease the manufacturing volume of our products to avoid excess inventory. If we inaccurately assessed the marketconditions for our products, we would have insufficient inventory to meet our customer demands. In the event that we order products that we are unable to sell due to adecrease in orders, unexpected order cancellations, injunctions due to patent litigation, or product returns, we may have excess inventory which, if not sold, may need tobe written down or would result in a decrease in our revenue in future periods as the excess inventory at our distributors is sold. If any of these situations were to arise,it could have a material impact on our business, financial condition and results of operations. 19Table of Contents The price and availability of commodities (e.g., gold, copper and silicon) may adversely impact our ability to deliver our products in a timely and cost-effectivemanner, and may adversely affect our business and results of operations. Our products incorporate commodities such as gold, copper and silicon. An increase in the price or a decrease in the availability of these commodities and similarcommodities that we use could negatively impact our business and results of operations. Risks Associated with Industry Dynamics and Competition The highly cyclical nature of the semiconductor industry, which has produced significant and sometimes prolonged downturns, could materially and adverselyaffect our financial condition and results of operations. Historically, the semiconductor industry has been highly cyclical and, at various times, has experienced significant downturns and wide fluctuations in supply anddemand. These conditions have caused significant variances in product demand and production capacity, as well as rapid erosion of average selling prices. Theindustry may experience severe or prolonged downturns in the future, which could result in downward pressure on the price of our products as well as lower demand forour products. Because significant portions of our expenses are fixed in the short term or incurred in advance of anticipated sales, we may not be able to decrease ourexpenses in a timely manner to offset any sales shortfall. Any significant or prolonged downturns could have a material adverse effect on our business, financialcondition and results of operations. Industry consolidation may lead to increased competition and may harm our operating results. In recent years, there has been a trend toward semiconductor industry consolidation. We expect this trend to continue as companies attempt to improve the leverage ofgrowing research and development costs, strengthen or hold their market positions in an evolving industry, or become unable to continue operations unless they findan acquirer or consolidate with another company. In addition, companies that are strategic alliance partners in some areas of our business may acquire or form allianceswith our competitors, thereby reducing their business with us. We believe that semiconductor industry consolidation may result in stronger competitors that are betterable to compete as sole-source vendors for customers. This could lead to more variability in our operating results and could have a material adverse effect on ourbusiness, financial condition and results of operations. We may face competition from customers developing products internally. Our customers generally have substantial technological capabilities and financial resources. Some customers have traditionally used these resources to develop theirown products internally. The future prospects for our products in these markets are dependent in part upon our customers' acceptance of our products as an alternativeto their internally developed products. Future sales prospects also are dependent upon acceptance of third-party sourcing for products as an alternative to in-housedevelopment. Customers may in the future continue to use internally developed components. They may also decide to develop or acquire components, technologies orproducts that are similar to, or that may be substituted for, our products. If our customers fail to accept our products as an alternative, if they develop or acquire thetechnology to develop such components internally rather than purchase our products, or if we are otherwise unable to develop or maintain strong relationships withthem, our business, financial condition and results of operations could be materially and adversely affected. We compete against many companies with substantially greater financial and other resources, and our market share may be reduced if we are unable to respond toour competitors effectively. The analog and mixed-signal semiconductor industry is highly competitive, and we expect competitive pressures to continue. Our ability to compete effectively and toexpand our business will depend on our ability to continue to recruit applications and design talent, our ability to introduce new products, and our ability to maintain therate at which we introduce these new products. We compete with domestic and non-domestic semiconductor companies, many of which have substantially greaterfinancial and other resources with which to pursue engineering, manufacturing, marketing, and distribution of their products. We are in direct and active competition,with respect to one or more of our product lines, with many manufacturers of such products, of varying size and financial strength. The number of our competitors hasgrown due to the expansion of the market segments in which we participate. We cannot assure you that our products will continue to compete favorably, or that we will be successful in the face of increasing competition from new products andenhancements introduced by existing competitors or new companies entering this market, which would materially and adversely affect our results of operations and ourfinancial condition. 20Table of Contents Risks Associated with Information Technology and Cybersecurity Implementation of an enterprise resource planning (“ERP”) or other information technology systems could result in significant disruptions to our operations. From time to time, we may implement new ERP software solutions or upgrade existing systems. Implementation of these solutions and systems is highly dependent oncoordination of system providers and internal business teams. We may experience difficulties as we transition to these new or upgraded systems and processes,including system downtime causing interruptions in business operations. In addition, transitioning to these new systems requires significant capital investments andpersonnel resources. Difficulties in implementing new or upgraded information systems or any significant system failures could disrupt our operations, which couldhave a material adverse effect on our capital resources, financial condition or results of operations. System security risks, data protection or privacy breaches, cyber attacks and systems integration issues could disrupt our internal operations and/or harm ourreputation, and any such disruption or harm could cause a reduction in our expected revenue, increase our expenses, negatively impact our results of operation orotherwise adversely affect our stock price. Experienced hackers may be able to penetrate our network security and misappropriate or compromise our confidential and proprietary information, create systemdisruptions or cause shutdowns. The costs to us to eliminate or alleviate cyber or other security problems, bugs, viruses, worms, malicious software programs andsecurity vulnerabilities could be significant, and our efforts to address these problems may not be successful and could result in interruptions and delays that mayimpede our sales, manufacturing, distribution, financial reporting or other critical functions. In the ordinary course of business, we store sensitive data on our internal systems, network and servers, such as proprietary business and financial information, andconfidential data pertaining to our customers, suppliers and business partners. The secure maintenance of sensitive information on our networks and the protectionfeatures of our solutions are both critical to our operations and business strategy. We devote significant resources to network security, data encryption, and othersecurity measures to protect our systems and data. However, these security measures cannot provide absolute security. Although we make significant efforts tomaintain the security and integrity of our systems and solutions, any destructive or intrusive breach could compromise our networks, creating system disruptions orslowdowns, and the information stored on our networks could be accessed, publicly disclosed, lost or stolen. The increase in remote working arrangements during theCOVID-19 pandemic has also heightened our potential exposure to cyber attacks, which could put the sensitive proprietary and financial information we store on ourinternal systems at risk. If any of these types of security breaches were to occur and we were unable to protect sensitive data, our relationships with our businesspartners and customers could be materially damaged, our reputation could be materially harmed, and we could be exposed to a risk of litigation and possible significantliability. Portions of our IT infrastructure also may experience interruptions, delays or cessations of service or produce errors in connection with systems integration or migrationwork that takes place from time to time. We may not be successful in implementing new systems and transitioning data, which could cause business disruptions and ourremediation efforts may be expensive, time consuming, disruptive and resource-intensive. Such disruptions could adversely impact our ability to fulfill orders andinterrupt other processes. Delayed sales or lost customers resulting from these disruptions could adversely affect our financial results, stock price and reputation. Effective May 25, 2018, the European Union (“EU”) implemented the General Data Protection Regulation (“GDPR”), a broad data protection framework that expands thescope of current EU data protection law to non-European Union entities that process, or control the processing of, the personal information of EU subjects. The GDPRallows for the imposition of fines and corrective action on entities that improperly use or disclose the personal information of EU subjects, including through a datasecurity breach. The State of California enacted the California Consumer Privacy Act of 2018 (“CCPA”), effective on January 1, 2020, which contains requirementssimilar to GDPR for the handling of personal information of California residents. Our failure to fully comply with GDPR, CCPA and other laws could lead to significant fines and require onerous corrective action. In addition, data security breachesexperienced by us could result in the loss of trade secrets or other intellectual property, public disclosure of sensitive commercial data, and the exposure of personallyidentifiable information (including sensitive personal information) of our employees, customers, suppliers and others. Unauthorized use or disclosure of, or access to, any personal information maintained by us or on our behalf, whether through breach of our systems, breach of thesystems of our suppliers or vendors by an unauthorized party, or through employee error, theft or misuse, or otherwise, could harm our business. If any suchunauthorized use or disclosure of, or access to, such personal information was to occur, our operations could be seriously disrupted, and we could be subject todemands, claims and litigation by private parties, and investigations, related actions, and penalties by regulatory authorities. In addition, we could incur significantcosts in notifying affected persons and entities and otherwise complying with the multitude of foreign, federal, state and local laws and regulations relating to theunauthorized access to, or use or disclosure of, personal information. Finally, any perceived or actual unauthorized access to, or use or disclosure of, such informationcould harm our reputation, substantially impair our ability to attract and retain customers and have an adverse impact on our business, financial condition and results ofoperations. 21Table of Contents Risks Associated with Strategic Investments and Initiatives Our success depends on our investment of significant resources in research and development. We may have to invest more resources in research and developmentthan anticipated, which could increase our operating expenses and negatively impact our operating results. Our success depends on us investing significant amounts of resources into research and development. We expect to have to continue to invest heavily in research anddevelopment in the future in order to continue to innovate and introduce new products in a timely manner and increase our revenue and profitability. If we have toinvest more resources in research and development than we anticipate, we could see an increase in our operating expenses which may negatively impact our operatingresults. Also, if we are unable to properly manage and effectively utilize our research and development resources, we could see material adverse effects on our business,financial condition and operating results. In addition, if new competitors, technological advances by existing competitors, our entry into new markets, or other competitive factors require us to investsignificantly greater resources than anticipated in our research and development efforts, our operating expenses would increase. If we are required to invest significantlygreater resources than anticipated in research and development efforts without a corresponding increase in revenue, our operating results could decline. Research anddevelopment expenses are likely to fluctuate from time to time to the extent we make periodic incremental investments in research and development and theseinvestments may be independent of our level of revenue, which could negatively impact our financial results. In order to remain competitive, we anticipate that we willcontinue to devote substantial resources to research and development, and we expect these expenses to increase in absolute dollars in the foreseeable future due to theincreased complexity and the greater number of products under development. We may not realize the anticipated benefits of any company or business that we acquire. In addition, acquisitions could result in diluting the ownership interests ofour stockholders, reduce our cash balances, and cause us to incur debt or to assume contingent liabilities, which could adversely affect our business. As a part of our business strategy, from time to time we review acquisition prospects that would complement our current product offerings, enhance our designcapability or offer other competitive opportunities. As a result of completing acquisitions, we could use a significant portion of our available cash, cash equivalents andshort-term investments, issue equity securities that would dilute current stockholders’ percentage ownership, or incur substantial debt or contingent liabilities. Suchactions could impact our operating results and the price of our common stock. In addition, we may be unable to identify or complete prospective acquisitions for various reasons, including competition from other companies in the semiconductorindustry, the valuation expectations of acquisition candidates and applicable antitrust laws or related regulations. If we are unable to identify and complete acquisitions,we may not be able to successfully expand our business and product offerings. We cannot guarantee that any future acquisitions will improve our results of operations or that we will otherwise realize the anticipated benefits of any acquisitions. Inaddition, if we are unsuccessful in integrating any acquired company or business into our operations or if integration is more difficult than anticipated, we mayexperience disruptions that could harm our business and result in our failure to realize the anticipated benefits of the acquisitions. Some of the risks that may adverselyaffect our ability to integrate or realize any anticipated benefits from the acquired companies, businesses or assets include those associated with: •unexpected losses of key employees or customers of the acquired companies or businesses; •conforming the acquired company’s standards, processes, procedures and controls with our operations; •coordinating new product and process development; •hiring additional management and other critical personnel; •increasing the scope, geographic diversity and complexity of our operations; •difficulties in consolidating facilities and transferring processes and know-how; •difficulties in the assimilation of acquired operations, technologies or products; •the risk of undisclosed liabilities of the acquired businesses and potential legal disputes with founders or stockholders of acquired companies; •our inability to commercialize acquired technologies; 22Table of Contents •the risk that the future business potential as projected is not realized and as a result, we may be required to take an impairment charge related to goodwill oracquired intangibles that would impact our profitability; •difficulties in assessing the fair value of earn-out arrangements; •diversion of management’s attention from other business concerns; and •adverse effects on existing business relationships with customers. Risks Associated with Financial Reporting The complexity of calculating our tax provision may result in errors that could result in restatements of our financial statements. Due to the complexity associated with the calculation of our tax provision, including the effects of the U.S. Tax Cuts and Jobs Act enacted in December 2017 (“2017 TaxAct”) and the enactment of other tax laws, we engage third-party tax advisors to assist us in the calculation. If we or our tax advisors fail to resolve or fully understandcertain issues that we may have had in the past and issues that may arise in the future, we could be subject to errors, which, if material, would result in us having torestate our financial statements. Restatements are generally costly and could adversely impact our results of operations, damage our reputation, and/or have a negativeimpact on the trading price of our common stock. Changes in effective tax rates or adverse outcomes resulting from examination of our income tax returns could adversely affect our results of operations. Our future effective tax rates could be adversely affected by earnings being lower than anticipated in countries where we have lower statutory rates and higher thananticipated in countries where we have higher statutory rates, by changes in the valuation of our deferred tax assets, or by changes in tax laws such as the 2017 Tax Act,regulations, accounting principles or interpretations thereof and discrete items. In addition, we are subject to potential future examinations of our income tax returns bythe Internal Revenue Service (“IRS”) and tax authorities in various jurisdictions where we have business operations. We assess the likelihood of adverse outcomesresulting from these examinations to determine the adequacy of our provision for income taxes. There can be no assurance that the outcomes from any examinations willnot have an adverse effect on our financial condition and results of operations. Our international operations subject us to potentially significant tax consequences, which could adversely affect our results of operations.We conduct our international operations through wholly-owned subsidiaries, branches and representative offices and report our taxable income in various jurisdictionsworldwide based upon our business operations in those jurisdictions. Such corporate structures are subject to complex transfer pricing and other local regulationsadministered by taxing authorities in various jurisdictions. The relevant taxing authorities may disagree with our determinations as to the income and expensesattributable to specific jurisdictions. If such a disagreement were to occur, and our positions were not sustained, we could be required to pay additional taxes, interestand penalties, resulting in higher effective tax rates, reduced cash flows and lower overall profitability of our operations. Additionally, our future worldwide tax rate andfinancial position may be affected by changes in the relevant tax laws, interpretation of such tax laws or the influence of certain tax policy efforts of the European Unionand the Organization for Economic Co-operation and Development. We face risks in connection with our internal control over financial reporting. Effective internal control over financial reporting is necessary for us to provide reliable and accurate financial reports. If we cannot provide reliable financial reports orprevent fraud or other financial misconduct, our business and operating results could be harmed. Our failure to implement and maintain effective internal control overfinancial reporting could result in a material misstatement of our financial statements or otherwise cause us to fail to meet our financial reporting obligations. This, inturn, could result in a loss of investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on our results ofoperations and/or have a negative impact on the trading price of our common stock, and could subject us to stockholder litigation. In addition, we cannot assure youthat we will not in the future identify material weaknesses in our internal control over financial reporting that we have not discovered to date, which may impact thereliability of our financial reporting and financial statements. 23Table of Contents Risks Associated with Regulatory Compliance, Intellectual Property Protection and Litigation We are subject to anti-corruption laws in the jurisdictions in which we operate, including the U.S. Foreign Corrupt Practices Act (the “FCPA”). Our failure tocomply with these laws could result in penalties which could harm our reputation and have a material adverse effect on our business, financial condition andresults of operations. We are subject to the FCPA, which generally prohibits companies and their intermediaries from making improper payments to foreign officials for the purpose ofobtaining or keeping business and/or other benefits, along with various other anti-corruption laws. Although we have implemented policies and procedures designed toensure that we, our employees and other intermediaries comply with the FCPA and other anti-corruption laws to which we are subject, there is no assurance that suchpolicies or procedures will work effectively all of the time or protect us against liability under the FCPA or other laws for actions taken by our employees and otherintermediaries with respect to our business or any businesses that we may acquire. We have significant operations in Asia, which place us in frequent contact withpersons who may be considered “foreign officials” under the FCPA, resulting in an elevated risk of potential FCPA violations. If we are not in compliance with the FCPAand other laws governing the conduct of business with government entities (including local laws), we may be subject to criminal and civil penalties and other remedialmeasures, which could have a material adverse impact on our business, financial condition, results of operations and liquidity. Any investigation of any potentialviolations of the FCPA or other anti-corruption laws by the U.S. or foreign authorities could harm our reputation and have an adverse impact on our business, financialcondition and results of operations. Our business is subject to various governmental laws and regulations, and compliance with these regulations may impact our revenue and cause us to incursignificant expense. If we fail to maintain compliance with applicable regulations or obtain government licenses and approvals for our desired internationaltrading activities or technology transfers, we may be forced to recall products and cease their distribution, and we could be subject to civil or criminal penalties. Our business is subject to various significant laws and other legal requirements imposed by the U.S. and other countries we conduct business with, including exportcontrol laws such as the Export Administration Act, the Export Administration Regulations and other laws, regulations and requirements governing international tradeand technology transfer. These laws and regulations are complex, change frequently and have generally become more stringent over time. We may be required to incursignificant expense to comply with these regulations or to remedy violations of these regulations. In addition, if our customers fail to comply with these regulations, wemay be required to suspend sales to these customers, which could negatively impact our results of operations. We must conform the manufacture and distribution ofour products to various laws and adapt to regulatory requirements in many countries as these requirements change. If we fail to comply with these requirements in themanufacture or distribution of our products, we could be required to pay civil penalties, face criminal prosecution and, in some cases, be prohibited from distributing ourproducts commercially until the products are brought into compliance. Environmental laws and regulations could cause a disruption in our business and operations. We are subject to various state, federal and international laws and regulations governing the environment, including those restricting the presence of certain substancesin electronic products and making manufacturers of those products financially responsible for the collection, treatment, recycling and disposal of certain products. Suchlaws and regulations have been passed in several jurisdictions in which we operate, including various European Union member countries and countries in Asia. Therecan be no assurance that similar laws and regulations will not be implemented in other jurisdictions resulting in additional costs, possible delays in delivering products,and even the discontinuance of existing and planned future products if the cost were to become prohibitive. If we are unsuccessful in legal proceedings brought against us or any of our customers, we could be prevented from selling many of our products and/or berequired to pay substantial damages. An unfavorable outcome or an additional award of damages, attorneys’ fees or an injunction could cause our revenue todecline significantly and could severely harm our business and operating results. From time to time we are a party to various legal proceedings. If we are not successful in litigation that could be brought against us or our customers, we could beordered to pay monetary fines and/or damages. If we are found liable for willful patent infringement, damages could be significant. We and/or our customers could alsobe prevented from selling some or all of our products. Moreover, our customers and end users could decide not to use our products, and our products and ourcustomers’ accounts payable to us could be seized. Finally, interim developments in these proceedings could increase the volatility in our stock price as the marketassesses the impact of such developments on the likelihood that we will or will not ultimately prevail in these proceedings. Given our inability to control the timing and nature of significant events in our legal proceedings that either have arisen or may arise, our legal expenses aredifficult to forecast and may vary substantially from our publicly disclosed forecasts with respect to any given quarter, which could contribute to increasedvolatility in our stock price and financial condition. Historically, we have incurred significant expenses in connection with various legal proceedings that vary with the level of activity in the proceeding. It is difficult for usto forecast our legal expenses for any given quarter, which adversely affects our ability to forecast our expected results of operations in general. We may also be subjectto unanticipated legal proceedings, which would result in us incurring unexpected legal expenses. If we fail to meet the expectations of securities or industry analysts asa result of unexpected changes in our legal expenses, our stock price could be materially impacted. 