2021 Annual Report
Dear Fellow Stockholders,
While 2021 was a blockbuster year in terms of revenue growth for the semiconductor industry, it was an even more
remarkable year for Power Integrations. We surpassed the $500 million, $600 million and $700 million revenue milestones
all in the same year, growing our revenues 44 percent to $703 million. We also more than doubled our net income while
generating $231 million of cash flow from operations and dramatically expanding our operating margins. We produced
these outstanding results thanks in large part to our innovative products and to big-picture trends like energy efficiency,
electrification, smart homes and appliances, and advanced chargers for mobile devices. We also benefited from our unique
manufacturing model and strong operational execution, which enabled us to navigate the supply-and-demand imbalances
that have roiled the semiconductor industry since the early days of the pandemic.
Many fabless semiconductor companies, including some of our competitors, rely on large merchant foundries where
capacity has been and continues to be severely oversubscribed, leading to extended lead times and shortages. Our
manufacturing model affords us dedicated capacity at foundry partners with whom we have stable, longstanding
partnerships, where we own and control the process technologies—and even some of the equipment—used in the
manufacture of our products. (We also own a large portion of the equipment used by our assembly-and-test subcontractors.)
These sturdy relationships and the timely investments we have made in recent years to increase our manufacturing capacity
paid off in 2021 and will continue to benefit us in 2022 with lead times remaining stretched across much of the industry.
Careful inventory management has been another key element of our success in dealing with supply-and-demand
imbalances. Knowing that double- and triple-ordering are common behaviors during periods of shortage, we have worked
closely with our largest customers to make sure we deliver only what they truly need without stockpiling inventory that
could be used to satisfy other customers. Thanks to the skillful execution of our sales and operations teams, these efforts
have further enhanced our ability to deliver for customers.
And it’s not just our competitors’ supply challenges that have worked in our favor. Many of the external components
required to design power supplies with competing solutions, such as resistors, capacitors and diodes, have also become
harder to source and/or gone up in price. Because our highly integrated products typically eliminate dozens of these
components, our solutions are that much more attractive in a supply-constrained environment. In sum, while the
semiconductor supply crunch has caused enormous challenges throughout our industry and for consumers and
manufacturers around the world, we believe our strong delivery performance and the benefits of integration have
strengthened our customer relationships and enabled us to gain market share.
Our revenue growth in 2021 was broad-based and diversified, with all four revenue categories growing at least 35 percent.
We grew our consumer revenues 40 percent through a combination of share gains and expanding dollar content in
appliances, driven by the addition of ever more electronic features such as network connectivity and LED lighting, as well
as stricter energy-efficiency standards such as China’s new efficiency standards for air conditioners, which took effect in
mid-2021. The standards all but force manufacturers to eliminate inefficient “linear” power supplies in favor of electronic
power supplies using ICs like ours. The regulations also encourage wider use of efficient brushless DC (BLDC) motors,
creating opportunities for our BridgeSwitch™ products, which drive BLDC motors up to about 400 watts of output. The
efficiency of BridgeSwitch drivers compounds the energy-saving benefits of BLDC motors while enhancing reliability
and reducing cost by eliminating the clunky heatsinks needed with competing solutions.
Our leadership in appliance power supplies and our strong relationships with appliance makers around the world put us in
an excellent position to sell BridgeSwitch products and further expand our content in appliances. We expect BridgeSwitch
to be in production this year with at least half a dozen appliance customers, and that number should expand significantly
next year. We also plan to extend the power range of our motor-drive products in the years ahead, a key element of our
plan to double the size of our addressable market to $8 billion over the next five years.
Industrial revenues grew 35 percent in 2021, driven by a diverse set of applications including metering, home automation,
lighting and battery-powered tools. Our growth in the industrial market reflects not only the attractiveness of our products,
but also the investments we have made in design-support resources and distribution capabilities to better reach the
thousands of smaller customers that make up a substantial portion of the industrial market.
Revenues from the communications category grew more than 45 percent in 2021 while computer revenues nearly
doubled. Each of these two markets is experiencing rapid growth thanks to the adoption of advanced chargers for mobile
devices such as smartphones, tablets and notebook PCs, including “in-box” chargers, OEM-branded accessory chargers
and after-market brands such as Anker, the exclusive launch partner for the introduction of our InnoSwitch™4 ICs,
which feature our proprietary gallium-nitride, or GaN, transistors.