24Table of Contents Future legal proceedings may divert our financial and management resources. The semiconductor industry is characterized by frequent claims of infringement and litigation regarding patent and other intellectual property rights. Patent infringementis an ongoing risk, in part because other companies in our industry could have patent rights that may not be identifiable when we initiate development efforts. Litigationmay be necessary to enforce our intellectual property rights, and we may have to defend ourselves against additional infringement claims. Such litigation is very costly.In the event any third party makes a new infringement claim against us or our customers, we could incur additional ongoing legal expenses. In addition, in connectionwith these legal proceedings, we may be required to post bonds to defend our intellectual property rights in certain countries for an indefinite period of time, until suchdispute is resolved. If our legal expenses materially increase or exceed anticipated amounts, our capital resources and financial condition could be adversely affected.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. Ourmanagement team may also be required to devote a great deal of time and effort to these legal proceedings, which could divert management’s attention from focusing onour operations and adversely affect our business. Failure to protect our proprietary technologies or maintain the right to certain technologies may negatively affect our ability to compete. We rely heavily on our proprietary technologies. Our future success and competitive position depend in part upon our ability to obtain and maintain protection ofcertain proprietary technologies used in our products. We pursue patents for some of our new products and unique technologies, and we also rely on a combination ofnondisclosure agreements and other contractual provisions, as well as our employees’ commitment to confidentiality and loyalty, to protect our technology, know-howand processes. Despite the precautions we take, it may be possible for unauthorized third parties to copy aspects of our current or future technologies or products, or toobtain and use information that we regard as proprietary. We intend to continue to protect our proprietary technologies, including through patents. However, there canbe no assurance that the steps we take will be adequate to protect our proprietary rights, that our patent applications will lead to issued patents, that others will notdevelop or patent similar or superior products or technologies, or that our patents will not be challenged, invalidated or circumvented by others. Furthermore, the lawsof the countries in which our products are or may be developed, manufactured or sold may not protect our products and intellectual property rights to the same extentas laws in the United States. Our failure to adequately protect our proprietary technologies could materially harm our business. Risks Associated with Human Capital Management The loss of any of our key personnel or the failure to attract or retain specialized technical and management personnel could affect our operations or impair ourability to grow our business. Our future success depends upon our ability to attract and retain highly qualified technical and managerial personnel. We are particularly dependent on the continuedservices of our key executives, including Michael Hsing, our President and Chief Executive Officer, who founded our company and developed our proprietary processtechnology. In addition, personnel with highly skilled analog and mixed-signal design engineering expertise are scarce and competition for personnel with these skills isintense. There can be no assurance that we will be able to retain existing key employees or that we will be successful in attracting, integrating or retaining other highlyqualified personnel with critical capabilities in the future. If we are unable to retain the services of existing key employees or are unsuccessful in attracting new highlyqualified employees quickly enough to meet the demands of our business, including design cycles, our business could be harmed. Furthermore, if we lose keypersonnel, the search for a qualified replacement and the transition could interrupt our operations as the search could take us longer than expected and divertmanagement resources, and the newly hired employee could take longer than expected to integrate into the team. If we fail to retain key employees in our sales, applications, finance and legal staff or to make continued improvements to our internal systems, particularly in theaccounting and finance area, our business may suffer. If we fail to continue to adequately staff our sales, applications, financial and legal staff, maintain or upgrade our business systems and maintain internal control thatmeet the demands of our business, our ability to operate effectively will suffer. The operation of our business also depends upon our ability to retain these employees,as these employees hold a significant amount of institutional knowledge about us and our products, and, if they were to terminate their employment, our sales andinternal control over financial reporting could be adversely affected. Risks Associated with Ownership of Our Stock The future trading price of our common stock could be subject to wide fluctuations in response to a variety of factors. The future trading price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in response to various factors, many of which arebeyond our control, including: •actual or anticipated results of operations and financial performance; 25Table of Contents •general economic, industry and market conditions worldwide; •our ability to outperform the market and outperform at a level that meets or exceeds our investors’ expectations; •whether our guidance meets the expectations of our investors; •the breath and liquidity of the market for our common stock; •the inclusion, exclusion or deletion of our common stock from any major trading indices, such as the S&P 500 Index; •developments generally affecting the semiconductor industry; •commencement of or developments relating to our involvement in litigation; •investor perceptions of us and our business strategies; •changes in securities analysts’ expectations or our failure to meet those expectations; •actions by institutional or other large stockholders; •terrorist acts or acts of war; • epidemics and pandemics, such as the COVID-19 pandemic; •trading activity in our common stock, including short positions; •actual or anticipated manufacturing capacity limitations; •developments with respect to intellectual property rights; •introduction of new products by us or our competitors; •our sale of common stock or other securities in the future; •conditions and trends in technology industries; •our loss of key customers; •changes in market valuation or earnings of our competitors; •any mergers, acquisitions or divestitures of assets undertaken by us; •government debt default; •changes in corporate tax laws; •government policies and regulations on international trade policies and restrictions, including tariffs on imports of foreign goods; •export controls, trade and economic sanctions and regulations, and other regulatory or contractual limitations on our ability to sell or develop our products incertain foreign markets, particularly in China; •our ability to obtain governmental licenses and approvals for international trading activities or technology transfers, including export licenses; •ratings published by third-party organizations with respect to our environmental, social and governance compliance efforts; •our ability to develop new products, enter new market segments, gain market share, manage litigation risk, diversify our customer base and successfully securemanufacturing capacity; •our ability to increase our gross margins; •our ability to accurately forecast future demand for our products; •market reactions to guidance from other semiconductor companies or third-party research groups; 26Table of Contents •market reactions to merger and acquisition activities in the semiconductor industry, and rumors or expectations of further consolidation in the industry; •investments in sales and marketing resources to enter new markets; •costs of increasing wafer capacity and qualifying additional third-party wafer fabrication facilities; •cyber attacks or other system security, data protection and privacy breaches; •our ability to pay quarterly cash dividends to stockholders; and •changes in the estimation of the future size and growth rate of our markets. In addition, the stock market often experiences substantial volatility that may be unrelated to the operating performance of particular companies. These broad marketfluctuations may adversely affect the trading price of our common stock. If securities or industry analysts downgrade our stock or do not continue to publish research or reports about our business, our stock price and trading volumecould decline. The trading market for our common stock will depend, in part, on the research and reports that industry or securities analysts publish about us or our business. We donot have any control over these analysts. If one or more of the analysts who cover us downgrade our stock, our stock price would likely decline. If one or more of theseanalysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price ortrading volume to decline. Short positions in our stock could have a substantial impact on the trading price of our stock. Historically, there have been “short” positions in our common stock. The anticipated downward pressure on our stock price due to actual or anticipated sales of ourstock by some institutions or individuals who engage in short sales of our common stock could cause our stock price to decline. Such stock price decreases couldencourage further short-sales that could place additional downward pressure on our stock price. This could lead to further increases in the existing short position in ourcommon stock and cause volatility in our stock price. The volatility of our stock may cause the value of a stockholder’s investment to decline rapidly. Additionally, if ourstock price declines, it may be more difficult for us to raise capital and may have other adverse effects on our business. There can be no assurance that we will continue to declare cash dividends at all or in any particular amounts. We have a dividend program approved by our Board of Directors, pursuant to which we intend to pay quarterly cash dividends on our common stock. The declarationof any future cash dividends is at the discretion of our Board of Directors and will depend on, among other things, our financial condition, results of operations, capitalrequirements, business conditions, and other factors that our Board of Directors may deem relevant, as well as a determination that cash dividends are in the bestinterests of our stockholders. Our dividend payments may change from time to time, and we cannot provide assurance that we will continue to declare dividends at all orin any particular amounts. A reduction in or elimination of our dividend payments could have a negative effect on the price of our common stock. If we issue additional shares of stock in the future, it may have a dilutive effect on our stockholders. We may issue additional shares of common stock in the future in order to raise additional capital to fund our global operations or in connection with an acquisition. Wealso issue restricted stock units (“RSUs”) to employees, which convert into shares of common stock upon vesting. Any issuance of our common stock may result inimmediate dilution to our stockholders. In addition, the issuance of a significant amount of our common stock may result in additional regulatory requirements, such asstockholder approval. General Risk Factors Our worldwide operations are subject to political, economic and health risks and natural disasters, which could have a material adverse effect on our businessoperations. Our offices in California and Washington, the production facilities of our third-party wafer suppliers, our IC testing and manufacturing facilities, a portion of ourassembly and research and development activities, and certain other critical business operations are located in or near seismically active regions and are subject toperiodic earthquakes. We do not maintain earthquake insurance and could be materially and adversely affected in the event of a major earthquake. Much of our revenue,as well as our manufacturers and assemblers, are concentrated in Asia, particularly in China. Such concentration increases the risk that other natural disasters, laborstrikes, terrorism, war, political unrest, epidemics and pandemics, and/or health advisories could disrupt our operations. For example, the COVID-19 pandemic hasresulted in disruptions in business operations and other global economic activities. Any of these events may cause disruptions and have a material adverse impact onour business and results of operations. 27Table of Contents In addition, we rely heavily on our internal information and communications systems and on systems or support services from third parties to manage our operationsefficiently and effectively. Any of these are subject to failure due to a natural disaster or other disruptions. System-wide or local failures that affect our informationprocessing could have material adverse effects on our business, financial condition and results of operations. ITEM 1B.UNRESOLVED STAFF COMMENTS None. ITEM 2.PROPERTIES The following table summarizes our significant properties as of December 31, 2020: Location ApproximateBuildingSquare Footage Primary UseOwned: United States: Kirkland, Washington 70,000 Principal executive office, research and development, sales and marketing Livonia, Michigan 40,000 Sales and marketing, research and developmentSan Jose, California 106,000 Research and development, sales and marketing, administrative International: Chengdu, China 200,000 Research and development, administrative Chengdu, China 60,000 Testing and manufacturing operationsHangzhou, China 68,000 Research and developmentShanghai, China 23,000 Sales and marketingShenzhen, China 8,000 Sales and marketingTaipei, Taiwan 47,000 Sales and marketing, research and development Leased: Chengdu, China 89,000 Manufacturing operations, inventory warehouseBarcelona, Spain 12,000 Research and development, sales and marketing We also lease other sales and marketing, and research and development offices in Asia, Europe and the United States. We believe that our existing facilities are adequatefor our current operations. ITEM 3.LEGAL PROCEEDINGS We are a party to actions and proceedings in the ordinary course of business, including potential litigation initiated by our stockholders, challenges to the enforceabilityor validity of our intellectual property, claims that our products infringe on the intellectual property rights of others, and employment matters. These proceedings ofteninvolve complex questions of fact and law and may require the expenditure of significant funds and the diversion of other resources to prosecute and defend. Wedefend ourselves vigorously against any such claims. As of December 31, 2020, there were no material pending legal proceedings to which we were a party. ITEM 4.MINE SAFETY DISCLOSURES Not applicable. 28Table of Contents PART II ITEM 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Common Stock Information Our common stock is traded on the Nasdaq Global Select Market under the symbol “MPWR.” Holders of Common Stock As of February 22, 2021, there were 34 registered holders of record of our common stock. A substantially greater number of holders of our common stock are “streetname” or beneficial holders, whose shares are held by banks, brokers and other financial institutions on their behalf. Dividend Policy We currently have a dividend program approved by our Board of Directors, pursuant to which we intend to pay quarterly cash dividends on our common stock. Basedon our historical practice, stockholders of record as of the last business day of the quarter are entitled to receive the quarterly cash dividends when and if declared byour Board of Directors, which are payable to the stockholders in the following month. The declaration of any future cash dividends is at the discretion of our Board of Directors and will depend on, among other things, our financial condition, results ofoperations, capital requirements, business conditions and other factors that our Board of Directors may deem relevant, as well as a determination that cash dividends arein the best interests of the stockholders. Stock Performance Graph The following graph compares the cumulative five-year total return on our common stock relative to the cumulative total returns of the Nasdaq Composite Index and thePHLX Semiconductor Sector Index. An investment of $100 is assumed to have been made in our common stock on December 31, 2015 and its performance relative to theperformance of a similar investment in the two indexes is shown through December 31, 2020, assuming the reinvestment of dividends. Historic stock performance is notindicative of future performance. The information contained in this stock performance graph section shall not be deemed to be “soliciting material,” or “filed” or incorporated by reference in futurefilings with the SEC, or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, except to the extent that we specifically incorporate it byreference into a document filed under the Securities Act of 1933 or the Securities Exchange Act of 1934. 29Table of Contents ITEM 6. SELECTED FINANCIAL DATA Not applicable. ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the consolidated financial statements and related notes which appear under Item 8 in this Annual Reporton Form 10-K. This discussion and analysis contains, in addition to historical information, forward-looking statements that include risks and uncertainties. Our actualresults may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under “Item 1A. RiskFactors” and elsewhere in this Annual Report on Form 10-K. Discussions of 2018 results and year-to-year comparisons between 2019 and 2018 that are omitted in this Annual Report on Form 10-K can be found in “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2019,filed with the SEC on February 28, 2020. Overview We are a leading semiconductor company that designs, develops and markets high-performance power solutions. Incorporated in 1997, our core strengths include deepsystem-level and applications knowledge, strong analog design expertise and innovative proprietary process technologies. These combined strengths enable us todeliver highly integrated monolithic products that offer energy-efficient, cost-effective, easy-to-use solutions for systems found in computing and storage, automotive,industrial, communications and consumer applications. Our mission is to reduce total energy consumption in our customers’ systems with green, practical and compactsolutions. We believe that we differentiate ourselves by offering solutions that are more highly integrated, smaller in size, more energy-efficient, more accurate withrespect to performance specifications and, consequently, more cost-effective than many competing solutions. We plan to continue to introduce new products within ourexisting product families, as well as in new innovative product categories. We operate in the cyclical semiconductor industry where there is seasonal demand for certain products. We are not immune from current and future industry downturns,but we have targeted product and market areas that we believe have the ability to offer above average industry performance over the long term. We work with third parties to manufacture and assemble our ICs. This has enabled us to limit our capital expenditures and fixed costs, while focusing our engineeringand design resources on our core strengths. Following the introduction of a product, our sales cycle generally takes a number of quarters after we receive an initial customer order for a new product to ramp up.Typical lead times for orders are generally 16 to 26 weeks. These factors, combined with the fact that orders in the semiconductor industry can typically be cancelled orrescheduled without significant penalty to the customer, make the forecasting of our orders and revenue difficult. We derive most of our revenue from sales through distribution arrangements and direct sales to customers in Asia, where our products are incorporated into end-userproducts. Our revenue from direct or indirect sales to customers in Asia was 91%, 89% and 88% for the years ended December 31, 2020, 2019 and 2018, respectively. Wederive a majority of our revenue from the sales of our DC to DC converter products which serve the computing and storage, automotive, industrial, communications andconsumer markets. We believe our ability to achieve revenue growth will depend, in part, on our ability to develop new products, enter new market segments, gainmarket share, manage litigation risk, diversify our customer base and continue to secure manufacturing capacity. Impact of COVID-19 on Our Business In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic, which continues to spread rapidly in the U.S. and globally. Governmentalauthorities have implemented numerous containment measures, including travel-related restrictions, quarantines, shelter-in-place orders, and business restrictions andshutdowns. These measures have significantly affected the global economy and are disrupting business operations worldwide for an unknown period of time until thedisease is contained. Economic conditions remained uncertain as of the end of 2020. Our primary focus is to continue to execute our business plan and mitigate the effect of the pandemic on our financial position and operations, while actively taking allnecessary precautions to ensure the safety of our employees, our suppliers and our customers. The pandemic did not materially and adversely impact our overalloperating results or business operations during 2020. Some of the key developments and initiatives we implemented since March 2020 include, but are not limited to, thefollowing: ●Employees: Our top priority during the pandemic is protecting the health and safety of our employees. As governments continue to institute new restrictions on commercialoperations, we continue to monitor new developments and work to ensure our compliance while also maintaining business continuity for essential operations. Inthe U.S. and certain international locations, we continue to implement work-from-home arrangements in accordance with local regulations. To date, we believe thesearrangements have contributed to the health and safety of our employees and allowed us to successfully maintain business operations and customer relations. 30Table of Contents ●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 properguidance 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 2020 as a result of the pandemic. Our revenue increased in all of our end marketscompared to 2019. Furthermore, there were no significant delays in payments by our customers. However, we cannot provide assurance that we will not experience amaterial and adverse impact on customer demand during 2021 as a result of the pandemic. Our automotive revenue was negatively affected by the pandemic in the second quarter of 2020 after a number of automotive OEMs temporarily shut downproduction. However, revenue has since returned to more normal ordering levels. We continue to receive significant interest from customers in our technology anddesign 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. ●Liquidity and Capital Resources: Our cash and investment balances remain strong and we continue to generate positive operating cash flows. We believe we have sufficient liquidity to satisfy ourcash needs as we manage through the current uncertain environment. However, we will continue to monitor, evaluate and take action, as necessary, to preserveadequate liquidity to support our business for 2021 and beyond. We are actively working with our stakeholders, including customers, suppliers and employees, to address the impact of the pandemic. We will continue to monitor thesituation, to assess further possible implications to our business, supply chain and customers, and to take actions in an effort to mitigate adverse consequences.However, we cannot reasonably estimate the duration and severity of the pandemic or its ultimate impact on the global economy, the semiconductor industry and ourbusiness. A prolonged economic slowdown as a result of the pandemic could materially and adversely impact our business, results of operations and financial conditionfor 2021 and beyond. Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared inaccordance with generally accepted accounting principles in the U.S. The preparation of these financial statements requires us to make estimates and judgments thataffect the reported amount of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an on-going basis, including those related to revenue recognition, stock-based compensation, inventories, income taxes and contingencies. We base our estimates onhistorical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making thejudgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Estimates and judgments used in the preparation of ourfinancial statements are, by their nature, uncertain and unpredictable, and depend upon, among other things, many factors outside of our control, including demand forour products, economic conditions and other current and future events, such as the impact of the COVID-19 pandemic. Actual results could differ from these estimatesand assumptions, and any such differences may be material to our consolidated financial statements. As of the date of issuance of these consolidated financial statements, we are not aware of any specific event or circumstance related to the pandemic that would requiremanagement to update the significant estimates and assumptions used in the preparation of the consolidated financial statements. As new events continue toevolve and additional information becomes available, any changes to these estimates and assumptions will be recognized in the consolidated financial statements assoon as they become known. We believe the following critical accounting policies reflect our more significant judgments used in the preparation of our consolidated financial statements. 31Table of Contents Revenue Recognition We generate revenue primarily from product sales, which include assembled and tested ICs, as well as dies in wafer form. These product sales accounted for 97%, 99%and 98% of our total revenue for the years ended December 31, 2020, 2019 and 2018, respectively. The remaining revenue primarily includes royalty revenue fromlicensing arrangements and revenue from wafer testing services performed for third parties, which have not been significant in all periods presented. 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 reflectsthe 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 customerswhen 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 haslegal 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 thecontracts, 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 becausewe continue to control the products and retain ownership, and the customers do not have an unconditional obligation to pay. We recognize revenue when thecustomers 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 timecontrol transfers to the customers and we invoice them for payment. We account for price adjustment and stock rotation rights as variable consideration that reduces the transaction price, and recognize that reduction in the same periodthe associated revenue is recognized. Four U.S.-based distributors have price adjustment rights when they sell our products to their end customers at a price that islower than the distribution price invoiced by us. When we receive claims from the distributors that products have been sold to the end customers at the lower price, weissue the distributors credit memos for the price adjustments. We estimate the price adjustments using the expected value method based on an analysisof historical claims, at both the distributor and product level, as well as an assessment of any known trends of product sales mix. Other U.S. distributors and non-U.S. distributors, which make up the majority of our total sales to distributors, do not have price adjustment rights. We record a credit against accounts receivable forthe estimated price adjustments, with a corresponding reduction to revenue. Certain distributors have limited stock rotation rights that permit the return of a small percentage of the previous six months’ purchases in accordance with the contractterms. We estimate the stock rotation returns using the expected value method based on an analysis of historical returns, and the current level of inventory in thedistribution channel. We record a liability for the stock rotation reserve, with a corresponding reduction to revenue. In addition, we recognize an asset for productreturns which represents the right to recover products from the customers related to stock rotations, with a corresponding reduction to cost of revenue. We pay sales commissions based on the achievement of pre-determined product sales targets. We have elected the practical expedient to expense sales commissions asincurred because the amortization period would have been one year or less. Inventory Valuation We value our inventories at the lower of the standard cost (which approximates actual cost on a first-in, first-out basis) or their current estimated net realizable value. Wewrite down excess and obsolete inventories based on assumptions about future demand and market conditions. If actual demand or market conditions are less favorablethan those projected by management, additional inventory write-downs may be required. Conversely, if actual demand or market conditions are more favorable,inventories may be sold that were previously written down. Accounting for Income Taxes We recognize federal, state and foreign current tax liabilities or assets based on our estimate of taxes payable or refundable in the current fiscal year by tax jurisdiction.We also recognize federal, state and foreign deferred tax assets or liabilities for our estimate of future tax effects attributable to temporary differences and carryforwards.We record a valuation allowance to reduce any deferred tax assets by the amount of any tax benefits that, based on available evidence and judgment, are not expected tobe realized. Our calculation of current and deferred tax assets and liabilities is based on certain estimates and judgments and involves dealing with uncertainties in the application ofcomplex tax laws. Our estimates of current and deferred tax assets and liabilities may change based, in part, on added certainty, finality or uncertainty to an anticipatedoutcome, changes in accounting or tax laws in the U.S. or foreign jurisdictions where we operate, or changes in other facts or circumstances. In addition, we recognizeliabilities for potential U.S. and foreign income tax for uncertain income tax positions taken on our tax returns if it has less than a 50% likelihood of being sustained. If wedetermine that payment of these amounts is unnecessary or if the recorded tax liability is less than our current assessment, we may be required to recognize an incometax benefit or additional income tax expense in our financial statements in the period such determination is made. We have calculated our uncertain tax positions whichwere attributable to certain estimates and judgments. 32Table of Contents As of December 31, 2020 and 2019, we had a valuation allowance of $18.2 million and $15.4 million, respectively, attributable to management’s determination that it ismore likely than not that certain deferred tax assets will not be fully realized. In the event we determine that it is more likely than not that we would be able to realize thedeferred tax assets in the future in excess of our net recorded amount, an adjustment to the valuation allowance for the deferred tax assets would increase income in theperiod such determination was made. Likewise, should it be determined that additional amounts of the net deferred tax assets will not be realized in the future, anadjustment to increase the deferred tax assets valuation allowance will be charged to income in the period such determination is made. Contingencies We are a party to actions and proceedings in the ordinary course of business, including potential litigation regarding our stockholders and our intellectual property,challenges to the enforceability or validity of our intellectual property, claims that our products infringe on the intellectual property rights of others, and employmentmatters. The pending proceedings involve complex questions of fact and law and will require the expenditure of significant funds and the diversion of other resources toprosecute and defend. In addition, from time to time, we become aware that we are subject to other contingent liabilities. When this occurs, we will evaluate theappropriate accounting for the potential contingent liabilities to determine whether a contingent liability should be recorded. In making this determination, managementmay, depending on the nature of the matter, consult with internal and external legal counsel and technical experts. Based on the facts and circumstances in each matter,we use our judgment to determine whether it is probable that a contingent loss has occurred and whether the amount of such loss can be estimated. If we determine aloss is probable and estimable, we record a contingent loss. In determining the amount of a contingent loss, we take into account advice received from experts for eachspecific matter regarding the status of legal proceedings, settlement negotiations, prior case history and other factors. Should the judgments and estimates made bymanagement need to be adjusted as additional information becomes available, we may need to record additional contingent losses that could materially and adverselyimpact our results of operations. Alternatively, if the judgments and estimates made by management are adjusted, for example, if a particular contingent loss does notoccur, the contingent loss recorded would be reversed which could result in a favorable impact on our results of operations. Stock-Based Compensation We measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The fair value ofRSUs with service conditions is based on the grant date share price. The fair value of shares issued under the employee stock purchase plan (“ESPP”) and RSUs withperformance conditions is estimated using the Black-Scholes model. The fair value of RSUs with market conditions, as well as RSUs containing both market andperformance conditions, is estimated using a Monte Carlo simulation model. Compensation expense related to awards with service conditions is recorded on a straight-line basis over the requisite service period. Compensation expense related toawards subject to market or performance conditions is recognized over the requisite service period for each separately vesting tranche. For awards with performanceconditions, as well as awards containing both market and performance conditions, we recognize compensation expense when the performance goals are achieved, orwhen it becomes probable that the performance goals will be achieved. Management performs the probability assessment on a quarterly basis by reviewing externalfactors, such as macroeconomic conditions and the analog industry revenue forecasts, and internal factors, such as our business and operational objectives andrevenue forecasts. Changes in the probability assessment of achievement of the performance conditions are accounted for in the period of change by recording acumulative catch-up adjustment as if the new estimate had been applied since the service inception date. If the projected achievement was revised upward or if theactual results were higher than the projected achievement, additional compensation expense would be recorded for the awards due to the cumulative catch-upadjustment, which would have an adverse impact on our results of operations. Conversely, if the projected achievement was revised downward or if the actual resultswere lower than the projected achievement, previously accrued compensation expense would be reversed for the awards, which would have a favorable impact on ourresults of operations. As a result, our stock-based compensation expense is subject to volatility and may fluctuate significantly each quarter due to changes in ourprobability assessment of achievement of the performance conditions or actual results being different from projections made by management. We account for forfeitures of equity awards when they occur. 33Table of Contents Recent Accounting Pronouncements See Note 1 of the Notes to Consolidated Financial Statements regarding recently adopted accounting pronouncements and recent accounting pronouncements not yetadopted as of December 31, 2020. Results of Operations The following table summarizes our results of operations: Year Ended December 31, 2020 2019 2018 (in thousands, except percentages) Revenue $844,452 100.0% $627,921 100.0% $582,382 100.0%Cost of revenue 378,498 44.8 281,596 44.8 259,714 44.6 Gross profit 465,954 55.2 346,325 55.2 322,668 55.4 Operating expenses: Research and development 137,598 16.3 107,757 17.2 93,455 16.0 Selling, general and administrative 161,670 19.1 133,542 21.3 113,803 19.5 Litigation expense 7,804 1.0 2,464 0.4 1,922 0.4 Total operating expenses 307,072 36.4 243,763 38.9 209,180 35.9 Income from operations 158,882 18.8 102,562 16.3 113,488 19.5 Other income, net 10,460 1.3 10,558 1.7 4,994 0.9 Income before income taxes 169,342 20.1 113,120 18.0 118,482 20.4 Income tax expense 4,967 0.6 4,281 0.7 13,214 2.3 Net income $164,375 19.5% $108,839 17.3% $105,268 18.1% Revenue The following table summarizes our revenue by end market: Year Ended December 31, Change End Market 2020 % ofRevenue 2019 % ofRevenue 2018 % ofRevenue From2019 to2020 From2018 to2019 (in thousands, except percentages) Computing and storage $253,177 30.0% $189,215 30.1% $159,121 27.3% 33.8% 18.9%Automotive 108,966 12.9 90,303 14.4 80,078 13.8 20.7% 12.8%Industrial 119,603 14.2 99,381 15.8 88,472 15.2 20.3% 12.3%Communications 142,326 16.8 84,794 13.5 70,589 12.1 67.8% 20.1%Consumer 220,380 26.1 164,228 26.2 184,122 31.6 34.2% (10.8)%Total $844,452 100.0% $627,921 100.0% $582,382 100.0% 34.5% 7.8% Revenue for the year ended December 31, 2020 was $844.5 million, an increase of $216.6 million, or 34.5%, from $627.9 million for the year ended December 31, 2019.This increase was driven by higher sales in all of our end markets. Overall unit shipments increased by 7% and average sales prices increased by approximately 24%compared to the same period in 2019. The increase in average sales prices was primarily driven by favorable changes in product mix with more sales coming fromproducts with higher unit prices. For the year ended December 31, 2020, revenue from the communications market increased $57.5 million, or 67.8%, from the same period in 2019. This increase wasprimarily driven by increased infrastructure sales. Revenue from the consumer market increased $56.2 million, or 34.2%, from the same period in 2019. This increase wasprimarily driven by increased sales for gaming and mobile products. Revenue from the computing and storage market increased $64.0 million, or 33.8%, from the sameperiod in 2019. This increase was primarily driven by strength in cloud computing and storage. Revenue from the automotive market increased $18.7 million, or 20.7%,from the same period in 2019. This increase was primarily driven by higher sales of products for infotainment applications, despite temporary production shutdowns bycertain OEMs during the second quarter due to the COVID-19 pandemic. Revenue from the industrial market increased $20.2 million, or 20.3%, from the same period in2019. This increase was primarily driven by higher sales in power source products. 34Table of Contents Cost of Revenue and Gross Margin Cost of revenue primarily consists of costs incurred to manufacture, assemble and test our products, as well as warranty costs, inventory-related and other overheadcosts, and stock-based compensation expenses. Year Ended December 31, Change 2020 2019 2018 From 2019 to2020 From 2018 to2019 (in thousands, except percentages) Cost of revenue $378,498 $281,596 $259,714 34.4% 8.4%As a percentage of revenue 44.8% 44.8% 44.6% Gross profit $465,954 $346,325 $322,668 34.5% 7.3%Gross margin 55.2% 55.2% 55.4% Cost of revenue was $378.5 million, or 44.8% of revenue, for the year ended December 31, 2020, and $281.6 million, or 44.8% of revenue, for the year ended December 31,2019. The $96.9 million increase in cost of revenue was primarily due to a 7% increase in overall unit shipments and a 22% increase in the average direct cost of unitsshipped. The increase in cost of revenue was also driven by an increase in warranty expenses, inventory write-downs and manufacturing overhead costs. Gross margin was 55.2% for the year ended December 31, 2020, compared with 55.2% for the year ended December 31, 2019. For the year ended December 31, 2020, theimpact of a more favorable product mix was primarily offset by higher warranty expenses and inventory write-downs as a percentage of revenue compared to the sameperiod in 2019. Research and Development (“R&D”) R&D expenses primarily consist of salary and benefit expenses, bonuses, stock-based compensation and deferred compensation for design and product engineers,expenses related to new product development and supplies, and facility costs. Year Ended December 31, Change 2020 2019 2018 From 2019 to2020 From 2018 to2019 (in thousands, except percentages) R&D expenses $137,598 $107,757 $93,455 27.7% 15.3%As a percentage of revenue 16.3% 17.2% 16.0% 35Table of Contents R&D expenses were $137.6 million, or 16.3% of revenue, for the year ended December 31, 2020, and $107.8 million, or 17.2% of revenue, for the year ended December 31,2019. The $29.8 million increase in R&D expenses was primarily due to an increase of $22.3 million in compensation expenses, which include salary, benefits andbonuses, an increase of $3.0 million in new product development expenses, and an increase of $1.7 million in depreciation. Our R&D headcount was 930 employees as ofDecember 31, 2020, compared with 839 employees as of December 31, 2019. Selling, General and Administrative (“SG&A”) SG&A expenses primarily include salary and benefit expenses, bonuses, stock-based compensation and deferred compensation for sales, marketing and administrativepersonnel, sales commissions, travel expenses, facilities costs, and professional service fees. Year Ended December 31, Change 2020 2019 2018 From 2019 to2020 From 2018 to2019 (in thousands, except percentages) SG&A expenses $161,670 $133,542 $113,803 21.1% 17.3%As a percentage of revenue 19.1% 21.3% 19.5% SG&A expenses were $161.7 million, or 19.1% of revenue, for the year ended December 31, 2020, and $133.5 million, or 21.3% of revenue, for the year ended December 31,2019. The $28.2 million increase in SG&A expenses was primarily due to an increase of $15.4 million in compensation expenses, which include salary, benefits andbonuses, an increase of $6.2 million in stock-based compensation expenses, which were mainly associated with performance-based equity awards, and an increase of$4.2 million in commission expenses driven by higher revenue. Our SG&A headcount was 564 employees as of December 31, 2020, compared with 503 employees as ofDecember 31, 2019. Litigation Expense Litigation expense was $7.8 million for the year ended December 31, 2020, compared with $2.5 million for the year ended December 31, 2019. The increase was due toincreased litigation activity related to ongoing patent infringement and other matters. Other Income, Net Other income, net, was $10.5 million for the year ended December 31, 2020, compared with other income, net, of $10.6 million for the year ended December 31, 2019. Thedecrease was primarily due to an increase of $2.3 million in amortization of the premium on available-for-sale securities and an increase of $1.1 million in foreign currencyexchange losses. These unfavorable changes were partially offset by an increase of $2.0 million in interest income primarily as a result of higher investment balances,and an increase of $0.8 million in income related to changes in the value of the deferred compensation plan investments. 36Table of Contents Income Tax Expense The income tax expense for the year ended December 31, 2020 was $5.0 million, or 2.9% of pre-tax income. The effective tax rate differed from the federal statutory rateprimarily due to foreign income from our subsidiaries in Bermuda and China being taxed at lower statutory tax rates, and excess tax benefits from stock-basedcompensation. The decrease in the effective tax rate relative to the federal statutory rate was partially offset by the inclusion of the global intangible low-taxed income(“GILTI”) tax. The income tax expense for the year ended December 31, 2019 was $4.3 million, or 3.8% of pre-tax income. The effective tax rate differed from the federal statutory rateprimarily due to foreign income from our subsidiaries in Bermuda and China being taxed at lower statutory tax rates, the impact of certain tax credits and excess taxbenefits from stock-based compensation. The decrease in the effective tax rate relative to the federal statutory rate was partially offset by the inclusion of the GILTI tax.benefits from stock-based compensation. The decrease in the effective tax rate relative to the federal statutory rate was partially offset by the inclusion of the GILTI tax. See Note 12 of the Notes to Consolidated Financial Statements for further discussion. Liquidity and Capital Resources December 31, 2020 2019 (in thousands, except percentages) Cash and cash equivalents $334,944 $172,960 Short-term investments 260,169 282,437 Total cash, cash equivalents and short-term investments $595,113 $455,397 Percentage of total assets 49.2% 47.6% Total current assets $841,998 $655,206 Total current liabilities (146,969) (98,225)Working capital $695,029 $556,981 As of December 31, 2020, we had cash and cash equivalents of $334.9 million and short-term investments of $260.2 million, compared with cash and cash equivalents of$173.0 million and short-term investments of $282.4 million as of December 31, 2019. As of December 31, 2020, $252.1 million of cash and cash equivalents and $130.8million of short-term investments were held by our international subsidiaries. For the year ended December 31, 2020, we repatriated $30 million of cash from our Bermudasubsidiary to the U.S. The proceeds will primarily be used to fund our ongoing business operations. We may repatriate additional cash from our Bermuda subsidiary tofund our expenditures in future periods. We anticipate that earnings from other foreign subsidiaries will continue to be indefinitely reinvested. The significant components of our working capital are cash and cash equivalents, short-term investments, accounts receivable, inventories and other current assets,reduced by accounts payable, accrued compensation and related benefits, and other accrued liabilities. As of December 31, 2020, we had working capital of$695.0 million, compared with working capital of $557.0 million as of December 31, 2019. The $138.0 million increase in working capital was due to a $186.8 million increasein current assets, which was partially offset by a $48.8 million increase in current liabilities. The increase in current assets was primarily due to an increase in cash andcash equivalents, accounts receivable and inventories, which was partially offset by a decrease in short-term investments. The increase in current liabilities was due toan increase in accounts payable, accrued compensation and related benefits and other accrued liabilities. 37Table of Contents Summary of Cash Flows The following table summarizes our cash flow activities: Year Ended December 31, 2020 2019 2018 (in thousands) Net cash provided by operating activities $267,803 $216,303 $141,451 Net cash used in investing activities (39,177) (167,112) (14,740)Net cash used in financing activities (71,557) (48,050) (34,559)Effect of change in exchange rates 4,926 (883) (2,208)Net increase in cash, cash equivalents and restricted cash $161,995 $258 $89,944 For the year ended December 31, 2020, net cash provided by operating activities was $267.8 million, primarily due to our net income adjusted for certain non-cash items,including depreciation and amortization and stock-based compensation, and a net increase of $3.0 million from the changes in our operating assets and liabilities. Theincrease in accounts receivable was driven by increased sales during the three months ended December 31, 2020. The increase in inventories was primarily driven by anincrease in wafer and die inventories to meet current demand and future growth. The increase in accounts payable was primarily driven by increased inventorypurchases to meet future demand. The increase in accrued compensation was primarily due to an increase in accrued bonuses. The increase in other accrued liabilitieswas primarily driven by an increase in the deferred compensation plan liabilities and an increase in warranty expenses. For the year ended December 31, 2019, net cash provided by operating activities was $216.3 million, primarily due to our net income adjusted for certain non-cash items,including depreciation and amortization and stock-based compensation, and a net increase of $17.8 million from the changes in our operating assets and liabilities. Theincrease in other assets was primarily due to an increase in prepaid income taxes and an increase in certain tax withholding proceeds receivable related to RSUs thatvested at the end of the year. The increase in other accrued liabilities was primarily driven by an increase in employee contributions to the deferred compensationplan. The decrease in inventories was primarily driven by a decrease in wafer and die purchases. For the year ended December 31, 2020, net cash used in investing activities was $39.2 million, primarily due to purchases of property and equipment of $55.6 million,partially offset by net sales and maturities of short-term investments of $22.1 million. For the year ended December 31, 2019, net cash used in investing activities was$167.1 million, primarily due to purchases of property and equipment of $95.8 million, net purchases of short-term investments of $76.8 million and net contributions tothe deferred compensation plan of $3.1 million. These cash outflows were partially offset by proceeds from sales of property and equipment of $9.3 million. For the year ended December 31, 2019, we funded the purchases of properties in Kirkland, Washington and Livonia, Michigan for $57.4 million. For the year ended December 31, 2020, net cash used in financing activities was $71.6 million, primarily reflecting $88.8 million used to pay dividends to our stockholdersand dividend equivalents to our employees who hold RSUs, which was partially offset by $22.6 million of cash proceeds from the vesting of RSUs and the issuance ofshares through our ESPP. For the year ended December 31, 2019, net cash used in financing activities was $48.1 million, primarily reflecting $67.3 million used to paydividends to our stockholders and dividend equivalents to our employees who hold RSUs, which was partially offset by $19.9 million of cash proceeds from the vestingof RSUs and the issuance of shares through our ESPP. In February 2021, our Board of Directors approved an increase in our quarterly cash dividends from $0.50 per share to $0.60 per share. We anticipate that cash used for future dividends and dividend equivalent payments, as well as payments for the one-time deemed repatriation transition tax and otherexpenditures, will come from our domestic cash, cash generated from ongoing U.S. operations, and cash repatriated from our Bermuda subsidiary. We also anticipate thatearnings from other foreign subsidiaries will continue to be indefinitely reinvested. 