Slow cellphone chargers and clunky brick-style notebook adapters are rapidly giving way to advanced chargers that are
sleeker, faster and, increasingly, capable of charging multiple devices at once. The efficiency of GaN is helping fuel this
transformation, and our highly integrated GaN-based ICs are winning in the market. Driven mainly by advanced chargers,
revenues from our GaN-based products tripled in 2021, and we expect strong growth again in 2022.
Another market being transformed by technology—and creating opportunities for Power Integrations—is the automotive
market. While internal-combustion vehicles use only low-voltage systems, electric vehicles have high-voltage batteries to
power the main motor and many of their sub-systems. Since the challenges of high voltage are relatively new to the
automotive market, customers are eager to tap our expertise. Our InnoSwitch products are rapidly gaining acceptance in
EV power supplies thanks to their efficiency and their high level of integration, which saves precious board space while
enhancing reliability. We have multiple automotive design wins going into production later this year, with additional
designs scheduled for production in 2023 and 2024. While revenues will ramp gradually given the length of automotive
design cycles, we’re excited about our progress and we’re investing in products, people and facilities in an effort to make
automotive a significant part of our business in the coming years.
In summary, 2021 was an outstanding year for Power Integrations, and we’re confident in our prospects for 2022 and
beyond. GaN represents one of the most important opportunities ever in power semiconductors, and we are the clear market
leader. Smartphone and notebook chargers are transforming from throw-away accessories to high-tech appliances that help
our customers differentiate their products. Transportation and tools are going electric, and appliances need to use less
power even while adding more electronic features. IoT and smart-home devices need power supplies that are reliable and
compact with minimal standby power consumption. And with governments and the private sector pushing for lower carbon
emissions, our products have a critical role to play in the generation, transmission and efficient consumption of power.
Each year our EcoSmart™ technology saves enough electricity to power more than a million and a half homes, and our
GaN technology will save even more power as it replaces silicon. Meanwhile, our gate-drivers are used in solar and wind
power as well as high-voltage transmission lines that deliver clean energy to the grid.
These trends bode well for Power Integrations, and I’m excited about what the future holds for our company. We are
making the necessary investments to expand our addressable market, extend our sales reach, and install the manufacturing
capacity we need to become a billion-dollar business in the years ahead. We’re also investing heavily in our own shares;
we took advantage of market volatility, including the turbulence around our promotion to the S&P 400 Mid-Cap Index in
December, to buy back about two percent of our outstanding shares between November 2021 and January 2022. In January
our board allocated an additional $100 million for repurchases, followed by another $50 million in February. We have also
increased our dividend twice over the past year, further demonstrating our confidence in our future growth and profitability
as well as our commitment to returning value to our stockholders.
Thank you for your continued support of our company—I look forward to reporting on our progress in the year ahead.
Sincerely,
Balu Balakrishnan
President and Chief Executive Officer
March 2022
The statements in this Annual Report relating to future events or results are forward-looking statements that involve many risks and uncertainties. In
some cases, forward-looking statements are indicated by the use of words such as “would,” “could,” “will,” “may,” “expect,” “believe,” “look
forward,” “anticipate,” “outlook,” “if,” “future,” “intend,” “plan,” “estimate,” “potential,” “seek,” “scheduled,” “continue” and similar words
and phrases, including the negatives of these terms, or other variations of these terms. Our actual results could differ materially from those contained
in these forward-looking statements due to a number of factors, including: uncertainty and unexpected impacts of the COVID-19 pandemic; changes in
global macroeconomic and geopolitical conditions; changes and shifts in customer demand away from end products that utilize our products; the effects
of trade tensions and competition; the outcome and cost of patent litigation; unforeseen costs and expenses; and unfavorable fluctuations in component
costs resulting from changes in commodity prices and/or the exchange rate between the U.S. dollar and the Japanese yen. In addition, new product
introductions and design wins are subject to the risks and uncertainties that typically accompany development and delivery of complex technologies to
the marketplace, including product development delays and defects and market acceptance of the new products. These and other risk factors that may
cause actual results to differ are discussed in Part I, Item 1A — “Risk Factors” included in the Form 10-K which is part of this Annual Report.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 2021
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 000-23441
POWER INTEGRATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of Incorporation or organization)
94-3065014
(I.R.S. Employer Identification No.)
5245 Hellyer Avenue
San Jose , California
(Address of principal executive offices)
95138-1002
(Zip code)
(408) 414-9200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock
Trading Symbol(s)
Name of Each Exchange on Which Registered
POWI
The Nasdaq Global Select Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No ☐
Securities registered pursuant to Section 12(g) of the Act: None
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 the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes No
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 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 growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth
company” in Rule 12b-2 of the Exchange Act:
Large Accelerated Filer
Non-accelerated Filer
☐
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 revised financial 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 over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report.
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 registrant’s voting and non-voting common stock held by non-affiliates of registrant on June 30, 2021, the last business
day of the registrant’s most recently completed second fiscal quarter, was approximately $3.6 billion, based upon the closing sale price of the common
stock as reported on The Nasdaq Global Select Market. Shares of common stock held by each officer and director have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status is not a conclusive determination for other purposes.
Outstanding shares of registrant’s common stock, $0.001 par value, as of February 1, 2022: 59,158,747.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this report, to the extent not set forth herein, is incorporated by reference from the Registrant’s
definitive proxy statement relating to the 2022 annual meeting of stockholders, which definitive proxy statement will be filed with the Securities and
Exchange Commission within 120 days after the fiscal year to which this Report relates.
POWER INTEGRATIONS, INC.
TABLE OF CONTENTS
PART I.
Page
ITEM 1. BUSINESS ………………………………………………………………………………………………
4
ITEM 1A. RISK FACTORS ..……………………………………………………………………………………… 13
ITEM 1B. UNRESOLVED STAFF COMMENTS………………………………………………………………… 20
ITEM 2.
PROPERTIES…………………………………………………………………………………………… 20
ITEM 3. LEGAL PROCEEDINGS .……………………………………………………………………………… 21
ITEM 4. MINE SAFETY DISCLOSURES ……………………………………………………………………… 21
PART II.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES .…………………………………………… 21
[RESERVED]…………………………………………………………………………………………… 22
ITEM 6.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS .………………………………………………………………………… 23
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK .……………… 32
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA .…………………………………… 33
ITEM 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE…………………………………………………………………………… 62
ITEM 9A. CONTROLS AND PROCEDURES .…………………………………………………………………… 62
ITEM 9B. OTHER INFORMATION ……………………………………………………………………………… 64
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS…… 66
PART III.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE .…………………… 67
ITEM 11. EXECUTIVE COMPENSATION ……………………………………………………………………… 67
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS ..…………………………………………………………… 67
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES ………………………………………………..
INDEPENDENCE ……………………………………………………………………………………… 67
67
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES………………………………………… 68
ITEM 16. FORM 10-K SUMMARY ……………………………………………………………………………… 75
76
SIGNATURES ……………………………………………………………………………………………………….
PART IV.
2
Cautionary Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K includes a number of forward-looking statements that involve many risks and
uncertainties. Forward-looking statements are identified by the use of the words “would,” “could,” “will,” “may,”
“expect,” “believe,” “should,” “anticipate,” “if,” “future,” “intend,” “plan,” “estimate,” “potential,” “target,” “seek” or
“continue” and similar words and phrases, including the negatives of these terms, or other variations of these terms, that
denote future events. These statements reflect our current views with respect to future events and our potential financial
performance and are subject to risks and uncertainties that could cause our actual results and financial position to differ
materially and/or adversely from what is projected or implied in any forward-looking statements included in this
Form 10-K. These factors include, but are not limited to: the novel coronavirus pandemic (COVID-19), which has
disrupted and may again disrupt our operations, including our manufacturing, research and development, and sales and
marketing activities, which in turn could have a material adverse impact on our business and has or could exacerbate the
risks discussed below; if demand for our products declines in our major end markets, our net revenues will decrease; our
products are sold through distributors, which limits our direct interaction with our end customers, therefore reducing our
ability to forecast sales and increasing the complexity of our business; we depend on third-party suppliers to provide us
with wafers for our products, and if they fail to provide us sufficient quantities of wafers, our business may suffer; intense
competition in the high-voltage power supply industry may lead to a decrease in our average selling price and reduced
sales volume of our products; if our products do not penetrate additional markets, our business will not grow as we expect;
we do not have long-term contracts with any of our customers and if they fail to place, or if they cancel or reschedule
orders for our products, our operating results and our business may suffer; if we are unable to adequately protect or enforce
our intellectual property rights, we could lose market share, incur costly litigation expenses, suffer incremental price
erosion or lose valuable assets, any of which could harm our operations and negatively impact our profitability; and the
other risk factors described in Item 1A of Part I -- “Risk Factors” of this Form 10-K. We make these forward looking
statements based upon information available on the date of this Form 10-K, and expressly disclaim any obligation to update
or alter any forward-looking statements, whether as a result of new information or otherwise, except as required by laws.