38Table of Contents Although consequences of the COVID-19 pandemic and resulting economic uncertainty could adversely affect our liquidity and capital resources in the future, and cashrequirements may fluctuate based on the timing and extent of many factors such as those discussed above, we currently believe that cash generated from operations,together with the liquidity provided by existing cash balances and short-term investments, will be sufficient to satisfy our liquidity requirements for the next 12 months. In the future, in order to strengthen our financial position, respond to adverse developments such as the COVID-19 pandemic, changes in our circumstance orunforeseen events or conditions, or fund our growth, we may need to discontinue paying dividends and dividend equivalents, and may need to raise additional fundsby any one or a combination of the following: issuing equity securities, issuing debt or convertible debt securities, incurring indebtedness secured by our assets, orselling certain product lines and/or portions of our business. Accordingly, we cannot ensure that we will continue to pay dividends and dividend equivalents in thefuture, and there can be no guarantee that we will be able to raise additional funds on terms acceptable to us, or at all. From time to time, we have engaged in discussions with third parties concerning capital investments and potential acquisitions of product lines, technologies,businesses and companies, and we continue to consider potential investments and acquisition candidates. Any such transactions could involve the issuance of asignificant number of new equity securities, assumptions of debt, and/or payment of cash consideration. We may also be required to raise additional funds to completeany such investments or acquisitions, through either the issuance of equity and debt securities or incurring indebtedness secured by our assets. If we raise additionalfunds or acquire businesses or technologies through the issuance of equity securities or convertible debt securities, our existing stockholders may experiencesignificant dilution. Contractual Obligations The following table summarizes our contractual obligations at December 31, 2020: Payment Due by Period Total Less Than1 Year 1 - 3 Years 3 - 5 Years More Than5 years (in thousands) Operating lease obligations (1) $7,848 $2,407 $3,321 $2,120 $- Outstanding purchase commitments (2) 211,499 189,184 21,615 300 400 Transition tax liability (3) 18,732 1,972 5,669 11,091 - Other long-term obligations (4) 56,151 - 10,776 21,457 23,918 Total $294,230 $193,563 $41,381 $34,968 $24,318 (1)Operating lease obligations represent the undiscounted remaining lease payments. The amount also includes commitments for additional leases that have not yetcommenced as of December 31, 2020. See Note 7 of the Notes to Consolidated Financial Statements for further discussion. (2)Outstanding purchase commitments represent our obligations with our suppliers and other parties that require the future purchases of goods or services, whichprimarily consist of wafer and other inventory purchases, assembly and other manufacturing services, construction or purchases of property and equipment, andlicense arrangements. (3)The transition tax liability represents the one-time, mandatory deemed repatriation tax imposed on previously deferred foreign earnings under the 2017 Tax Act. Aspermitted by the 2017 Tax Act, we have elected to pay the tax liability in installments on an interest-free basis through 2025. (4)Other long-term obligations include long-term liabilities reflected on our Consolidated Balance Sheets, which primarily consist of the deferred compensation planliabilities and accrued dividend equivalents. Because of the uncertainty as to the timing of payments related to our liabilities for unrecognized tax benefits, we haveexcluded estimated obligations of $20.3 million from the table above. Off Balance Sheet Arrangements As of December 31, 2020, we had no off-balance sheet arrangements as defined in Item 303(a)(4) of the Securities and Exchange Commission’s Regulation S-K. 39Table of Contents ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk Our cash equivalents and short-term investments are subject to market risk, primarily interest rate and credit risk. Our investments are managed by outside professionalmanagers within investment guidelines set by management and approved by the Audit Committee of the Board of Directors. Such guidelines include security type,credit quality and maturity and are intended to limit market risk by restricting our investments to high quality debt instruments with relatively short-term maturities.Based on our investment positions as of December 31, 2020, a hypothetical 10% decline in interest rates would impact our results of operations by approximately $0.9million in interest income. Investments in debt securities are classified as available-for-sale, which are reported at fair value with the unrealized gains or losses being included in accumulated othercomprehensive income (loss) on the Consolidated Balance Sheets. When the fair value of an investment is below its amortized cost basis, unrealized losses due tochanges in interest rates (i.e., non-credit loss factors) are not recognized in our results of operations unless we have the intent to sell the securities or it is more likelythan not that we will be required to sell the securities before recovery of the entire amortized cost basis. Based on our investment positions as of December 31, 2020, ahypothetical 100 basis point increase in interest rates would result in a $2.6 million decline in the fair value of our investments. Any losses resulting from such interestrate changes would only be realized if we sold the investments prior to maturity. We do not use derivative financial instruments in our investment portfolio. Foreign Currency Exchange Risk Our sales outside the United States are primarily transacted in U.S. dollars through our subsidiary in Bermuda. Accordingly, our sales are not generally impacted byforeign currency rate changes. The functional currency of our offshore operations is generally the local currency, primarily including the Renminbi, the New TaiwanDollar and the Euro. In addition, we incur foreign currency exchange gains or losses related to certain intercompany transactions between the U.S. and our foreignsubsidiaries that are denominated in a currency other than the functional currency. Gains or losses from the settlement and remeasurement of the balances are reportedin other income, net, on the Consolidated Statements of Operations. Fluctuations in foreign currency exchange rates have not had a material impact on our results ofoperations in any of the periods presented. 40Table of Contents ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA MONOLITHIC POWER SYSTEMS, INC.CONSOLIDATED FINANCIAL STATEMENTS Contents PageReports of Independent Registered Public Accounting Firm (Ernst & Young LLP)42Report of Independent Registered Public Accounting Firm (Deloitte & Touche LLP)44Consolidated Balance Sheets45Consolidated Statements of Operations46Consolidated Statements of Comprehensive Income47Consolidated Statements of Stockholders’ Equity48Consolidated Statements of Cash Flows49Notes to Consolidated Financial Statements50 41Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Monolithic Power Systems, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Monolithic Power Systems, Inc. (the Company) as of December 31, 2020 and 2019, the relatedconsolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2020,and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in allmaterial respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years inthe period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal controlover financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission (2013 framework) and our report dated March 1, 2021 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statementsbased on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with theU.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks ofmaterial misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures includedexamining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principlesused and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides areasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to becommunicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especiallychallenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financialstatements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accountor disclosure to which it relates. Inventory Valuation Description of the Matter The Company’s inventories totaled $157.1 million as of December 31, 2020, representing 13% of total assets. As explained in Note 1 to theconsolidated financial statements, the Company values inventories at the lower of standard cost (which approximates actual cost determinedon a first-in first-out basis) and estimated net realizable value in each reporting period. Excess and obsolete inventory is written down to itsestimated net realizable value if less than cost. Auditing management’s estimates for excess and obsolete inventory involved subjective auditor judgment because management’sassessment of whether a write down is required and the measurement of any excess of cost over net realizable value is judgmental andconsiders a number of qualitative factors that are affected by market and economic conditions outside the Company’s control. In particular,the excess and obsolete inventory calculations are sensitive to significant assumptions, including demand for the Company’s products,which considers adjustments to sales forecasts for specific product considerations, including but not limited to new product launches andexpected industry sales growth. How We Addressed theMatter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of internal controls over the Company's excessand obsolete inventory reserve process. This included controls over management’s assessment of inventory valuation, including thedetermination of forecasted usage of inventories and how factors outside of the Company’s control might affect management’s judgmentrelated to the valuation of excess and obsolete inventory. Our substantive audit procedures included, among others, evaluating the significant assumptions stated above and testing the completenessand accuracy of the underlying data used in management’s excess and obsolete inventory valuation assessment. We evaluated inventorylevels compared to forecasted product demand, historical sales and specific product considerations. We also assessed the historicalaccuracy of management’s estimates and performed sensitivity analyses over the significant assumptions to evaluate the changes in theexcess and obsolete inventory estimates that would result from changes in the underlying assumptions. /s/ Ernst & Young LLP We have served as the Company's auditor since 2019. San Jose, California March 1, 2021 42Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Monolithic Power Systems, Inc. Opinion on Internal Control Over Financial Reporting We have audited Monolithic Power Systems Inc.’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control –Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion,Monolithic Power Systems Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based onthe COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheetsof the Company as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows foreach of the two years in the period ended December 31, 2020, and the related notes and our report dated March 1, 2021 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internalcontrol over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express anopinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to beindependent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and ExchangeCommission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assuranceabout whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating thedesign and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in thecircumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financialreporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactionsand dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance withauthorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectivenessto future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies orprocedures may deteriorate. /s/ Ernst & Young LLP San Jose, CaliforniaMarch 1, 2021 43Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Monolithic Power Systems, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows of Monolithic PowerSystems, Inc. and subsidiaries (the “Company”) for the year ended December 31, 2018, and the related notes (collectively referred to as the “financial statements”). Inour opinion, the financial statements present fairly, in all material respects, the results of the Company’s operations and its cash flows for the year ended December 31,2018, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statementsbased on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with theU.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks ofmaterial misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures includedexamining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principlesused and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides areasonable basis for our opinion. /s/ Deloitte & Touche LLP San Jose, California March 1, 2019 We began serving as the Company’s auditor in 1999. In 2019, we became the predecessor auditor. 44Table of Contents MONOLITHIC POWER SYSTEMS, INC.CONSOLIDATED BALANCE SHEETS(in thousands, except par value) December 31, 2020 2019 ASSETS Current assets: Cash and cash equivalents $334,944 $172,960 Short-term investments 260,169 282,437 Accounts receivable, net 66,843 52,704 Inventories 157,062 127,500 Other current assets 22,980 19,605 Total current assets 841,998 655,206 Property and equipment, net 281,528 228,315 Goodwill 6,571 6,571 Deferred tax assets, net 18,556 17,193 Other long-term assets 59,838 49,090 Total assets $1,208,491 $956,375 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $38,169 $27,271 Accrued compensation and related benefits 45,840 26,164 Other accrued liabilities 62,960 44,790 Total current liabilities 146,969 98,225 Income tax liabilities 37,062 37,596 Other long-term liabilities 57,873 47,063 Total liabilities 241,904 182,884 Commitments and contingencies Stockholders’ equity: Common stock and additional paid-in capital: $0.001 par value; shares authorized: 150,000; shares issued andoutstanding: 45,267 and 43,616, respectively 657,701 549,517 Retained earnings 298,746 229,450 Accumulated other comprehensive income (loss) 10,140 (5,476)Total stockholders’ equity 966,587 773,491 Total liabilities and stockholders’ equity $1,208,491 $956,375 See accompanying notes to consolidated financial statements. 45Table of Contents MONOLITHIC POWER SYSTEMS, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share amounts) Year Ended December 31, 2020 2019 2018 Revenue $844,452 $627,921 $582,382 Cost of revenue 378,498 281,596 259,714 Gross profit 465,954 346,325 322,668 Operating expenses: Research and development 137,598 107,757 93,455 Selling, general and administrative 161,670 133,542 113,803 Litigation expense 7,804 2,464 1,922 Total operating expenses 307,072 243,763 209,180 Income from operations 158,882 102,562 113,488 Other income, net 10,460 10,558 4,994 Income before income taxes 169,342 113,120 118,482 Income tax expense 4,967 4,281 13,214 Net income $164,375 $108,839 $105,268 Net income per share: Basic $3.67 $2.52 $2.49 Diluted $3.50 $2.38 $2.36 Weighted-average shares outstanding: Basic 44,840 43,165 42,247 Diluted 47,014 45,763 44,602 See accompanying notes to consolidated financial statements. 46Table of Contents MONOLITHIC POWER SYSTEMS, INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(in thousands) Year Ended December 31, 2020 2019 2018 Net income $164,375 $108,839 $105,268 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments 14,150 (1,706) (7,082)Change in unrealized gain (loss) on available-for-sale securities, net of tax of $(325), $(203)and $209, respectively 1,466 1,773 (274)Other comprehensive income (loss), net of tax 15,616 67 (7,356)Comprehensive income $179,991 $108,906 $97,912 See accompanying notes to consolidated financial statements. 47Table of Contents MONOLITHIC POWER SYSTEMS, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(in thousands, except per share amounts) Accumulated Common Stock and Other Total Additional Paid-in Capital Retained Comprehensive Stockholders’ Shares Amount Earnings Income (Loss) Equity Balance as of January 1, 2018 41,614 $376,586 $143,608 $1,813 $522,007 Net income - - 105,268 - 105,268 Other comprehensive loss - - - (7,356) (7,356)Dividends and dividend equivalents declared ($1.20 per share) - - (54,527) - (54,527)Common stock issued under the employee equity incentive plan 858 10,637 - - 10,637 Common stock issued under the employee stock purchase plan 33 3,028 - - 3,028 Stock-based compensation expense - 60,657 - - 60,657 Cumulative effect of a change in accounting principles - - 379 - 379 Balance as of December 31, 2018 42,505 450,908 194,728 (5,543) 640,093 Net income - - 108,839 - 108,839 Other comprehensive income - - - 67 67 Dividends and dividend equivalents declared ($1.60 per share) - - (74,117) - (74,117)Common stock issued under the employee equity incentive plan 1,083 16,650 - - 16,650 Common stock issued under the employee stock purchase plan 28 3,277 - - 3,277 Stock-based compensation expense - 78,682 - - 78,682 Balance as of December 31, 2019 43,616 549,517 229,450 (5,476) 773,491 Net income - - 164,375 - 164,375 Other comprehensive income - - - 15,616 15,616 Dividends and dividend equivalents declared ($2.00 per share) - - (95,079) - (95,079)Common stock issued under the employee equity incentive plan 1,623 18,767 - - 18,767 Common stock issued under the employee stock purchase plan 28 3,819 - - 3,819 Stock-based compensation expense - 85,598 - - 85,598 Balance as of December 31, 2020 45,267 $657,701 $298,746 $10,140 $966,587 See accompanying notes to consolidated financial statements. 48Table of Contents MONOLITHIC POWER SYSTEMS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Year Ended December 31, 2020 2019 2018 Cash flows from operating activities: Net income $164,375 $108,839 $105,268 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 19,186 14,867 12,311 Amortization of premium on available-for-sale securities 2,979 729 1,353 (Gain) loss on deferred compensation plan investments (4,592) (3,806) 255 Deferred taxes, net (1,627) (577) (843)Stock-based compensation expense 85,551 78,699 60,607 Other (1,072) (259) 22 Changes in operating assets and liabilities: Accounts receivable (14,123) 2,512 (18,079)Inventories (29,503) 8,865 (37,060)Other assets (3,003) (10,204) (1,075)Accounts payable 10,410 3,048 871 Accrued compensation and related benefits 18,524 7,496 3,806 Income tax liabilities 747 (1,355) 6,923 Other accrued liabilities 19,951 7,449 7,092 Net cash provided by operating activities 267,803 216,303 141,451 Cash flows from investing activities: Purchases of property and equipment (55,639) (95,806) (22,526)Proceeds from sales of property and equipment 29 9,268 - Acquisition of in-place leases - (981) - Purchases of short-term investments (334,947) (212,562) (99,199)Proceeds from maturities and sales of short-term investments 357,092 135,801 109,131 Purchases of long-term investments (3,316) - - Proceeds from sales of long-term investments 300 250 2,000 Contributions to deferred compensation plan, net (2,696) (3,082) (4,146)Net cash used in investing activities (39,177) (167,112) (14,740)Cash flows from financing activities: Property and equipment purchased on extended payment terms (5,357) (683) (749)Proceeds from common stock issued under the employee equity incentive plan 18,767 16,650 10,637 Proceeds from common stock issued under the employee stock purchase plan 3,819 3,277 3,028 Dividends and dividend equivalents paid (88,786) (67,294) (47,475)Net cash used in financing activities (71,557) (48,050) (34,559)Effect of change in exchange rates 4,926 (883) (2,208)Net increase in cash, cash equivalents and restricted cash 161,995 258 89,944 Cash, cash equivalents and restricted cash, beginning of period 173,076 172,818 82,874 Cash, cash equivalents and restricted cash, end of period $335,071 $173,076 $172,818 Supplemental disclosures for cash flow information: Cash paid for taxes $1,405 $10,700 $7,134 Non-cash investing and financing activities: Liability accrued for property and equipment purchases $7,839 $7,803 $1,737 Liability accrued for dividends and dividend equivalents $27,507 $21,955 $16,319 See accompanying notes to consolidated financial statements. 49Table of Contents MONOLITHIC POWER SYSTEMS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Monolithic Power Systems, Inc. (the “Company”) was incorporated in the State of California on August 22, 1997. On November 17, 2004, the Company wasreincorporated in the State of Delaware. MPS designs, develops and markets integrated power semiconductor solutions and power delivery architectures. MPS’smission is to provide innovative power solutions in the computing and storage, automotive, industrial, communications and consumer markets. Basis of Presentation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany accounts and transactions have beeneliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management tomake estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financialstatements, and reported amounts of revenue and expenses during the reporting period. Significant estimates and assumptions used in these consolidated financialstatements primarily include those related to revenue recognition, inventory valuation, valuation of share-based awards, contingencies and income tax valuationallowances. Actual results could differ from these estimates and assumptions, and any such differences may be material to the Company’s consolidated financialstatements. The COVID-19 outbreak has significantly affected the global economy and is disrupting business operations worldwide for an unknown period of time until the diseaseis contained. Although these events did not adversely affect the Company’s overall operating results and financial condition for the year ended December 31, 2020, theycould have a negative impact on the Company’s business operations in future periods. However, the Company is currently unable to predict the size and duration ofsuch impact. As of the date of issuance of these consolidated financial statements, the Company is not aware of any specific event or circumstance related to the pandemic thatwould require management to update the significant estimates and assumptions used in the preparation of the consolidated financial statements. As new eventscontinue to evolve and additional information becomes available, any changes to these estimates and assumptions will be recognized in the consolidated financialstatements as soon as they become known. Certain Significant Risks and Uncertainties Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents, short-term and long-term investmentsand accounts receivable. The Company’s cash equivalents include short-term, highly liquid investments purchased with remaining maturities at the date of purchase ofthree months or less. The Company’s short-term investments may consist of corporate debt securities, certificates of deposit, commercial paper and government agencybonds and treasuries, and the long-term investments consist of government-backed student loan auction-rate securities and non-marketable equity investments. The Company does not require its customers to provide collateral to support accounts receivable. The Company assesses the collectability by reviewing accountsreceivable on a customer-by-customer basis. To manage credit risk, management performs ongoing credit evaluations of the customers’ financial condition, monitorspayment performance, and assesses current economic conditions, as well as reasonable and supportable forecasts of future economic conditions, that may affectcollectability of the outstanding receivables. For certain high risk customers, the Company requires standby letters of credit or advance payment prior to shipments ofgoods. The Company participates in the dynamic high technology industry and believes that changes in any of the following areas could have a material adverse effect on itsfuture financial position, results of operations or cash flows: advances and trends in new technologies and industry standards; competitive pressures in the form of newproducts or price reductions on current products; changes in product mix; changes in the overall demand for products offered by the Company; changes in third-partymanufacturers; changes in key suppliers; changes in certain strategic relationships or customer relationships; litigation or claims against the Company based onintellectual property, patent, product, regulatory or other factors; fluctuations in foreign currency exchange rates; risk associated with changes in government policiesand regulations on trade restrictions and corporate taxes; availability of necessary components or sub-assemblies; availability of foundry capacity; ability to integrateacquired companies; and the Company’s ability to attract and retain employees necessary to support its growth. 