In evaluating these statements, you should specifically consider the risks described under Item 1A of Part I -- “Risk
Factors,” Item 7 of Part II -- “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
and elsewhere in this Annual Report on Form 10-K.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant
subject. These statements are based upon information available to us as of the date of this Annual Report on Form 10-K,
and while we believe such information forms a reasonable basis for such statements, such information may be limited or
incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review
of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not
to unduly rely upon these statements.
3
Item 1. Business.
Overview
PART I.
We design, develop and market analog and mixed-signal integrated circuits (ICs) and other electronic components
and circuitry used in high-voltage power conversion. Our products are used in power converters that convert electricity
from a high-voltage source to the type of power required for a specified downstream use. In most cases, this conversion
entails, among other functions, converting alternating current (AC) to direct current (DC) or vice versa, reducing or
increasing the voltage, and regulating the output voltage and/or current according to the customer’s specifications.
A large percentage of our products are ICs used in AC-DC power supplies, which convert the high-voltage AC
from a wall outlet to the low-voltage DC required by most electronic devices. Power supplies incorporating our products
are used with all manner of electronic products including mobile phones, computing and networking equipment,
appliances, electronic utility meters, battery-powered tools, industrial controls, and “home-automation,” or “internet of
things” applications such as networked thermostats, power strips and security devices. We also supply high-voltage LED
drivers, which are AC-DC ICs specifically designed for lighting applications that utilize light-emitting diodes, and motor-
driver ICs addressing brushless DC (BLDC) motors used in refrigerators, HVAC systems, ceiling fans and other consumer-
appliance and light commercial applications.
We also offer high-voltage gate drivers—either standalone ICs or circuit boards containing ICs, electrical
isolation components and other circuitry—used to operate high-voltage switches such as insulated-gate bipolar transistors
(IGBTs) and silicon-carbide (SiC) MOSFETs. These combinations of switches and drivers are used for power conversion
in high-power applications (i.e., power levels ranging from a few kilowatts up to gigawatts) such as industrial motors,
solar- and wind-power systems, electric vehicles (EVs) and high-voltage DC transmission systems.
Our products bring a number of important benefits to the power-conversion market compared with less advanced
alternatives, including reduced component count and design complexity, smaller size, higher reliability and reduced time-
to-market. Our products also reduce the energy consumption of power converters during normal use and in “standby”
operation, when the end product is not in use. In addition to the environmental benefits of reduced energy usage, our
energy-saving technologies provide a number of benefits to our customers; these include helping them meet the
increasingly stringent efficiency standards now in effect for many electronic products, and enabling the elimination of
bulky heatsinks used to dissipate the heat produced by wasted electricity.
While the size of our addressable market fluctuates with changes in macroeconomic and industry conditions, the
market has generally exhibited a modest growth rate over time as growth in the unit volume of power converters has been
offset to a large degree by reductions in the average selling price of components in this market. Therefore, the growth of
our business depends largely on increasing our penetration of the markets that we serve and on further expanding our
addressable market. Our growth strategy includes the following elements:
Increase our penetration of the markets we serve. We currently address AC-DC applications with power
outputs up to approximately 500 watts, gate-driver applications ranging from a few kilowatts up to
gigawatts, and motor-drive applications up to approximately 400 watts. Through our research and
development efforts, we seek to introduce more advanced products for these markets offering higher
levels of integration and performance compared to earlier products. We also continue to expand our sales
and application-engineering staff and our network of distributors, as well as our offerings of technical
documentation and design-support tools and services to help customers use our products. These tools
and services include our PI Expert™ design software, which we offer free of charge, and our
transformer-sample service.
Our market-penetration strategy also includes capitalizing on the importance of energy efficiency and
renewable energy in the power conversion market. For example, our EcoSmart™ technology drastically
reduces the amount of energy consumed by electronic products when they are not in use, helping our
customers comply with regulations that seek to curb this so-called “standby” energy consumption. Also,
our gate-driver products are critical components in energy-efficient DC motor drives, high-voltage DC
transmission systems, solar and wind energy systems and electric transportation applications.
4
Increase the size of our addressable market. Prior to 2010 our addressable market consisted of AC-DC
applications with up to about 50 watts of output, a served available market (SAM) opportunity of
approximately $1.5 billion. Since that time we have expanded our SAM to more than $4 billion through
a variety of means. These include the introduction of products that enable us to address higher-power
AC-DC applications (such as our Hiper™ product families), the introduction of LED-driver products,
and our entry into the gate-driver market through the acquisition of CT-Concept Technologie AG in
2012. In 2016 we introduced the SCALE-iDriverTM family of ICs, broadening the range of gate-driver
applications we can address, and in 2018 we introduced our BridgeSwitch™ motor-driver ICs,
addressing BLDC motors, as described above. We have recently introduced a series of automotive-
qualified versions of our products, including SCALE-iDriver, InnoSwitch™ and LinkSwitch™ ICs,
targeting the EV market; we expect to introduce additional products targeting EVs in the future, and
expect automotive applications to become a significant portion of our SAM over time.
Also contributing to our SAM expansion has been the emergence of new applications within the power
ranges that our products can address. For example, applications such as “smart” utility meters, battery-
powered lawn equipment and bicycles, and USB power receptacles (often installed alongside traditional
AC wall outlets) can incorporate our products. The increased use of connectivity, LED lighting and other
power-consuming electronic features in consumer appliances has also enhanced our SAM.
Finally, we have expanded our SAM through the development of new technologies that increase the
value (and therefore the average selling prices) of our products. For example, our InnoSwitch™ ICs
integrate circuitry from the secondary, or low-voltage, side of AC-DC power supplies, whereas earlier
product families integrated circuitry only on the primary, or high-voltage side. In 2019 we began
incorporating proprietary gallium-nitride (GaN) transistors in some our products, enabling a higher level
of energy efficiency than ICs with silicon transistors. Since then, we have introduced a variety of new
products utilizing GaN technology and we expect to address a wider range of applications with GaN-
based products in the years ahead.
We intend to continue expanding our SAM in the years ahead through all of the means described above.
Industry Background
Virtually every electronic device that plugs into a wall socket requires a power supply to convert the high-voltage
alternating current provided by electric utilities into the low-voltage direct current required by most electronic devices. A
power supply may be located inside a device, such as a consumer appliance or flat-panel TV, or it may be outside the
device as in the case of a mobile-phone charger or an adapter for a cordless phone or cable modem.
Until approximately 1970, AC-DC power supplies were generally in the form of line-frequency, or linear,
transformers. These devices, consisting primarily of copper wire wound around an iron core, tend to be bulky and heavy,
and typically waste a substantial amount of electricity. In the 1970s, the availability of high-voltage discrete
semiconductors enabled the development of a new generation of power supplies known as switched-mode power supplies,
or switchers. These switchers generally came to be cost-effective alternatives to linear transformers in applications
requiring more than a few watts of power; in recent years the use of linear transformers has declined even further as a
result of energy-efficiency standards and higher raw-material prices.
Switchers are generally smaller, lighter-weight and more energy-efficient than linear transformers. However,
switchers designed with discrete components are highly complex, containing numerous components and requiring a high
level of analog design expertise. Further, the complexity and high component count of discrete switchers make them
relatively costly, difficult to manufacture and prone to failures. Also, some discrete switchers lack protection and energy-
efficiency features; adding these features may further increase the component count, cost and complexity of the power
supply.