50Table of Contents Foreign Currency In general, the functional currency of the Company’s international subsidiaries is the local currency. The primary subsidiaries are located in China, Taiwan and Europe,which utilize the Renminbi, the New Taiwan Dollar and the Euro as their currencies, respectively. Accordingly, assets and liabilities of the foreign subsidiaries aretranslated using exchange rates in effect at the end of the period. Revenue and costs are translated using average exchange rates for the period. The resultingtranslation adjustments are recorded in accumulated other comprehensive income (loss) on the Consolidated Balance Sheets. In addition, the Company incurs foreign currency exchange gain or loss related to certain intercompany transactions between the U.S. and its foreign subsidiaries thatare denominated in a currency other than the functional currency. In connection with the settlement and remeasurement of the balances, the Company recorded foreigncurrency exchange gain (loss) of $(1.4) million, $(0.3) million and $1.0 million for the years ended December 31, 2020, 2019 and 2018, respectively, which were reported inother income, net, on the Consolidated Statements of Operations. Cash Equivalents and Debt Investments The Company classifies all highly liquid investments with stated maturities of three months or less from date of purchase as cash equivalents. The Company mayclassify investments with maturities beyond one year as short-term based on the nature of the investments and their availability for use in current operations. Cash equivalents are stated at cost, which approximates fair market value. The Company’s short-term and long-term debt investments are classified as available-for-salesecurities and are stated at their fair market value, with unrealized gains and losses recorded in accumulated other comprehensive income (loss) on the ConsolidatedBalance Sheets. Premiums and discounts on debt investments are generally amortized or accreted over the life of the related available-for-sale securities. Interest incomeis recognized when earned. The cost of investments sold is determined on a specific identification method. Available-for-sale investments are subject to impairment reviews when the fair value is below the amortized cost basis. If the Company determines that the decline in fairvalue below the amortized cost basis is due to credit-related factors, the impairment is recognized as an allowance on the Consolidated Balance Sheets with acorresponding adjustment to earnings. An impairment that is not credit-related is recognized in accumulated other comprehensive income (loss) on the ConsolidatedBalance Sheets. If the Company intends to sell the impaired investments, or more likely than not will be required to sell such investments before recovering the amortizedcost basis, the entire impairment amount is recognized in earnings with a corresponding adjustment to the amortized cost basis. Equity Investments Equity investments in privately held companies without readily determinable fair values are accounted for under the measurement alternative, provided that theCompany does not have the ability to exercise significant influence or control over the investees. The Company measures the investments at cost, less any impairment,and adjusts the carrying value of the investments to fair value resulting from observable transactions for identical or similar investments of the same issuer. TheCompany records the investments in other long-term assets on the Consolidated Balance Sheets, and gains and losses on the investments are recognized in otherincome, net, on the Consolidated Statements of Operations. The Company monitors its non-marketable equity investments for impairment indicators, such as negative changes in industry and market conditions, financialperformance, business prospects, and other relevant events and factors. If indicators exist for a security and the fair value is below the carrying amount, the Companywrites down the security to fair value. 51Table of Contents Fair Value of Financial Instruments Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at themeasurement date. When determining the fair value, the Company considers the principal or most advantageous market in which the Company would transact, as well asassumptions that market participants would use when pricing the assets or liabilities. Fair value is estimated by applying the following hierarchy, which prioritizes theinputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to thefair value measurement: ●Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. ●Level 2 - Inputs that are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that arenot active, and model-based valuation techniques for which all significant inputs are observable in the market or can be derived from observable market data. ●Level 3 - Significant unobservable inputs to the valuation methodology and typically reflect management’s estimates of assumptions that market participantswould use in pricing the asset or liability. Inventories Inventories are stated at the lower of standard cost (which approximates actual cost determined on a first-in first-out basis) and estimated net realizable value. TheCompany writes down excess and obsolete inventory based on its age and forecasted demand, which includes estimates taking into consideration the Company’soutlook on market and economic conditions, technology changes, new product introductions and changes in strategic direction. Actual demand may differ fromforecasted demand, and such differences may have a material effect on recorded inventory values. When the Company records a write-down on inventory, it establishesa new, lower cost basis for that inventory, and subsequent changes in facts and circumstances will not result in the restoration or increase in that newly established costbasis. Property and Equipment Property and equipment are stated at cost. Depreciation commences when an asset is placed in service and available for its intended use. Depreciation is computedusing the straight-line method over the estimated useful lives of the assets. Buildings and building improvements have estimated useful lives of 20 to 40 years.Leasehold improvements are amortized over the shorter of the estimated useful lives or the lease period. Production equipment and software have estimated useful livesof three to eight years. Transportation equipment has estimated useful lives of 5 to 20 years. Furniture and fixtures have estimated useful lives of three to five years.Land is not depreciated. Impairment of Long-Lived Assets The Company evaluates its long-lived assets other than goodwill for impairment whenever events or changes in circumstances indicate that the carrying amount of anasset may not be recoverable. An impairment loss would be recognized when the sum of the undiscounted future net cash flows expected to result from the use of theasset and its eventual disposition is less than its carrying amount. Such impairment loss would be measured as the difference between the carrying amount of the assetand its fair value based on the present value of estimated future cash flows. The Company did not record material impairments in any of the periods presented. Goodwill Goodwill represents the excess of the fair value of purchase consideration over the fair value of net tangible and identified intangible assets as of the date of acquisition.Goodwill is not amortized. The Company tests goodwill for impairment at least annually in the fourth quarter of each year, or whenever events or changes in circumstances indicate that goodwillmay be impaired. The Company has elected to first assess the qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit isless than its carrying amount. If the Company determines that it is more likely than not that its fair value is less than the carrying amount, then a quantitative goodwillimpairment test is performed to measure the impairment loss. No impairment of goodwill has been identified in any of the periods presented. Deferred Compensation Plan The Company has a non-qualified, unfunded deferred compensation plan, which provides certain key employees, including executive officers, with the ability to deferthe receipt of compensation in order to accumulate funds for retirement on a tax deferred basis. The Company does not make contributions to the plan or guaranteereturns on the investments. The Company is responsible for the plan’s administrative expenses. Participants’ deferrals and investment gains and losses remain as theCompany’s liabilities and the underlying assets are subject to claims of general creditors. 52Table of Contents The liabilities for compensation deferred under the plan are recorded at fair value in each reporting period. Changes in the fair value of the liabilities are included inoperating expense on the Consolidated Statements of Operations. The Company manages the risk of changes in the fair value of the liabilities by electing to match theliabilities with investments in corporate-owned life insurance policies, mutual funds and money market funds that offset a substantial portion of the exposure. Theinvestments are recorded at the cash surrender value of the corporate-owned life insurance policies, and at the fair value of the mutual funds and money market funds,which are classified as trading securities. Changes in the cash surrender value of the corporate-owned life insurance policies and the fair value of mutual fund andmoney market fund investments are included in other income, net, on the Consolidated Statements of Operations. The following table summarizes the deferredcompensation plan balances on the Consolidated Balance Sheets (in thousands): December 31, 2020 2019 Deferred compensation plan asset components: Cash surrender value of corporate-owned life insurance policies $19,222 $16,883 Fair value of mutual funds and money market funds 26,924 21,975 Total $46,146 $38,858 Deferred compensation plan assets reported in: Other long-term assets $46,146 $38,858 Deferred compensation plan liabilities reported in: Accrued compensation and related benefits (short-term) $155 $425 Other long-term liabilities 48,280 39,665 Total $48,435 $40,090 Revenue Recognition The Company recognizes revenue when it transfers control of promised goods or services to its customers in an amount that reflects the consideration to which itexpects to be entitled to in exchange for those goods or services. See Note 2 for further discussion. Research and Development Costs incurred in research and development are expensed as incurred. Warranty Reserve The Company generally provides one to two-year warranties against defects in materials and workmanship and will either repair the products, provide replacementsat no charge to customers or issue a refund. As they are considered assurance-type warranties, the Company does not account for them as separate performanceobligations. Warranty reserve requirements are generally based on a specific assessment of the products sold with warranties when a customer asserts a claim forwarranty or a product defect. Leases The Company determines if an arrangement is a lease at inception. Lease terms may include options to extend or terminate the lease when it is reasonably certain that theCompany will exercise that option. Operating lease right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term andoperating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized atthe commencement date based on the present value of remaining lease payments over the lease term. ROU assets also include any initial direct costs incurred andprepaid lease payments, less lease incentives received. Because the implicit rate in each lease is not readily determinable, the Company uses its estimated incrementalborrowing rate to determine the present value of the remaining lease payment. The Company recognizes operating lease costs on a straight-line basis over the leaseterm. The Company does not record short-term leases with a term of 12 months or less at the commencement date on the Consolidated Balance Sheets. For lease arrangementsthat contain lease and non-lease components, the Company accounts for them as single lease components. For lease arrangements where the Company is the lessor, the Company recognizes lease income from operating leases on a straight-line basis over the lease term. 53Table of Contents Stock-Based Compensation The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The fairvalue of RSUs with only service conditions is determined based on the grant date stock price. The fair value of all other awards is determined based on the followingvaluation methods: Type of Awards Valuation Method RSUs with performance conditions Black-Scholes modelRSUs with market conditions Monte Carlo simulation modelRSUs with both performance and market conditions Monte Carlo simulation modelShares issued under the ESPP Black-Scholes model Compensation expense related to awards with service conditions is recorded on a straight-line basis over the requisite service period. Compensation expense related toawards subject to performance or market conditions is recognized over the requisite service period for each separately vesting tranche. For awards with only marketconditions, compensation expense is not reversed if the market conditions are not satisfied. For awards with only performance conditions, as well as awards containingboth market and performance conditions, the Company recognizes compensation expense when the performance goals are achieved, or when it becomes probable thatthe performance goals will be achieved. Management performs the probability assessment on a quarterly basis by reviewing external factors, such as macroeconomicconditions and the analog industry revenue forecasts, and internal factors, such as the Company’s business and operational objectives and revenue forecasts. Changesin the probability assessment of achievement of the performance conditions are accounted for in the period of change by recording a cumulative catch-up adjustment asif the new estimate had been applied since the service inception date. Any previously recognized compensation expense is reversed if the performance conditions arenot expected to be satisfied as a result of management’s assessment. The Company accounts for forfeitures of equity awards when they occur. Accounting for Income Taxes The Company recognizes federal, state and foreign current tax liabilities or assets based on its estimate of taxes payable or refundable in the current fiscal year by taxjurisdiction. The Company also recognizes federal, state and foreign deferred tax assets or liabilities for its estimate of future tax effects attributable to temporarydifferences and carryforwards. The Company records a valuation allowance to reduce any deferred tax assets by the amount of any tax benefits that, based on availableevidence and judgment, are not expected to be realized. The Company’s calculation of current and deferred tax assets and liabilities is based on certain estimates and judgments and involves dealing with uncertainties in theapplication of complex tax laws. The Company’s estimates of current and deferred tax assets and liabilities may change based, in part, on added certainty, finality oruncertainty to an anticipated outcome, changes in accounting or tax laws in the U.S. or foreign jurisdictions where the Company operates, or changes in other facts orcircumstances. In addition, the Company recognizes liabilities for potential U.S. and foreign income tax for uncertain income tax positions taken on its tax returns if it hasless than a 50% likelihood of being sustained. If the Company determines that payment of these amounts is unnecessary or if the recorded tax liability is less than itscurrent assessment, the Company may be required to recognize an income tax benefit or additional income tax expense in its financial statements in the period suchdetermination is made. The Company has calculated its uncertain tax positions which were attributable to certain estimates and judgments. Litigation and Contingencies The Company is a party to actions and proceedings in the ordinary course of business, including potential litigation regarding its stockholders and its intellectualproperty, challenges to the enforceability or validity of its intellectual property, claims that the Company’s products infringe on the intellectual property rights of others,and employment matters. The pending proceedings involve complex questions of fact and law and will require the expenditure of significant funds and the diversion ofother resources to prosecute and defend. In addition, from time to time, the Company becomes aware that it is subject to other contingent liabilities. When this occurs,the Company will evaluate the appropriate accounting for the potential contingent liabilities to determine whether a contingent liability should be recorded. In makingthis determination, management may, depending on the nature of the matter, consult with internal and external legal counsel and technical experts. Based on the factsand circumstances in each matter, the Company uses its judgment to determine whether it is probable that a contingent loss has occurred and whether the amount ofsuch loss can be estimated. If the Company determines a loss is probable and estimable, the Company records a contingent loss. In determining the amount of acontingent loss, the Company takes into account advice received from experts for each specific matter regarding the status of legal proceedings, settlementnegotiations, prior case history and other factors. Should the judgments and estimates made by management need to be adjusted as additional information becomesavailable, the Company may need to record additional contingent losses. Alternatively, if the judgments and estimates made by management are adjusted, for example, ifa particular contingent loss does not occur, the contingent loss recorded would be reversed. Litigation expense recorded on the Consolidated Statements of Operations includes primarily patent infringement litigation and other business matters. The Companyrecords litigation costs in the period in which they are incurred. Proceeds resulting from settlement of litigation or favorable judgments are recorded as a reductionagainst litigation expense. 54Table of Contents Net Income per Share Basic net income per share is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted net income pershare reflects the potential dilution that would occur if outstanding securities or other contracts to issue common stock were exercised or converted into commonshares, and calculated using the treasury stock method. Contingently issuable shares, including equity awards with performance conditions or market conditions, areconsidered outstanding common shares and included in the basic net income per share as of the date that all necessary conditions to earn the awards have beensatisfied. Prior to the end of the contingency period, the number of contingently issuable shares included in the diluted net income per share is based on the number ofshares, if any, that would be issuable under the terms of the arrangement at the end of the reporting period. The Company’s RSUs contain forfeitable rights to receive cash dividend equivalents, which are accumulated and paid to the employees when the underlying RSUs vest.Dividend equivalents accumulated on the underlying RSUs are forfeited if the employees do not fulfill the requisite service requirement and, as a result, the awardsdo not vest. Accordingly, these awards are not treated as participating securities in the net income per share calculation. Comprehensive Income Comprehensive income represents the change in the Company’s net assets during the period from non-owner sources. Accumulated other comprehensive income(loss) presented on the Consolidated Balance Sheets primarily consists of unrealized gains or losses related to available-for-sale investments and foreign currencytranslation adjustments. Recently Adopted Accounting Pronouncements In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement(Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement, which changes certain disclosure requirements, includingthose related to Level 3 fair value measurements. The Company adopted the standard in the first quarter of 2020 and the adoption did not have a material impact on itsdisclosures. In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies theaccounting for goodwill impairment. The guidance removes step two of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwillimpairment is the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Entities continue to have theoption to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The Company adopted the standard in the first quarter of 2020 andthe adoption did not have a material impact on its annual goodwill impairment test. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, whichintroduces a model based on expected losses to estimate credit losses for most financial assets and certain other instruments. In addition, for available-for-sale debtsecurities, the standard eliminates the concept of other-than-temporary impairment and entities are required to recognize an allowance for credit losses rather thanreductions in the amortized cost of the securities. Entities are required to apply the standard by recording a cumulative-effect adjustment to retained earnings. TheCompany adopted the standard in the first quarter of 2020, which did not have a material impact on its consolidated financial statements. Recent Accounting Pronouncement Not Yet Adopted as of December 31, 2020 In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which eliminates certain exceptionsrelated to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities foroutside basis differences. The standard also clarifies and simplifies other aspects of the accounting for income taxes. The standard will be effective for annual reportingperiods beginning after December 15, 2020. Early adoption is permitted. The standard will generally be applied prospectively, with certain exceptions. The Company doesnot expect the adoption will have a material impact on its consolidated financial statements. Prior Period Reclassifications Certain amounts in prior periods have been reclassified to conform with current period presentation: ●Long-term investments, which were previously presented separately on the Consolidated Balance Sheets, are now reported within other long-term assets. ●Gains and losses on the disposal and sale of property and equipment, which were previously presented separately under operating activities on theConsolidated Statements of Cash Flows, are now reported within the “other” line item under operating activities. ●Accrued purchases of property and equipment, which were previously reported within the "other" line item under other accrued liabilities in Note 5, are nowreported separately under other accrued liabilities. 2. REVENUE RECOGNITION Revenue from Product Sales The Company generates revenue primarily from product sales, which include assembled and tested ICs, as well as dies in wafer form. These product sales accounted for97%, 99% and 98% of the Company’s total revenue for the years ended December 31, 2020, 2019 and 2018, respectively. The remaining revenue primarily includes royaltyrevenue from licensing arrangements and revenue from wafer testing services performed for third parties, which have not been significant in all periods presented. SeeNote 16 for the disaggregation of the Company’s revenue by geographic regions and by product families. 55Table of Contents The Company sells its products primarily through third-party distributors, value-added resellers, OEMs, ODMs and EMS providers. For the years ended December 31,2020, 2019 and 2018, 81%, 83% and 87%, respectively, of the Company’s product sales were made through distribution arrangements. These distribution arrangementscontain enforceable rights and obligations specific to those distributors and not the end customers. Purchase orders, which are generally governed by sales agreementsor the Company's standard terms of sale, set the final terms for unit price, quantity, shipping and payment agreed by both parties. The Company considers purchaseorders to be the contracts with customers. The unit price as stated on the purchase orders is considered the observable, stand-alone selling price for the arrangements. The Company recognizes revenue when it satisfies a performance obligation by transferring control of the promised goods or services to its customers, in an amountthat reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company excludes taxes assessed by governmentauthorities, such as sales taxes, from revenue. Product sales consist of a single performance obligation that the Company satisfies at a point in time. The Company recognizes product revenue from distributors anddirect end customers when the following events have occurred: (a) the Company has transferred physical possession of the products, (b) the Company has a presentright 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 accordancewith the shipping terms specified in the contracts, these criteria are generally met when the products are shipped from the Company’s 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 becausethe Company continues to control the products and retain ownership, and the customers do not have an unconditional obligation to pay. The Company recognizesrevenue 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, atwhich time control transfers to the customers and the Company invoices them for payment. Variable Consideration The Company accounts for price adjustment and stock rotation rights as variable consideration that reduces the transaction price and recognizes that reduction in thesame period the associated revenue is recognized. Four U.S.-based distributors have price adjustment rights when they sell the Company’s products to their endcustomers at a price that is lower than the distribution price invoiced by the Company. When the Company receives claims from the distributors that products have beensold to the end customers at the lower price, the Company issues the distributors credit memos for the price adjustments. The Company estimates the price adjustmentsusing the expected value method based on an analysis of historical claims, at both the distributor and product level, as well as an assessment of any known trends ofproduct sales mix. Other U.S. distributors and non-U.S. distributors, which make up the majority of the Company’s total sales to distributors, do not have priceadjustment rights. The Company records a credit against accounts receivable for the estimated price adjustments, with a corresponding reduction to revenue. Certain distributors have limited stock rotation rights that permit the return of a small percentage of the previous six months’ purchases in accordance with the contractterms. The Company estimates the stock rotation returns using the expected value method based on an analysis of historical returns, and the current level of inventoryin the distribution channel. The Company records a liability for the stock rotation reserve, with a corresponding reduction to revenue. In addition, the Companyrecognizes an asset for product returns which represents the right to recover products from the customers related to stock rotations, with a corresponding reduction tocost of revenue. Contract Balances Accounts Receivable: The Company records a receivable when it has an unconditional right to receive consideration after the performance obligations are satisfied. As of December 31, 2020and 2019, accounts receivable totaled $66.8 million and $52.7 million, respectively. The Company's accounts receivable are short-term, with standard payment termsgenerally ranging from 30 to 90 days. The Company did not recognize any write-offs of accounts receivable in any of the periods presented. As of December 31,2020, the Company did not record any allowance for credit losses, and as of December 31, 2019, the Company did not record any allowance for doubtful accounts. Contract Liabilities: For certain customers located in Asia, the Company requires cash payments two weeks before the products are scheduled to be shipped to the customers. TheCompany records these payments received in advance of performance as customer prepayments within current accrued liabilities. As of December 31, 2020 and2019, customer prepayments totaled $7.2 million and $3.4 million, respectively. The increase in the customer prepayment balance for the year ended December 31, 2020resulted from an increase in unfulfilled customer orders for which the Company has received payments. For the year ended December 31, 2020, the Companyrecognized $3.4 million of revenue that was included in the customer prepayment balance as of December 31, 2019. 56Table of Contents Practical Expedients The Company has elected the practical expedient to expense sales commissions as incurred because the amortization period would have been one year or less. The Company’s standard payment terms generally require customers to pay 30 to 90 days after the Company satisfies the performance obligations. For those customerswho are required to pay in advance, the Company satisfies the performance obligations generally within a quarter. The Company has elected not to determine whethercontracts with customers contain significant financing components. The Company’s unsatisfied performance obligations primarily include products held in consignment arrangements and customer purchase orders for products that theCompany has not yet shipped. Because the Company expects to fulfill these performance obligations within one year, the Company has elected not to disclose theamount of these remaining performance obligations. 3. CASH, CASH EQUIVALENTS, INVESTMENTS AND RESTRICTED CASH The following is a summary of the Company’s cash, cash equivalents and debt investments (in thousands): December 31, 2020 2019 Cash $300,609 $144,860 Money market funds 34,335 28,100 Corporate debt securities 249,671 260,950 Commercial paper 2,999 1,994 U.S. treasuries and government agency bonds 7,499 19,493 Auction-rate securities backed by student-loan notes 2,861 3,138 Total $597,974 $458,535 December 31, 2020 2019 Reported as: Cash and cash equivalents $334,944 $172,960 Short-term investments 260,169 282,437 Investment within other long-term assets 2,861 3,138 Total $597,974 $458,535 The following table summarizes the contractual maturities of the short-term and long-term available-for-sale investments as of December 31, 2020 (in thousands): Amortized Cost Fair Value Due in less than 1 year $97,773 $98,036 Due in 1 - 5 years 160,316 162,133 Due in greater than 5 years 3,020 2,861 Total $261,109 $263,030 For the year ended December 31, 2020, the Company recognized gross realized gains of $1.1 million on the sale of investments. Gross realized gains were not material forthe years ended December 31, 2019 and 2018. Gross realized losses were not material for any period presented. 57Table of Contents The following tables summarize the unrealized gain and loss positions related to the available-for sale investments (in thousands): December 31, 2020 Amortized Cost UnrealizedGains UnrealizedLosses Fair Value Money market funds $34,335 $- $- $34,335 Corporate debt securities 247,591 2,177 (97) 249,671 Commercial paper 2,999 - - 2,999 U.S. treasuries and government agency bonds 7,499 2 (2) 7,499 Auction-rate securities backed by student-loan notes 3,020 - (159) 2,861 Total $295,444 $2,179 $(258) $297,365 December 31, 2019 Amortized Cost UnrealizedGains UnrealizedLosses Fair Value Money market funds $28,100 $- $- $28,100 Corporate debt securities 260,645 383 (78) 260,950 Commercial paper 1,994 - - 1,994 U.S. treasuries and government agency bonds 19,487 7 (1) 19,493 Auction-rate securities backed by student-loan notes 3,320 - (182) 3,138 Total $313,546 $390 $(261) $313,675 The following tables present information about the available-for-sale investments that had been in a continuous unrealized loss position for less than 12 months and forgreater than 12 months (in thousands): December 31, 2020 Less than 12 Months Greater than 12 Months Total Fair Value UnrealizedLosses Fair Value UnrealizedLosses Fair Value UnrealizedLosses Corporate debt securities $59,144 $(97) $- $- $59,144 $(97)U.S. treasuries and government agency bonds 5,998 (2) - - 5,998 (2)Auction-rate securities backed by student-loannotes - - 2,861 (159) 2,861 (159)Total $65,142 $(99) $2,861 $(159) $68,003 $(258) December 31, 2019 Less than 12 Months Greater than 12 Months Total Fair Value UnrealizedLosses Fair Value UnrealizedLosses Fair Value UnrealizedLosses Corporate debt securities $82,126 $(63) $11,136 $(15) $93,262 $(78)U.S. treasuries and government agency bonds 993 (1) - - 993 (1)Auction-rate securities backed by student-loannotes - - 3,138 (182) 3,138 (182)Total $83,119 $(64) $14,274 $(197) $97,393 $(261) An impairment exists when the fair value of an investment is less than its amortized cost basis. As of December 31, 2020, the Company did not consider the impairmentof its investments to be a result of credit losses. As of December 31, 2019, the Company did not consider the impairment of its investments to be other-than-temporary.The Company typically invests in highly rated securities, with the primary objective of minimizing the potential risk of principal loss. The Company’s investment policygenerally requires securities to be investment grade and limits the amount of credit exposure to any one issuer. When evaluating a debt security for impairment,management reviews factors such as the Company’s intent to sell, or whether it will more likely than not be required to sell, the security before recovery of its amortizedcost basis, the extent to which the fair value of the security is less than its cost, the financial condition of the issuer and the credit quality of the investment. The Company’s auction-rate securities are backed by pools of student loans supported by guarantees by the U.S. Department of Education. The underlying maturitiesof these securities are up to 25 years. The Company has received all scheduled interest payments on a timely basis pursuant to the terms and conditions of thesecurities. The Company does not intend to sell these securities, and it is more likely than not that the Company will not be required to sell these securities, beforerecovery of its amortized cost basis. To date, the Company has redeemed $40.3 million, or 93% of the original portfolio in these auction-rate securities, at par without anyrealized losses. Non-Marketable Equity Investment In November 2020, the Company made an equity investment in a privately held company (the “Investee”) that is accounted for under the measurement alternative. Onemember of the Company’s Board of Directors is an executive officer of a company that has a commercial relationship with the Investee. In addition, the Company’s ChiefExecutive Officer has a personal investment in the Investee. As of December 31, 2020, the Company’s investment had a carrying value of $3.4 million. The Company didnot record any impairment or adjustments resulting from observable price changes for the year ended December 31, 2020. 58Table of Contents Restricted Cash The following table provides a reconciliation of cash, cash equivalents and restricted cash reported on the Consolidated Balance Sheets to the amounts reported on theConsolidated Statements of Cash Flows (in thousands): December 31, 2020 2019 Cash and cash equivalents $334,944 $172,960 Restricted cash included in other long-term assets 127 116 Total cash, cash equivalents and restricted cash reported on the Consolidated Statements of Cash Flows $335,071 $173,076 As of December 31, 2020 and 2019, restricted cash included a security deposit that is set aside in a bank account and cannot be withdrawn by the Company under theterms of a lease agreement. The restriction will end upon the expiration of the lease. 4. FAIR VALUE MEASUREMENTS The following table details the fair value of the financial assets measured on a recurring basis (in thousands): December 31, 2020 Total Level 1 Level 2 Level 3 Money market funds $34,335 $34,335 $- $- Corporate debt securities 249,671 - 249,671 - Commercial paper 2,999 - 2,999 - U.S. treasuries and government agency bonds 7,499 - 7,499 - Auction-rate securities backed by student-loan notes 2,861 - - 2,861 Mutual funds and money market funds under deferred compensation plan 26,924 26,924 - - Total $324,289 $61,259 $260,169 $2,861 December 31, 2019 Total Level 1 Level 2 Level 3 Money market funds $28,100 $28,100 $- $- Corporate debt securities 260,950 - 260,950 - Commercial paper 1,994 - 1,994 - U.S. treasuries and government agency bonds 19,493 - 19,493 - Auction-rate securities backed by student-loan notes 3,138 - - 3,138 Mutual funds and money market funds under deferred compensation plan 21,975 21,975 - - Total $335,650 $50,075 $282,437 $3,138 ●Level 1 —includes instruments with quoted prices in active markets for identical assets.●Level 2 —includes instruments for which the valuations are based upon quoted market prices in active markets involving similar assets or inputs other than quotedprices that are observable for the assets. The market inputs used to value these instruments generally consist of market yields, recently executed transactions,broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency. Pricing sources may include industry standard data providers,security master files from large financial institutions, and other third-party sources used to determine a daily market value.●Level 3 —includes instruments for which the valuations are based on inputs that are unobservable and significant to the overall fair value measurement. The Company’s level 3 assets consist of government-backed student loan auction-rate securities. The following table provides a rollforward of the fair value of theauction-rate securities (in thousands): Balance at January 1, 2019 $3,241 Change in unrealized gain included in other comprehensive income 147 Sale and settlement at par (250)Balance at December 31, 2019 3,138 Change in unrealized gain included in other comprehensive income 23 Sale and settlement at par (300)Balance at December 31, 2020 $2,861 59Table of Contents The Company determined the fair value of the auction-rate securities using a discounted cash flow model with the following assumptions: December 31, 2020 (1) 2019 Time-to-liquidity (in years)2-3(2.5) 2-3 Discount rate3.5%-7.9%(5.6%) 4.0%-8.3% (1)The parenthetical value represents the weighted average assumption, which was calculated based on the relative fair value of the securities. The fair value measurement involves the analysis of valuation techniques and evaluation of unobservable inputs commonly used by market participants to price similarinstruments. Outputs from the valuation process are assessed against various market sources when they are available, including marketplace quotes, recent trades ofsimilar illiquid securities and independent pricing services. The valuation of the auction-rate securities is subject to significant management judgment regardingprojected future cash flows, which will depend on many factors, including the quality of the underlying collateral, estimated time to liquidity including potential to becalled or restructured, underlying final maturity, and market conditions, among others. Changes in any of the unobservable inputs used in the fair value measurement ofauction-rate securities in isolation would result in a lower or higher fair value measurement. For example, an increase in the time-to-liquidity assumption or estimateddiscount rate would result in a lower fair value measurement. 5. BALANCE SHEET COMPONENTS Inventories Inventories consist of the following (in thousands): December 31, 2020 2019 Raw materials $25,503 $22,872 Work in process 77,100 42,681 Finished goods 54,459 61,947 Total $157,062 $127,500 Other Current Assets Other current assets consist of the following (in thousands): December 31, 2020 2019 RSU tax withholding proceeds receivable $12,504 $6,106 Prepaid expense 5,032 7,991 Accrued interest receivable 1,914 2,490 Assets for product returns 1,684 1,585 Other 1,846 1,433 Total $22,980 $19,605 60Table of Contents Property and Equipment, Net Property and equipment, net, consist of the following (in thousands): December 31, 2020 2019 Land $35,432 $35,040 Production equipment and software 163,317 134,292 Buildings and improvements 142,869 131,057 Transportation equipment 18,396 16,510 Leasehold improvements 8,705 6,583 Furniture and fixtures 6,383 4,660 Construction in progress 49,575 19,104 Property and equipment, gross 424,677 347,246 Less: accumulated depreciation and amortization (143,149) (118,931)Total $281,528 $228,315 Depreciation and amortization expense on property and equipment was $18.9 million, $14.5 million and $11.4 million for the years ended December 31, 2020, 2019 and2018, respectively. Other Long-Term Assets Other long-term assets consist of the following (in thousands): December 31, 2020 2019 Deferred compensation plan assets $46,146 $38,858 Operating lease ROU assets 3,719 2,863 Prepaid expense 2,340 2,687 Debt investment 2,861 3,138 Equity investment in a privately held company 3,400 - Other 1,372 1,544 Total $59,838 $49,090 Other Accrued Liabilities Other accrued liabilities consist of the following (in thousands): December 31, 2020 2019 Dividends and dividend equivalents $26,435 $21,747 Stock rotation and sales returns 6,005 5,530 Accrued purchases of property and equipment 5,841 4,678 Income tax payable 3,755 2,435 Customer prepayments 7,238 3,412 Commissions 1,107 1,425 Operating lease liabilities 1,406 1,254 Warranty 6,895 1,139 Other 4,278 3,170 Total $62,960 $44,790 61Table of Contents Other Long-Term Liabilities Other long-term liabilities consist of the following (in thousands): December 31, 2020 2019 Deferred compensation plan liabilities $48,280 $39,665 Dividend equivalents 7,871 6,265 Operating lease liabilities 1,693 1,103 Other 29 30 Total $57,873 $47,063 6. REAL ESTATE TRANSACTION In March 2019, the Company completed the purchase of an office building and land located in Kirkland, Washington for $52.9 million in cash. The property also had in-place leases for a portion of the building which were assumed by the Company. The Company accounted for the purchase as an asset acquisition and capitalized$0.4 million of transaction costs. The purchase price allocation was as follows (in thousands): Building $30,078 Land 22,254 In-place leases 981 Total $53,313 The fair value of the building was determined based on the income approach, which considered the discounted cash flows and direct capitalization analysis, and thesales comparison approach. The fair value of land was determined based on the sales comparison approach. The fair value of the in-place leases was determinedprimarily based on the analysis of the economic benefits of certain cost savings attributable to the leases. The building is depreciated over a useful life of 40 years and the in-place leases are amortized over the average remaining lease terms of 3.5 years. 7. LEASES Lessee The Company has operating leases primarily for administrative and sales and marketing offices, manufacturing operations and research and development facilities,employee housing units and certain equipment. These leases have remaining lease terms from less than a year to five years. Some of these leases include options torenew the lease term for up to two years or on a month-to-month basis. The Company does not have finance lease arrangements. As of December 31, 2020 and 2019, operating lease ROU assets totaled $3.7 million and $2.9 million, respectively. As of December 31, 2020 and 2019, operating leaseliabilities totaled $3.1 million and $2.4 million, respectively. The following tables summarize certain information related to the leases (in thousands, except percentages): Year Ended December 31, 2020 2019 Lease costs: Operating lease costs $1,488 $1,509 Other 300 465 Total lease costs $1,788 $1,974 Year Ended December 31, 2020 2019 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $1,526 $1,364 ROU assets obtained in exchange for new operating lease liabilities (1) $2,181 $3,667 December 31, 2020 2019 Weighted-average remaining lease term (in years) 2.7 2.1 Weighted-average discount rate 2.7% 3.7% (1) For the year ended December 31, 2019, the amount includes $2.3 million for operating leases existing on January 1, 2019, the adoption date of ASU No. 2016-02, Leases (Topic 842). 62Table of Contents As of December 31, 2020, the maturities of the lease liabilities were as follows (in thousands): 2021 $1,491 2022 993 2023 405 2024 199 2025 139 Total remaining lease payments 3,227 Less: imputed interest (128)Total lease liabilities $3,099 Reported as: Current liabilities $1,406 Long-term liabilities $1,693 As of December 31, 2020, the Company had additional operating leases that have not yet commenced with future lease obligations of $4.6 million. The leases willcommence in various periods in 2021 with lease terms ranging from less than one year to four years. Lessor The Company owns certain office buildings and leases a portion of these properties to third parties under arrangements that are classified as operating leases. Theseleases have remaining lease terms ranging from two years to four years. Some of these leases include options to renew the lease term for up to five years. For the years ended December 31, 2020 and 2019, income related to lease payments was $1.9 million and $1.8 million, respectively. As of December 31,2020, future income related to lease payments was as follows (in thousands): 2021 $2,153 2022 2,073 2023 1,400 2024 553 2025 59 Total $6,238 8. STOCK-BASED COMPENSATION 2014 Equity Incentive Plan In April 2013, the Board of Directors adopted the 2014 Equity Incentive Plan (the “2014 Plan”), which the Company's stockholders approved in June 2013. In October2014, the Board of Directors approved certain amendments to the 2014 Plan. The amended 2014 Plan became effective on November 13, 2014 and provided for theissuance of up to 5.5 million shares. In April 2020, the Board of Directors further amended and restated the amended 2014 Plan (the “Amended and Restated 2014 Plan”),which the Company's stockholders approved in June 2020. The Amended and Restated 2014 Plan became effective on June 11, 2020 and provides for the issuance of upto 10.5 million shares. The Amended and Restated 2014 Plan will expire on June 11, 2030. As of December 31, 2020, 6.0 million shares remained available for futureissuance under the Amended and Restated 2014 Plan. 63Table of Contents Stock-Based Compensation Expense The Company recognized stock-based compensation expense as follows (in thousands): Year Ended December 31, 2020 2019 2018 Cost of revenue $2,592 $2,409 $1,888 Research and development 20,033 19,584 15,990 Selling, general and administrative 62,926 56,706 42,729 Total stock-based compensation expense $85,551 $78,699 $60,607 Tax benefit related to stock-based compensation (1) $1,855 $2,754 $4,383 ______________(1) Amount reflects the tax benefit related to stock-based compensation recorded for equity awards that are expected to generate tax deductions when they vest infuture periods. RSUs The Company’s RSUs include time-based RSUs, RSUs with performance conditions (“PSUs”), RSUs with market conditions (“MSUs”), and RSUs with both market andperformance conditions (“MPSUs”). Vesting of awards with performance conditions or market conditions is subject to the achievement of pre-determined performancegoals and the approval of such achievement by the Compensation Committee of the Board of Directors (the “Compensation Committee”). All awards include serviceconditions which require continued employment with the Company. A summary of RSU activity is presented in the table below (in thousands, except per-share amounts): Time-Based RSUs PSUs and MPSUs MSUs Total Number ofShares Weighted-AverageGrantDate FairValue PerShare Number ofShares Weighted-AverageGrantDate FairValue PerShare Number ofShares Weighted-AverageGrantDate FairValue PerShare Number ofShares Weighted-AverageGrantDate FairValue PerShare Outstanding at January 1, 2018 258 $66.30 2,266 $48.59 1,620 $23.57 4,144 $39.91 Granted 133 $114.36 630(1) $85.06 600 $68.48 1,363 $80.62 Vested (136) $60.23 (717) $41.08 - $- (853) $44.13 Forfeited (15) $82.20 (5) $63.16 (1) $68.48 (21) $76.92 Outstanding at December 31,2018 240 $95.38 2,174 $61.61 2,219 $35.69 4,633 $50.94 Granted 52 $141.32 512(1) $99.88 - $- 564 $103.68 Vested (103) $81.53 (656) $53.72 (324) $23.57 (1,083) $47.34 Forfeited (9) $117.31 (43) $42.72 (9) $68.48 (61) $57.01 Outstanding at December 31,2019 180 $115.45 1,987 $74.50 1,886 $37.63 4,053 $59.16 Granted 76 $189.28 627(1) $173.40 - $- 703 $175.12 Vested (86) $110.67 (1,213) $59.03 (324) $23.57 (1,623) $54.70 Forfeited (9) $138.34 (11) $84.48 (8) $68.48 (28) $96.35 Outstanding at December 31,2020 161 $151.62 1,390 $132.60 1,554 $40.40 3,105 $87.42 (1)Amount reflects the number of awards that may ultimately be earned based on management’s probability assessment of the achievement of performance conditionsat each reporting period. The intrinsic value related to vested RSUs was $326.2 million, $138.3 million and $90.0 million for the years ended December 31, 2020, 2019 and 2018, respectively. As ofDecember 31, 2020, the total intrinsic value of all outstanding RSUs was $1.1 billion, based on the closing stock price of $366.23. As of December 31, 2020, unamortizedcompensation expense related to all outstanding RSUs was $136.3 million with a weighted-average remaining recognition period of approximately 2.2 years. Cash proceeds from vested PSUs with a purchase price totaled $18.8 million, $16.6 million and $10.6 million for the years ended December 31, 2020, 2019 and 2018,respectively. Time-Based RSUs For the years ended December 31, 2020, 2019 and 2018, the Compensation Committee granted 76,000, 52,000 and 133,000 RSUs, respectively, with service conditions tonon-executive employees and non-employee directors. The RSUs generally vest over four years for employees and one year for directors, subject to continuedservice with the Company. PSUs and MPSUs 2020 PSUs: In February 2020, the Compensation Committee granted 100,000 PSUs to the executive officers, which represent a target number of shares to be earned based on theCompany’s average two-year (2020 and 2021) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by theSemiconductor Industry Association (“2020 Executive PSUs”). The maximum number of shares that an executive officer can earn is 300% of the target number ofthe 2020 Executive PSUs. 50% of the 2020 Executive PSUs will vest in the first quarter of 2022 if the pre-determined performance goals are met during the performanceperiod. The remaining 2020 Executive PSUs will vest over the following two years on a quarterly basis. Assuming the achievement of the highest level of performancegoals, the total stock-based compensation cost for the 2020 Executive PSUs is $51.1 million. 64Table of Contents In February 2020, the Compensation Committee granted 30,000 PSUs to certain non-executive employees, which represent a target number of shares to be earned basedon the Company’s 2021 revenue goals for certain regions or product line divisions, or based on the Company’s average two-year (2020 and 2021) revenue growth ratecompared against the analog industry’s average two-year revenue growth rate as published by the Semiconductor Industry Association (“2020 Non-Executive PSUs”).The maximum number of shares that an employee can earn is either 200% or 300% of the target number of the 2020 Non-Executive PSUs, depending on the jobclassification of the employee. 