In high-power systems such as industrial motor drives, electric locomotives and renewable-energy systems, power
conversion is typically performed using arrays of high-power silicon transistors known as IGBT modules; these modules
are operated by electronic circuitry known as gate drivers (or IGBT drivers), whose function is to ensure accurate, safe
and reliable operation of the IGBT modules. Much like discrete power supplies, discrete gate drivers tend to be highly
complex, requiring a large number of components and a great deal of design expertise.
5
Our Highly Integrated Approach
In 1994 we introduced TOPSwitch, the industry’s first cost-effective high-voltage IC for switched-mode AC-DC
power supplies. We have since introduced a range of other product families, expanding the range of power-supply
applications we can serve and enhancing our competitiveness in applications that we already addressed. In 2012 we
expanded our addressable market to include high-voltage gate drivers.
Our ICs and gate drivers drastically reduce the complexity and component count of power converters compared
to typical discrete designs by integrating many of the functions otherwise performed by numerous discrete electronic
components, and by eliminating (or reducing the size and cost of) additional components through innovative system
design. As a result, our products enable power converters to have superior features and functionality at a total cost equal
to or lower than that of many competing alternatives. Our products offer the following key benefits:
Fewer Components, Reduced Size and Higher Reliability
Our highly integrated ICs and gate drivers enable designs with up to 70% fewer components than comparable
discrete designs. This reduction in component count enhances reliability and efficiency, reduces size, and results in lower
manufacturing costs for our customers. Power supplies that incorporate our ICs are also lighter and more portable than
comparable power supplies built with linear transformers, which are still used in some low-power applications.
Reduced Time-to-Market, Enhanced Manufacturability
Because our products eliminate much of the complexity associated with the design of power converters, designs
can typically be completed in much less time, resulting in more efficient use of our customers’ design resources and shorter
time-to-market for new designs. The lower component count and reduced complexity enabled by our products also makes
designs more suitable for high-volume manufacturing. We also provide extensive hands-on design support as well as
online design tools, such as our PI Expert design software, that further reduce time-to-market and product development
risks.
Energy Efficiency
Our patented EcoSmart technology, introduced in 1998, improves the energy efficiency of electronic devices
during normal operation as well as standby and “no-load” conditions. This technology enables manufacturers to cost-
effectively meet the growing demand for energy-efficient products, and to comply with increasingly stringent energy-
efficiency requirements. Also, our GaN transistor technology, introduced in 2019, offers substantially higher levels of
active-mode efficiency compared to traditional silicon-based switches, while our BridgeSwitch motor-driver ICs enable
efficiency of up to 98.5 percent, not only minimizing waste but also eliminating the need for heatsinks in many
applications, which in turn reduces cost and weight.
Wide Power Range and Scalability
Products in our current IC families can address AC-DC power supplies with output power up to approximately
500 watts as well as some high-voltage DC-DC applications; our high-voltage gate drivers are used in applications with
power levels as high as one gigawatt, while our motor-driver ICs address BLDC applications up to about 400 watts. Within
each of our product families, designers can scale up or down in power to address a wide range of designs with minimal
design effort.
Energy Efficiency
Power supplies often draw significantly more electricity than the amount needed by the devices they power. As
a result, billions of dollars’ worth of electricity is wasted each year, and millions of tons of greenhouse gases are
unnecessarily produced by power plants. Energy waste occurs during the normal operation of a device and in standby
mode, when the device is plugged in but idle. For example: computers and printers waste energy while in “sleep” mode;
TVs that are turned off by remote control consume energy while awaiting a remote-control signal to turn them back on; a
mobile-phone charger left plugged into a wall outlet continues to draw electricity even when not connected to the phone
(a condition known as “no-load”); and many common household appliances, such as microwave ovens, dishwashers and
washing machines, also consume power when not in use. In fact, a 2015 study by the National Resources Defense Council
found that devices that are “always-on” but inactive may be causing as much as $19 billion in annual energy waste in the
United States alone.
6
Lighting is another major source of energy waste. Less than 5% of the energy consumed by traditional
incandescent light bulbs is converted to light, while the remainder is wasted as heat. The Alliance to Save Energy has
estimated that a conversion to efficient lighting technologies such as compact fluorescent bulbs and LEDs could save as
much as $18 billion worth of electricity and 158 million tons of carbon dioxide emissions per year in the United States
alone.