50% of the 2020 Non-Executive PSUs will vest in the first quarter of 2022 if the pre-determined performance goals are met during theperformance period. The remaining 2020 Non-Executive PSUs will vest over the following two years on an annual or quarterly basis. Assuming the achievement of thehighest level of performance goals, the total stock-based compensation cost for the 2020 Non-Executive PSUs is $12.8 million. The 2020 Executive PSUs and the 2020 Non-Executive PSUs contain a purchase price feature, which requires the employees to pay the Company $30 per share uponvesting of the shares. The $30 purchase price requirement is deemed satisfied and waived if the average stock price for 20 consecutive trading days at any time duringthe performance period is $30 higher than the grant date stock price of $182.62. This market condition was achieved in the second quarter of 2020. The Companydetermined the grant date fair value of the 2020 Executive PSUs and the 2020 Non-Executive PSUs using a Monte Carlo simulation model with the followingassumptions: stock price of $182.62, simulation term of 2.0 years, expected volatility of 33.6%, risk-free interest rate of 1.4%, and expected dividend yield of 1.1%. 2020 MPSUs:In July 2020, the Compensation Committee granted 43,000 MPSUs to the executive officers and 2,000 MPSUs to certain key employees, which represented a targetnumber of shares that could be earned based on the achievement of both market and performance conditions (“2020 MPSUs”). The maximum number of shares that anemployee could earn was 500% of the target number of the 2020 MPSUs. The market conditions consisted of five stock price targets ranging from $260 to $300 with aperformance period through July 20, 2023, and the performance condition consisted of one business operating goal related to a revenue target for certain customers witha performance period through December 31, 2021. As of December 31, 2020, the Company has achieved all five price targets and the operating goal, and a total of 221,000shares were awarded to the employees. 75% of the 2020 MPSUs will vest on July 20, 2023 and 25% of the 2020 MPSUs will vest on July 20, 2024. All vested shares willbe subject to a post-vesting sales restriction period of one year. Based on the actual achievement of the market and performance goals, the total stock-basedcompensation cost for the 2020 MPSUs is $42.1 million. The Company determined the grant date fair value of the 2020 MPSUs using a Monte Carlo simulation model with the following assumptions: stock priceof $248.71, simulation term of 4.0 years, expected volatility of 38.8%, risk-free interest rate of 0.2%, and expected dividend yield of 0.8%. In addition, the grant date fairvalue included an illiquidity discount of 8.9% to account for the post-vesting sales restrictions. 2019 PSUs: In February 2019, the Compensation Committee granted 151,000 PSUs to the executive officers, which represented a target number of shares that could be earned basedon the Company’s average two-year (2019 and 2020) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published bythe Semiconductor Industry Association (“2019 Executive PSUs”). The maximum number of shares that an executive officer could earn was 300% of the target number ofthe 2019 Executive PSUs. Based on the actual revenue achievement at the end of the performance period, a total of 454,000 shares were awarded to the executiveofficers. 50% of the 2019 Executive PSUs will vest in the first quarter of 2021. The remaining 2019 Executive PSUs will vest over the following two years on a quarterlybasis. Based on the actual achievement of performance goals, the total stock-based compensation cost for the 2019 Executive PSUs is $46.6 million. The 2019 Executive PSUs contain a purchase price feature, which requires the employees to pay the Company $30 per share upon vesting of the shares. Shares thatdo not vest will not be subject to the purchase price payment. The Company determined the grant date fair value of the 2019 Executive PSUs using the Black-Scholesmodel with the following assumptions: stock price of $130.67, expected term of 2.6 years, expected volatility of 29.0% and risk-free interest rate of 2.5%. In October 2018, the Compensation Committee granted 53,000 PSUs to certain non-executive employees, which represented a target number of shares that could beearned based on the Company’s 2020 revenue goals for certain regions or product line divisions, or based on the Company’s average two-year (2019 and 2020) revenuegrowth rate compared against the analog industry’s average two-year revenue growth rate as published by the Semiconductor Industry Association (“2019 Non-Executive PSUs”). The maximum number of shares that an employee could earn was either 200% or 300% of the target number of the 2019 Non-Executive PSUs,depending on the job classification of the employee. Based on the actual revenue achievement at the end of the performance period, a total of 100,000 shares wereawarded to the employees. 50% of the 2019 Non-Executive PSUs will vest in the first quarter of 2021. The remaining 2019 Non-Executive PSUs will vest over thefollowing two years on an annual or quarterly basis. Based on the actual achievement of performance goals, the total stock-based compensation cost for the 2019 Non-Executive PSUs is $8.1 million. 65Table of Contents The 2019 Non-Executive PSUs contain a purchase price feature, which requires the employees to pay the Company $30 per share upon vesting of the shares. Shares thatdo not vest will not be subject to the purchase price payment. The Company determined the grant date fair value of the 2019 Non-Executive PSUs using the Black-Scholes model with the following assumptions: stock price of $108.43, expected term of 2.9 years, expected volatility of 28.7% and risk-free interest rate of 2.9%. 2018 PSUs: In February 2018, the Compensation Committee granted 188,000 PSUs to the executive officers, which represented a target number of shares that could be earned basedon the Company’s average two-year (2018 and 2019) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published bythe Semiconductor Industry Association (“2018 Executive PSUs”). The maximum number of shares that an executive officer could earn was 300% of the target number ofthe 2018 Executive PSUs. Based on the actual revenue achievement at the end of the performance period, a total of 558,000 shares were awarded to the executiveofficers. 50% of the 2018 Executive PSUs vested in the first quarter of 2020. The remaining 2018 Executive PSUs vest over the following two years on a quarterly basis.Based on the actual achievement of the performance goals, the total stock-based compensation cost for the 2018 Executive PSUs is $45.6 million. In February 2018, the Compensation Committee granted 44,000 PSUs to certain non-executive employees, which represented a target number of shares that could beearned based on the Company’s 2019 revenue goals for certain regions or product line divisions, or based on the Company’s average two-year (2018 and 2019) revenuegrowth rate compared against the analog industry’s average two-year revenue growth rate as published by the Semiconductor Industry Association (“2018 Non-Executive PSUs”). The maximum number of shares that an employee could earn was either 200% or 300% of the target number of the 2018 Non-Executive PSUs,depending on the job classification of the employee. Based on the actual achievement at the end of the performance period, a total of 75,000 shares were awarded to theemployees. 50% of the 2018 Non-Executive PSUs vested in the first quarter of 2020. The remaining 2018 Non-Executive PSUs vest over the following two years on anannual or quarterly basis. Based on the actual achievement of performance goals, the total stock-based compensation cost for the 2018 Non-Executive PSUs is $6.0million. The 2018 Executive PSUs and the 2018 Non-Executive PSUs contain a purchase price feature, which requires the employees to pay the Company $30 per share uponvesting of the shares. Shares that do not vest will not be subject to the purchase price payment. The Company determined the grant date fair value of the 2018 ExecutivePSUs and the 2018 Non-Executive PSUs using the Black-Scholes model with the following assumptions: stock price of $110.00, expected term of 2.6 years, expectedvolatility of 27.5% and risk-free interest rate of 2.3%. 2015 MPSUs: In December 2015, the Compensation Committee granted 86,000 MPSUs to the executive officers and 41,000 MPSUs to certain non-executive employees, whichrepresented a target number of shares that could be earned upon achievement of both market conditions and performance conditions (“2015 MPSUs”). The maximumnumber of shares that an employee could earn was 500% of the target number of the 2015 MPSUs. The 2015 MPSUs consisted of four separate tranches with variousperformance periods all ended on December 31, 2019. The first tranche contained market conditions only, which required the achievement of five stock price targetsranging from $71.36 to $95.57 with a performance period from January 1, 2016 to December 31, 2019. The second, third and fourth tranches contained both market and performance conditions. The five stock price targets for the second tranche rangedfrom $89.56 to $106.81 with a performance period from January 1, 2017 to December 31, 2019. The five stock price targets for the third tranche rangedfrom $120.80 to $135.48 with a performance period from January 1, 2018 to December 31, 2019. The five stock price targets for the fourth tranche ranged from $126.08 to$136.79 with a performance period from January 1, 2019 to December 31, 2019. In addition, each of the second, third and fourth tranches required the achievement of one of following six operating metrics: 1.Successful implementation of full digital solutions for certain power products. 2.Successful implementation, and adoption by a key customer, of an integrated, software-based field-oriented control with sensors to motor drivers. 3.Successful implementation of certain advanced power analog processes. 4.Successful design wins and achievement of a specific level of revenue with a global networking customer. 5.Achievement of a specific level of revenue with a global electronics manufacturer. 6.Achievement of a specific level of market share with certain core power products. 66Table of Contents The following table summarizes the achievement of the market and performance conditions: Tranche Market Conditions Performance ConditionsOne All stock price targets were achieved as of September 30, 2017. Not required.Two All stock price targets were achieved as of December 31, 2017. Operating metric #1 was achieved as of December 31, 2018.Three All stock price targets were achieved as of September 30, 2018. Operating metric #2 was achieved as of December 31, 2018.Four All stock price targets were achieved as of March 31, 2019. Operating metric #3 was achieved as of September 30, 2019. A total of 0.6 million shares were awarded to the employees. The 2015 MPSUs vested on January 1, 2020, with post-vesting sales restrictions on the vested shares for upto an additional two years. The Company determined the grant date fair value of the 2015 MPSUs using a Monte Carlo simulation model with the following weighted-average assumptions: stockprice of $61.35, expected volatility of 33.2%, risk-free interest rate of 1.3%, and an illiquidity discount of 7.8% to account for the post-vesting sales restrictions. Based onthe actual achievement of all of the market and performance goals, the total stock-based compensation cost for the 2015 MPSUs, excluding cancelled shares for theterminated employees, is $24.6 million ($8.3 million for the first tranche, $4.5 million for the second tranche, $5.2 million for the third tranche, and $6.6 million forthe fourth tranche). MSUs 2018 MSUs: In October 2018, the Compensation Committee granted 60,000 MSUs to the executive officers and 60,000 MSUs to certain non-executive employees, which represented atarget number of shares that could be earned upon achievement of stock price targets (“2018 MSUs”). The maximum number of shares that an employee could earnwas 500% of the target number of the 2018 MSUs if the Company achieved five stock price targets ranging from $140 to $172 during a performance period from October26, 2018 to December 31, 2023. As of December 31, 2019, all stock price targets have been achieved and the employees were awarded a total of 0.6 million shares.The 2018 MSUs will vest on January 1, 2024, with post-vesting sales restrictions on the vested shares for up to an additional two years. The total stock-basedcompensation cost for the 2018 MSUs, excluding cancelled shares for the terminated employees, is $39.9 million. The Company determined the grant date fair value of the 2018 MSUs using a Monte Carlo simulation model with the following assumptions: stock price of $108.43,expected volatility of 31.6%, a risk-free interest rate of 3.0%, and an illiquidity discount of 8.7% to account for the post-vesting sales restrictions. 2013 MSUs: In December 2013, the Compensation Committee granted 276,000 MSUs to the executive officers and 84,000 MSUs to certain non-executive employees, whichrepresented a target number of shares that could be earned upon achievement of stock price targets (“2013 MSUs”). The maximum number of shares that an employeecould earn was 500% of the target number of the 2013 MSUs if the Company achieved five price targets ranging from $40 to $56 during a performance period fromJanuary 1, 2014 to December 31, 2018. As of December 31, 2015, all stock price targets have been achieved and the employees were awarded a total of 1.8 million shares.The 2013 MSUs vest quarterly from January 1, 2019 to December 31, 2023. The total stock-based compensation cost for the 2013 MSUs, excluding cancelled shares forthe terminated employees, is $38.2 million. The Company determined the grant date fair value of the 2013 MSUs using a Monte Carlo simulation model with the following assumptions: stock price of $31.73,expected volatility of 38.7% and a risk-free interest rate of 1.6%. There was no illiquidity discount because the awards do not contain any post-vesting sales restrictions. ESPP Under the ESPP, eligible employees may purchase common stock through payroll deductions. Participants may not purchase more than 2,000 shares in a six-monthoffering period, or purchase shares having a value greater than $25,000 in any calendar year as measured at the beginning of the offering period in accordance with theInternal Revenue Code and applicable treasury regulations. The ESPP provides for an annual increase by an amount equal to the least of one million shares, 2% of theoutstanding shares of common stock on the first day of the year, or a number of shares as determined by the Board of Directors. As of December 31, 2020, 4.5 millionshares were available for future issuance. The ESPP will expire in November 2024. 67Table of Contents For the years ended December 31, 2020, 2019 and 2018, 28,000, 28,000 and 33,000 shares, respectively, were issued. The intrinsic value of the shares issued was $2.5million, $0.7 million and $1.1 million for the years ended December 31, 2020, 2019 and 2018, respectively. The unamortized expense was $0.2 million as of December 31,2020, which will be recognized through the first quarter of 2021. The Black-Scholes model was used to value the employee stock purchase rights with the followingweighted-average assumptions: Year Ended December 31, 2020 2019 2018 Expected term (in years) 0.5 0.5 0.5 Expected volatility 48.9% 37.0% 29.5%Risk-free interest rate 0.8% 2.2% 2.0%Dividend yield 0.9% 1.1% 1.0% Cash proceeds from the shares issued under the ESPP were $3.8 million, $3.3 million and $3.0 million for the years ended December 31, 2020, 2019 and 2018, respectively. 9. DIVIDENDS AND DIVIDEND EQUIVALENTS Cash Dividend Program The Company has a dividend program approved by the Board of Directors, pursuant to which the Company intends to pay quarterly cash dividends on its commonstock. Based on the Company’s historical practice, stockholders of record as of the last business day of the quarter are entitled to receive the quarterly cash dividendswhen and if declared by the Board of Directors, which are payable to the stockholders in the following month. The Board of Directors declared the following cashdividends (in thousands, except per-share amounts): Year Ended December 31, 2020 2019 2018 Dividend declared per share $2.00 $1.60 $1.20 Total amount $89,832 $69,196 $50,803 As of December 31, 2020 and 2019, accrued dividends totaled $22.6 million and $17.4 million, respectively. The declaration of any future cash dividends is at the discretion of the Board of Directors and will depend on, among other things, the Company’s financial condition,results of operations, capital requirements, business conditions, and other factors that the Board of Directors may deem relevant, as well as a determination that cashdividends are in the best interests of the stockholders. The Company anticipates that cash used for future dividend payments will come from its domestic cash, cash generated from ongoing U.S. operations, and cashrepatriated from its Bermuda subsidiary. The Company also anticipates that earnings from other foreign subsidiaries will continue to be indefinitely reinvested. Cash Dividend Equivalent Rights The Company's RSUs contain rights to receive cash dividend equivalents, which entitle employees who hold RSUs to the same dividend value per share as holders ofcommon stock. The dividend equivalents are accumulated and paid to the employees when the underlying RSUs vest. Dividend equivalents accumulated on theunderlying RSUs are forfeited if the employees do not fulfill the requisite service requirement and, as a result, the awards do not vest. As of December 31, 2020 and2019, accrued dividend equivalents totaled $11.7 million and $10.6 million, respectively. 68Table of Contents 10. OTHER INCOME, NET The components of other income, net, are as follows (in thousands): Year Ended December 31, 2020 2019 2018 Interest income $9,327 $7,305 $6,321 Amortization of premium on available-for-sale securities (2,979) (729) (1,353)Gain (loss) on deferred compensation plan investments 4,592 3,806 (1,022)Foreign currency exchange gain (loss) (1,364) (310) 953 Other 884 486 95 Total $10,460 $10,558 $4,994 11. NET INCOME PER SHARE The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share amounts): Year Ended December 31, 2020 2019 2018 Numerator: Net income $164,375 $108,839 $105,268 Denominator: Weighted-average outstanding shares - basic 44,840 43,165 42,247 Effect of dilutive securities 2,174 2,598 2,355 Weighted-average outstanding shares - diluted 47,014 45,763 44,602 Net income per share: Basic $3.67 $2.52 $2.49 Diluted $3.50 $2.38 $2.36 Anti-dilutive common stock equivalents were not material in any of the periods presented. 12. INCOME TAXES The components of income before income taxes are as follows (in thousands): Year Ended December 31, 2020 2019 2018 United States $39,286 $(4,134) $(13,151)Foreign 130,056 117,254 131,633 Income before income taxes $169,342 $113,120 $118,482 The components of the income tax expense are as follows (in thousands): Year Ended December 31, 2020 2019 2018 Current: Federal $2,842 $1,682 $11,023 State (1) 8 4 Foreign 3,814 3,105 2,992 Deferred: Federal (1,221) (213) (797)Foreign (467) (301) (8)Income tax expense $4,967 $4,281 $13,214 69Table of Contents The effective tax rate differs from the applicable U.S. statutory federal income tax rate as follows: Year Ended December 31, 2020 2019 2018 U.S. statutory federal tax rate 21.0% 21.0% 21.0%Foreign income at lower rates (15.2) (20.7) (22.0)Impact of the 2017 Tax Act: One-time deemed repatriation transition tax - - 0.6 GILTI 11.1 11.0 14.4 Changes in valuation allowance 1.6 2.1 - Stock-based compensation (11.2) (1.5) (1.1)Tax credits, net of reserves (3.8) (6.2) (1.9)State income taxes (1.6) (0.7) - Other adjustments 1.0 (1.2) 0.2 Effective tax rate 2.9% 3.8% 11.2% The components of net deferred tax assets consist of the following (in thousands): December 31, 2020 2019 Deferred tax assets: Tax credits $23,501 $18,080 Stock-based compensation 2,392 6,237 Deferred compensation 7,895 7,110 Net operating losses 1,150 615 Other expenses not currently deductible 4,617 2,323 Deferred tax assets, gross 39,555 34,365 Valuation allowance (18,190) (15,411)Deferred tax assets, net of valuation allowance 21,365 18,954 Deferred tax liabilities: Depreciation and amortization (1,600) (1,259)Undistributed foreign earnings (77) (77)Other expenses currently deductible (1,132) (425)Deferred tax liabilities (2,809) (1,761)Net deferred tax assets $18,556 $17,193 GILTI: The Company accounts for GILTI as a period cost. Valuation Allowance: The Company periodically evaluates its deferred tax assets, including a determination of whether a valuation allowance is necessary, based upon its ability to utilize theassets using a more likely than not analysis. The realizability of the Company’s net deferred tax assets is dependent on its ability to generate sufficient future taxableincome during periods prior to the expiration of tax attributes to fully utilize these assets. As of December 31, 2020 and 2019, the Company has evaluated the realizationof its deferred tax assets and recorded a valuation allowance for assets that do not meet the more-likely-than-not recognition threshold. 70Table of Contents Undistributed Earnings of Subsidiaries: The Company has analyzed its global working capital and cash requirements, and has determined that it plans to repatriate cash from its Bermuda subsidiary on anongoing basis to fund its future U.S.-based expenditures and dividends. For the years ended December 31, 2020 and 2019, the Company repatriated $30 million and $75million from its Bermuda subsidiary, respectively. For all other foreign subsidiaries, the Company expects to indefinitely reinvest undistributed earnings to fund their operations and research and development. As ofDecember 31, 2020 and 2019, the undistributed earnings were approximately $27.7 million and $32.9 million, respectively. An actual repatriation of the undistributedearnings could be subject to additional foreign withholding taxes and U.S. state taxes. The Company expects to be able to take a 100% dividend received deduction tooffset any U.S. federal income tax liability on the undistributed earnings. Determination of the unrecognized state and withholding deferred tax liability is not practicableat this time due to the complexities associated with the hypothetical calculation. Other Income Tax Provision Matters As of December 31, 2020, the Company did not have federal net operating loss carryforwards. As of December 31, 2020, the state net operating loss carryforwards forincome tax purposes were $20.2 million, which will expire beginning in 2024. As of December 31, 2020, the Company had $7.1 million R&D tax credit carryforwards for federal income tax purposes, which will begin to expire in 2040, and $30.5 millionfor state income tax purposes, which can be carried forward indefinitely. In the event of a change in ownership, as defined under federal and state tax laws, the Company's net operating loss and tax credit carryforwards could be subject toannual limitations. The annual limitations could result in the expiration of the net operating loss and tax credit carryforwards prior to utilization. At December 31, 2020, the Company had $33.5 million of unrecognized tax benefits, $24.3 million of which would affect its effective tax rate if recognized after consideringthe valuation allowance. At December 31, 2019, the Company had $25.4 million of unrecognized tax benefits, $17.3 million of which would affect its effective tax rate ifrecognized after considering the valuation allowance. A reconciliation of the gross unrecognized tax benefits is as follows (in thousands): Balance as of January 1, 2018 $16,272 Increase for tax position of prior year 1,474 Increase for tax position of current year 2,957 Decrease due to lapse of statute of limitation (212)Balance as of December 31, 2018 20,491 Increase for tax position of prior year 1,589 Increase for tax position of current year 4,663 Decrease due to settlement with tax authorities (560)Decrease due to lapse of statute of limitation (776)Balance as of December 31, 2019 25,407 Increase for tax position of current year 9,782 Decrease for tax position of prior year (907)Decrease due to settlement with tax authorities (560)Decrease due to lapse of statute of limitation (223)Balance as of December 31, 2020 $33,499 The Company recognizes interest and penalties, if any, related to uncertain tax positions in its income tax provision. As of December 31, 2020 and 2019, the Company has$2.4 million and $1.6 million, respectively, of accrued interest related to uncertain tax positions, which were recorded in long-term income tax liabilities on theConsolidated Balance Sheets. Uncertain tax positions relate to the allocation of income and deductions among the Company’s global entities and to the determination of the research and developmenttax credit. Various events, some of which cannot be predicted, such as clarification of tax law by administrative or judicial means, may occur and would require theCompany to increase or decrease its reserves and effective income tax rate over the next twelve months. However, it is not possible to determine either the magnitude orthe range of increases or decreases at this time. 71Table of Contents The Company currently has reduced tax rates in its subsidiaries in Chengdu and Hangzhou, China through 2030 and 2023, respectively, for performing research anddevelopment activities. In July 2015, the U.S. Tax Court issued an opinion in Altera Corp. v. Commissioner, invalidating the Treasury regulations that require participants in qualifiedintercompany cost-sharing arrangements to share stock-based compensation costs. A final decision was issued by the Tax Court in December 2015, and the IRSappealed the decision in June 2016. In June 2019, the Ninth Circuit Court of Appeals upheld the cost-sharing regulations. In July 2019, Altera filed a petition forrehearing en banc in the Ninth Circuit Court of Appeals. In November 2019, the Ninth Circuit Court of Appeals declined to rehear the case. In February 2020, Altera fileda petition with the U.S. Supreme Court to review the case. In June 2020, the Supreme Court denied Altera's petition for writ of certiorari, declining to review the decisionof the Ninth Circuit Court of Appeals. Based on the Supreme Court’s denial to hear the Altera case, until and unless there is further litigation on this matter in the future,the Company considers the matter resolved and there was no impact on the Company’s current treatment of stock-based compensation costs. Income Tax Examination The Company is subject to examination of its income tax returns by the IRS and other tax authorities. In general, the tax years for 2007 and forward are open forexamination for U.S. federal and state income tax purposes. 