In response to concerns about the environmental impact of carbon emissions, policymakers have taken action to
promote energy efficiency. For example, the ENERGY STAR® program and the European Union Code of Conduct
encourage manufacturers of electronic devices to comply with voluntary energy-efficiency specifications. In 2007 the
California Energy Commission (CEC) implemented mandatory efficiency standards for external power supplies. The CEC
standards were implemented nationwide in the United States in July 2008 as a result of the Energy Independence and
Security Act of 2007 (EISA); these federal standards were tightened in 2016. Similar standards for external power supplies
took effect in the European Union in 2010 as part of the EU’s EcoDesign Directive for Energy-Related Products.
In 2010, the EU EcoDesign Directive implemented standards limiting standby power consumption on a wide
range of electronic products. The limit was reduced by 50 percent beginning in 2013, with many products now limited to
500 milliwatts of standby usage; further tightening of the standards is under consideration. The EISA legislation also
required substantial improvements in the efficiency of lighting technologies beginning in 2012; as of 2014, traditional
100-, 75-, 60- and 40-watt bulbs are no longer permitted to be manufactured or sold in the United States. Plans to eliminate
conventional incandescent bulbs have also been announced or enacted in other geographies such as Canada, Australia and
Europe. In December 2019 the government of China published new efficiency standards for room air conditioners, which
took effect on July 1, 2020.
We believe we offer products that enable manufacturers to meet or exceed these regulations, and all other such
regulations of which we are aware. Since 1998, our AC-DC power-conversion ICs have featured our EcoSmart technology
which drastically reduces standby power waste. We have sold more than 18 billion ICs featuring EcoSmart technology,
resulting in estimated savings of more than $15 billion worth of standby power worldwide. In 2010 we expanded our
portfolio of energy-saving products with the introduction of our CapZero and SenZero IC families, which eliminate
additional sources of standby waste in some power supplies. We also offer a range of products designed specifically for
LED-lighting applications. Our GaN technology, introduced in 2019, also dramatically improves the active-mode
efficiency of power-supplies.
Products
Below is a brief description of our products:
AC-DC power conversion products
TOPSwitch, our first commercially successful product family, was introduced in 1994. Since that time we have
introduced a wide range of products (such as our TinySwitch, LinkSwitch and Hiper families) to increase the level of
integration and improve upon the functionality of the original TOPSwitch, and to broaden the range of power levels we
can address. In 2010 we introduced our CapZero and SenZero families, which reduce standby power consumption in
certain applications by eliminating waste caused by so-called bleed resistors and sense resistors. We have also introduced
products designed specifically for LED-lighting applications, known as LYTSwitch ICs, as well as a range of high-
performance, high-voltage diodes known as Qspeed diodes.
In 2014 we introduced our InnoSwitch product family, the first power-supply ICs to combine primary, secondary
and feedback circuits into a single package. These ICs employ a proprietary technology known as FluxLink to enable
precise control without the need for optical components, which tend to add cost and diminish the reliability of power
supplies. In 2019 we began offering InnoSwitch ICs with more-efficient GaN transistors rather than silicon transistors. In
2020 we introduced GaN-based MinE-CAP ICs, which enable the use of smaller input capacitors as a way to further reduce
the size of a power supply. Our ClampZero ICs, introduced in 2021 alongside the GaN-based InnoSwitch4-CZ family of
ICs, further enhance efficiency by recovering power losses associated with the high switching frequency of GaN
transistors.
This portfolio of power-conversion products generally addresses power supplies ranging from less than one watt
of output up to approximately 500 watts of output, a market we refer to as the “low-power” market. This market consists
of an extremely broad range of applications including mobile-device chargers, consumer appliances, utility meters, LCD
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monitors, main and standby power supplies for desktop computers and TVs, and numerous other consumer and industrial
applications, as well as LED lighting. We also now offer automotive-qualified versions of certain products, such as
InnoSwitch ICs, for use in electric vehicles.