13. COMMITMENTS AND CONTINGENCIES Warranty and Indemnification Provisions The changes in warranty reserves are as follows (in thousands): Year Ended December 31, 2020 2019 2018 Balance at beginning of period $1,139 $4,564 $2,416 Warranty provision for product sales 7,584 891 6,586 Settlements made (843) (2,768) (1,402)Unused warranty provision (985) (1,548) (3,036)Balance at end of period $6,895 $1,139 $4,564 The Company provides indemnification agreements to certain direct or indirect customers. The Company agrees to reimburse these parties for any damages, costs andexpenses incurred by them as a result of legal actions taken against them by third parties for infringing upon their intellectual property rights as a result of using theCompany’s products and technologies. These indemnification provisions are varied in their scope and are subject to certain terms, conditions, limitations andexclusions. In addition, the Company has entered into indemnification agreements with its directors and officers. It is not possible to predict the maximum potential amount of future payments under these agreements due to the limited history of indemnification claims and the uniquefacts and circumstances involved in each particular agreement. There were no indemnification liabilities incurred in any of the periods presented. However, there can beno assurances that the Company will not incur any financial liabilities in the future as a result of these obligations. Purchase Commitments The Company has outstanding purchase commitments with its suppliers and other parties that require the future purchases of goods or services, which primarily consistof wafer and other inventory purchases, assembly and other manufacturing services, construction or purchases of property and equipment, and license arrangements.As of December 31, 2020, the Company’s outstanding purchase obligations totaled approximately $211.5 million. Litigation The Company is a party to actions and proceedings in the ordinary course of business, including potential litigation initiated by its stockholders, challenges to theenforceability or validity of its intellectual property, claims that the Company’s products infringe on the intellectual property rights of others, and employment matters.These proceedings often involve complex questions of fact and law and may require the expenditure of significant funds and the diversion of other resources toprosecute and defend. The Company defends itself vigorously against any such claims. As of December 31, 2020, there were no material pending legal proceedings towhich the Company was a party. 72Table of Contents 14. EMPLOYEE 401(k) PLAN The Company sponsors a 401(k) retirement savings plan for all employees in the U.S. who meet certain eligibility requirements. Participants may contribute up to theamount allowable as a deduction for federal income tax purposes. The Company is not required to contribute and did not contribute to the plan for the years endedDecember 31, 2020, 2019 and 2018. 15. SIGNIFICANT CUSTOMERS The Company sells its products primarily through third-party distributors and value-added resellers, and directly to OEMs, ODMs and EMS providers. The followingtable summarizes those customers with sales equal to 10% or more of the Company's total revenue: Year Ended December 31, Customer 2020 2019 2018 Distributor A 24% 23% 22%Distributor B 11% * 10% * Represents less than 10%. The Company’s agreements with these third-party customers were made in the ordinary course of business and may be terminated with or without cause by thesecustomers with advance notice. Although the Company may experience a short-term disruption in the distribution of its products and a short-term decline in revenue ifits agreement with either of the distributors was terminated, the Company believes that such termination would not have a material adverse effect on its financialstatements because it would be able to engage alternative distributors, resellers and other distribution channels to deliver its products to end customers within a shortperiod following the termination of the agreement with the customer. The following table summarizes those customers with accounts receivable equal to 10% or more of the Company’s total accounts receivable: December 31, 2020 2019 Distributor A 24% 24%Distributor B 21% 11%Value-added reseller A 13% 13%Direct customer A 10% * * Represents less than 10%. 16. SEGMENT AND GEOGRAPHIC INFORMATION The Company operates in one reportable segment that includes the design, development, marketing and sale of high-performance analog solutions for the computingand storage, automotive, industrial, communications and consumer markets. The Company’s chief operating decision maker is its Chief Executive Officer, who reviewsfinancial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. The Company derives a majority ofits revenue from sales to customers located outside North America, with geographic revenue based on the customers’ ship-to locations. 73Table of Contents The following is a summary of revenue by geographic regions (in thousands): Year Ended December 31, Country or Region 2020 2019 2018 China $516,519 $382,740 $334,726 Taiwan 109,256 73,801 75,307 Europe 56,329 49,467 49,484 South Korea 64,093 43,900 41,238 Southeast Asia 42,403 32,031 36,495 Japan 35,461 27,812 26,853 United States 20,098 17,836 17,621 Other 293 334 658 Total $844,452 $627,921 $582,382 The following is a summary of revenue by major product families (in thousands): Year Ended December 31, Product Family 2020 2019 2018 DC to DC $800,478 $589,651 $537,512 Lighting Control 43,974 38,270 44,870 Total $844,452 $627,921 $582,382 The following is a summary of long-lived assets by geographic regions (in thousands): December 31, Country 2020 2019 2018 China $151,752 $113,888 $93,096 United States 101,768 94,671 39,054 Taiwan 18,797 17,652 16,972 Other 9,211 2,104 879 Total $281,528 $228,315 $150,001 17. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The following table summarizes the changes in accumulated other comprehensive income (loss) (in thousands): Unrealized Gains(Losses) onAvailable-for-SaleSecurities Foreign CurrencyTranslationAdjustments Total Balance as of January 1, 2019 $(1,638) $(3,905) $(5,543)Other comprehensive income (loss) before reclassifications 1,977 (1,706) 271 Amounts reclassified from accumulated other comprehensive loss (1) - (1)Tax effect (203) - (203)Net current period other comprehensive income (loss) 1,773 (1,706) 67 Balance as of December 31, 2019 135 (5,611) (5,476)Other comprehensive income before reclassifications 2,878 14,150 17,028 Amounts reclassified from accumulated other comprehensive income (loss) (1,087) - (1,087)Tax effect (325) - (325)Net current period other comprehensive income 1,466 14,150 15,616 Balance as of December 31, 2020 $1,601 $8,539 $10,140 The amounts reclassified from accumulated other comprehensive income (loss) were recorded in other income, net, on the Consolidated Statements of Operations. 74Table of Contents 18. SUBSEQUENT EVENT Cash Dividend Increase In February 2021, the Company’s Board of Directors approved an increase in quarterly cash dividends from $0.50 per share to $0.60 per share. 75Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedurespursuant to Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934 as of the end of the period covered by this Annual Report on Form 10-K. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2020, our disclosure controls and procedures aredesigned at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submitunder the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information isaccumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regardingrequired disclosure. Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our management conducted an evaluation of theeffectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee ofSponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effectiveas of December 31, 2020. Management reviewed the results of its assessment with our Audit Committee. Our independent registered public accounting firm, Ernst & Young LLP, independently assessed the effectiveness of our internal control over financial reporting, asstated in the firm’s attestation report, which appears in Part II, Item 8 of this Annual Report on Form 10-K. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2020, that have materially affected, or arereasonably likely to materially affect, our internal control over financial reporting. As a result of the COVID-19 pandemic, we have implemented work-from-home arrangements in accordance with local shelter-in-place orders and other governmentalrestrictions in the United States and certain international locations during the year ended December 31, 2020. We have reviewed our financial reporting process andbusiness continuity plans in order to mitigate the impact to our control environment, operating procedures, and data. We believe that our internal controls over financialreporting continue to be effective. Limitations on Effectiveness of Controls and Procedures In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed andoperated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflectthe fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relativeto their costs. ITEM 9B. OTHER INFORMATION None. 76Table of Contents PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Reference is made to the information regarding directors and nominees, code of ethics, corporate governance matters and disclosure relating to compliance with Section16(a) of the Securities Exchange Act of 1934 appearing under the captions “Election of Directors” and “Delinquent Section 16(a) Reports” in the Company’s ProxyStatement for its 2021 Annual Meeting of Stockholders (the “2021 Annual Meeting”), which information is incorporated in this Annual Report on Form 10-K byreference. Information regarding executive officers is set forth under the caption “Information about Executive Officers” in Part I of this Annual Report on Form 10-K. ITEM 11. EXECUTIVE COMPENSATION The information required by this item will be set forth under the caption “Executive Officer Compensation” in the Company’s Proxy Statement for the 2021 AnnualMeeting, and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required by this item will be set forth under the captions “Security Ownership of Certain Beneficial Owners and Management” and “EquityCompensation Plan Information” in the Company’s Proxy Statement for the 2021 Annual Meeting, and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by this item will be set forth under the captions “Certain Relationships and Related Transactions” and “Election of Directors” in the Company’sProxy Statement for the 2021 Annual Meeting, and is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by this item will be set forth under the caption “Audit and Other Fees” in the Company’s Proxy Statement for the 2021 Annual Meeting, and isincorporated herein by reference. 77Table of Contents PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Documents filed as part of this report (1) All financial statements PageReports of Independent Registered Public Accounting Firm (Ernst & Young LLP)42Report of Independent Registered Public Accounting Firm (Deloitte & Touche LLP)44Consolidated Balance Sheets45Consolidated Statements of Operations46Consolidated Statements of Comprehensive Income47Consolidated Statements of Stockholders’ Equity48Consolidated Statements of Cash Flows49Notes to Consolidated Financial Statements50 (2) Financial Statement Schedules All schedules have been omitted because the required information is not present or not present in amounts sufficient to require submission of the schedules, or becausethe information required is included in the consolidated financial statements or notes thereto. (3) Exhibits ExhibitNumber Description 3.1 (1) Amended and Restated Certificate of Incorporation. 3.2 (2) Amended and Restated Bylaws. 4.1 (3) Description of the Registrant's Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934. 10.1+ (4) Registrant’s 2004 Employee Stock Purchase Plan and form of subscription agreement. 10.2+ (5) Form of Directors’ and Officers’ Indemnification Agreement. 10.3+ (6) Employment Agreement with Michael Hsing, and Amendment thereof. 10.4+ (7) Employment Agreement with Maurice Sciammas, and Amendment thereof. 10.5+ (8) Employment Agreement with Jim Moyer. 10.6+(9) Employment Agreement with Deming Xiao, and Amendment thereof. 10.7+(10) Letter Agreement with Victor Lee. 10.8+(11) Letter Agreement with Jeff Zhou. 10.9+(12) Monolithic Power Systems, Inc. Master Cash Performance Bonus Plan. 10.10+(13) Letter Agreement with Eugen Elmiger. 10.11+(14) Monolithic Power Systems, Inc. 2004 Equity Incentive Plan, as Amended, and Form of Grant Agreement. 10.12+(15) Monolithic Power Systems, Inc. 2014 Equity Incentive Plan, as Amended, and Form of Grant Agreement. 78Table of Contents 10.13+(16) Employment Agreement with Bernie Blegen. 10.14+(17) Employment Agreement with Saria Tseng and Amendment thereof. 10.15+(18) Monolithic Power Systems, Inc. Amended and Restated 2014 Equity Incentive Plan. 10.16+(19) Forms of Grant Agreements under the Monolithic Power Systems, Inc. Amended and Restated 2014 Equity Incentive Plan. 21.1 Subsidiaries of Monolithic Power Systems, Inc. 23.1 Consent of Independent Registered Public Accounting Firm (Ernst & Young LLP). 23.2 Consent of Independent Registered Public Accounting Firm (Deloitte & Touche LLP). 24.1 Power of Attorney (included on Signature page to this Form 10-K). 31.1 Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of theSarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of theSarbanes-Oxley Act of 2002. 32.1* Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002. 101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within theInline XBRL document 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) +Management contract or compensatory plan or arrangement.*This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of thatSection, nor shall it be deemed incorporated by reference in any filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, whethermade before or after the date hereof and irrespective of any general incorporation language in any filings.(1)Incorporated by reference to Exhibit 3.2 of the Registrant’s Registration Statement on Form S-1/A (Registration No. 333-117327), filed with the Securitiesand Exchange Commission on November 15, 2004.(2)Incorporated by reference to Exhibit 3.4 of the Registrant’s Registration Statement on Form S-1/A (Registration No. 333-117327), filed with the Securitiesand Exchange Commission on November 15, 2004.(3)Incorporated by reference to Exhibit 4.1 of the Registrant’s annual report on Form 10-K (File No. 000-51026), filed with the Securities and ExchangeCommission on February 28, 2020.(4)Incorporated by reference to Exhibit 10.3 of the Registrant’s Registration Statement on Form S-1/A (Registration No. 333-117327), filed with theSecurities and Exchange Commission on November 15, 2004. 79Table of Contents (5)Incorporated by reference to Exhibit 10.4 of the Registrant’s Registration Statement on Form S-1/A (Registration No. 333-117327), filed with theSecurities and Exchange Commission on November 15, 2004.(6)Incorporated by reference to Exhibit 10.7 of the Registrant’s annual report on Form 10-K (File No. 000-51026), filed with the Securities and ExchangeCommission on March 11, 2008 and Exhibit 10.1 of the Registrant’s current report on Form 8-K (File No. 000-51026), filed with the Securities andExchange Commission on December 19, 2008.(7)Incorporated by reference to Exhibit 10.8 of the Registrant’s annual report on Form 10-K (File No. 000-51026), filed with the Securities and ExchangeCommission on March 11, 2008 and Exhibit 10.3 of the Registrant’s current report on Form 8-K (File No. 000-51026), filed with the Securities andExchange Commission on December 19, 2008.(8)Incorporated by reference to Exhibit 10.9 of the Registrant’s Registration Statement on Form S-1 (Registration No. 333-117327), filed with the Securitiesand Exchange Commission on July 13, 2004.(9)Incorporated by reference to Exhibit 10.10 of the Registrant’s annual report on Form 10-K (File No. 000-51026), filed with the Securities and ExchangeCommission on March 11, 2008 and Exhibit 10.4 of the Registrant’s current report on Form 8-K (File No. 000-51026), filed with the Securities andExchange Commission on December 19, 2008.(10)Incorporated by reference to Exhibit 10.1 of the Registrant’s current report on Form 8-K (File No. 000-51026), filed with the Securities and ExchangeCommission on September 14, 2006.(11)Incorporated by reference to Exhibit 10.1 of the Registrant’s current report on Form 8-K (File No. 000-51026), filed with the Securities and ExchangeCommission on February 3, 2010.(12)Incorporated by reference to Annexure C of the Registrant’s Proxy Statement on Schedule 14A (File No. 000-51026), filed with the Securities andExchange Commission on April 30, 2013.(13)Incorporated by reference to Exhibit 10.36 of the Registrant’s annual report on Form 10-K (File No. 000-51026), filed with the Securities and ExchangeCommission on March 10, 2014.(14)Incorporated by reference to Exhibit 4.4 of the Registrant’s Registration Statement on Form S-8 (Registration No. 333-199782), filed with the Securitiesand Exchange Commission on November 3, 2014.(15)Incorporated by reference to Exhibit 4.6 of the Registrant’s Registration Statement on Form S-8 (Registration No. 333-199782), filed with the Securitiesand Exchange Commission on November 3, 2014.(16)Incorporated by reference to Exhibit 10.1 of the Registrant’s current report on Form 8-K (File No. 000-51026), filed with the Securities and ExchangeCommission on July 22, 2016.(17)Incorporated by reference to Exhibit 10.14 of the Registrant’s annual report on Form 10-K (File No. 000-51026), filed with the Securities and ExchangeCommission on February 28, 2020.(18)Incorporated by reference to Annexure B of the Registrant’s Proxy Statement on Schedule 14A (File No. 000-51026), filed with the Securities andExchange Commission on April 29, 2020.(19)Incorporated by reference to Exhibit 10.1 of the Registrant’s quarterly report on Form 10-Q (File No. 000-51026), filed with the Securities and ExchangeCommission on November 6, 2020. ITEM 16. FORM 10-K SUMMARY. None. 80Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized. MONOLITHIC POWER SYSTEMS, INC. Date: March 1, 2021By:/s/ Michael Hsing Michael Hsing President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Michael Hsing and T. Bernie Blegen, jointlyand severally, his attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this report, and to file the same,with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each ofsaid attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 1, 2021 by the following persons on behalf of theregistrant and in the capacities indicated: /s/ Michael Hsing President, Chief Executive Officer, and Director (Principal Executive Officer)MICHAEL HSING /s/ T. Bernie Blegen Chief Financial Officer (Principal Financial and Accounting Officer)T. BERNIE BLEGEN /s/ Herbert Chang DirectorHERBERT CHANG /s/ Eugen Elmiger DirectorEUGEN ELMIGER /s/ Victor K. Lee DirectorVICTOR K. LEE /s/ James C. Moyer DirectorJAMES C. MOYER /s/ Jeff Zhou DirectorJEFF ZHOU 81Exhibit 21.1 SUBSIDIARIES OF MONOLITHIC POWER SYSTEMS, INC. MPS International Ltd. MPS International (Shanghai) Ltd. Chengdu Monolithic Power Systems Co., Ltd. MPS International Korea Co., Ltd. MPS International GK MPS Japan K.K. MPS Europe SARL Hangzhou MPS Semiconductor Technology LTD. MPS International (Taiwan) Ltd. Monolithic Power Systems (Singapore) Pte. Ltd. MPS Germany GmbH MPS Tech Switzerland SARL Monolithic Power Spain, S.L. EXHIBIT 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in the following Registration Statements: (1)Registration Statement (Form S-8 No. 333-240305) pertaining to the Monolithic Power Systems, Inc. Amended and Restated 2014 Equity Incentive Plan, (2)Registration Statement (Form S-8 No. 333-199782) pertaining to the Monolithic Power Systems, Inc. 2014 Equity Incentive Plan, (3)Registration Statement (Form S-8 No. 333-198856) pertaining to the Monolithic Power Systems, Inc. 2004 Equity Incentive Plan, (4)Registration Statement (Form S-8 No. 333-187117) pertaining to the Monolithic Power Systems, Inc. 2004 Equity Incentive Plan and the Monolithic PowerSystems, Inc. 2004 Employee Stock Purchase Plan, (5)Registration Statement (Form S-8 No. 333-180047) pertaining to the Monolithic Power Systems, Inc. 2004 Equity Incentive Plan and the Monolithic PowerSystems, Inc. 2004 Employee Stock Purchase Plan, (6)Registration Statement (Form S-8 No. 333-172013) pertaining to the Monolithic Power Systems, Inc. 2004 Equity Incentive Plan and the Monolithic PowerSystems, Inc. 2004 Employee Stock Purchase Plan, (7)Registration Statement (Form S-8 No. 333-164673) pertaining to the Monolithic Power Systems, Inc. 2004 Equity Incentive Plan and the Monolithic PowerSystems, Inc. 2004 Employee Stock Purchase Plan, (8)Registration Statement (Form S-8 No. 333-157095) pertaining to the Monolithic Power Systems, Inc. 2004 Equity Incentive Plan and the Monolithic PowerSystems, Inc. 2004 Employee Stock Purchase Plan, (9)Registration Statement (Form S-8 No. 333-149027) pertaining to the Monolithic Power Systems, Inc. 2004 Equity Incentive Plan and the Monolithic PowerSystems, Inc. 2004 Employee Stock Purchase Plan, (10)Registration Statement (Form S-8 No. 333-140563) pertaining to the Monolithic Power Systems, Inc. 2004 Equity Incentive Plan and the Monolithic PowerSystems, Inc. 2004 Employee Stock Purchase Plan, (11)Registration Statement (Form S-8 No. 333-132411), as amended, pertaining to the Monolithic Power Systems, Inc. 2004 Equity Incentive Plan and the MonolithicPower Systems, Inc. 2004 Employee Stock Purchase Plan, and (12)Registration Statement (Form S-8 No. 333-120886) pertaining to the Monolithic Power Systems, Inc. 2004 Equity Incentive Plan, the Monolithic Power Systems,Inc. 2004 Employee Stock Purchase Plan and the Monolithic Power Systems, Inc. 1998 Stock Plan; of our reports dated March 1, 2021 with respect to the consolidated financial statements of Monolithic Power Systems, Inc., and the effectiveness of internal controlover financial reporting of Monolithic Power Systems, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2020. /s/ Ernst & Young LLP San Jose, CaliforniaMarch 1, 2021 EXHIBIT 23.2 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in Registration Statement Nos. 333-240305, 333-199782, 333-198856, 333-187117, 333-180047, 333-172013, 333-164673, 333-157095, 333-149027, 333-140563, 333-132411, and 333-120886 on Form S-8 of our report dated March 1, 2019, relating to the consolidated financial statements ofMonolithic Power Systems, Inc. and subsidiaries (the “Company”) for the year ended December 31, 2018, which appear in this Annual Report on Form 10-K for the yearended December 31, 2020. /s/ Deloitte & Touche LLP San Jose, CaliforniaMarch 1, 2021 Exhibit 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TOSECURITIES EXCHANGE ACT RULES 13a-14(a) and 15d-14(a), AS ADOPTED PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Michael Hsing, certify that: 1. I have reviewed this Annual Report on Form 10-K of Monolithic Power Systems, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure thatmaterial information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the periodin which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of thedisclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter(the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internalcontrol over financial reporting; and 5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financialreporting. Date: March 1, 2021 /s/ Michael Hsing Michael Hsing Chief Executive Officer Exhibit 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TOSECURITIES EXCHANGE ACT RULES 13a-14(a) and 15d-14(a), AS ADOPTED PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, T. Bernie Blegen, certify that: 1. I have reviewed this Annual Report on Form 10-K of Monolithic Power Systems, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure thatmaterial information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the periodin which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of thedisclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter(the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internalcontrol over financial reporting; and 5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financialreporting. Date: March 1, 2021 /s/ T. Bernie Blegen T. Bernie Blegen Chief Financial Officer Exhibit 32.1 The following certification shall not be deemed “filed” for purposes of section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of thatsection, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before orafter the date hereof and irrespective of any general incorporation language in any filings. CERTIFICATION OF CHIEF EXECUTIVE OFFICER ANDCHIEF FINANCIAL OFFICER PURSUANT TO18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K of Monolithic Power Systems, Inc., a Delaware corporation, for the year ended December 31, 2020 (the “Report”), asfiled with the Securities and Exchange Commission, each of the undersigned officers of Monolithic Power Systems, Inc. certifies pursuant to 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) the accompanying Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Monolithic Power Systems,Inc. for the periods presented therein. Date: March 1, 2021 /s/ Michael Hsing Michael Hsing Chief Executive Officer Date: March 1, 2021 /s/ T. Bernie Blegen T. Bernie Blegen Chief Financial Officer

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