High-voltage gate drivers
We offer a range of high-voltage gate-driver products sold primarily under the SCALE and SCALE-2 product-
family names. These products are fully assembled circuit boards incorporating multiple ICs, electrical isolation
components and other circuitry. We offer both ready-to-operate “plug-and-play” drivers designed specifically for use with
particular IGBT modules, as well as “driver cores,” which provide more basic driver functionality that customers can
customize to their own specifications after purchase. In 2016 we introduced the SCALE-iDriver family of standalone ICs,
which enables us to address applications ranging from a few kilowatts up to about 100 kilowatts, whereas previously our
sales of high-power products were primarily for applications above 100 kilowatts. In 2020 we introduced an automotive-
qualified version of SCALE-iDriver suitable for use in powertrain and charging applications for electric vehicles.
Motor-driver products
The BridgeSwitch family of products, introduced in 2018, is a family of motor-driver ICs addressing BLDC
motor applications up to approximately 400 watts. Such applications include refrigerator compressors, ceiling fans, air
purifiers as well as pumps, fans and blowers used in consumer appliances such as dishwashers and laundry machines.
Other Product Information
TOPSwitch, TinySwitch, LinkSwitch, DPA-Switch, EcoSmart, Hiper, Qspeed, InnoSwitch, BridgeSwitch,
SCALE, SCALE-II, SCALE-III, SCALE-iDriver, PeakSwitch, CAPZero, SENZero, ChiPhy, FluxLink, CONCEPT and
PI Expert are trademarks of Power Integrations, Inc.
End Markets and Applications
Our net revenues consist primarily of sales of the products described above. When evaluating our net revenues,
we categorize our sales into the following four major end-market groupings: communications, computer, consumer, and
industrial.
The table below provides the approximate mix of our net sales by end market:
End Market
Communications ………………………………………………
Computer………………………………………………………
Consumer………………………………………………………
Industrial………………………………………………………
2021
Year Ended December 31,
2020
2019
30 %
10 %
32 %
28 %
30 %
7 %
33 %
30 %
26 %
5 %
35 %
34 %
Our products are used in a vast range of power-conversion applications in the above-listed end-market categories.
The following chart lists the most prominent applications for our products in each category.
Market Category
Communications……… Mobile-phone chargers, adapters for routers, cordless phones, broadband modems, voice-over-
Primary Applications
Computer……………… Desktop PCs and monitors, servers, adapters for tablets and notebook computers, other
IP phones, other network and telecom gear
Consumer……………… Major and small appliances, air conditioners, TV set-top boxes, digital cameras, TVs, video-
computer peripherals
game consoles
Industrial.……………… Industrial controls, LED lighting, utility meters, motor controls, uninterruptible power
supplies, battery-powered tools, networked thermostats, power strips and other “smart home”
devices, industrial motor drives, renewable energy systems, electric locomotives, electric
buses and other electric vehicles, high-voltage DC transmission systems
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Sales, Distribution and Marketing
We sell our products to original equipment manufacturers, or OEMs, and merchant power-supply manufacturers
through our direct sales staff and a worldwide network of independent sales representatives and distributors. We have sales
offices in the United States, United Kingdom, Germany, Italy, India, China, Japan, South Korea, the Philippines, Singapore
and Taiwan. Direct sales to OEMs and merchant power supply manufacturers represented approximately 25%, 25% and
28% of our net product revenues in 2021, 2020 and 2019, respectively, while sales to distributors accounted for the
remainder in each of the corresponding years. Most of our distributors are entitled to return privileges based on revenues
and are protected from price reductions affecting their inventories. Our distributors are not subject to minimum purchase
requirements, and sales representatives and distributors can discontinue marketing our products at any time.
Our sales are primarily made pursuant to standard purchase orders. The quantity of products purchased by our
customers as well as shipment schedules are subject to revisions that reflect changes in both the customers’ requirements
and in manufacturing availability. Historically, our business has been characterized by short-lead-time orders and quick
delivery schedules.
Our top ten customers, including distributors that resell to OEMs and merchant power supply manufacturers,
accounted for approximately 78%, 62% and 54% of net revenues in 2021, 2020 and 2019, respectively. In 2021 and 2020,
two customers, both distributors, each accounted for more than 10% of revenues. In 2019, one of these distributors
accounted for more than 10% of revenues.
Research and Development
Our research and development efforts are focused on improving our technologies, introducing new products to
expand our addressable markets, reducing the costs of existing products, and improving the cost-effectiveness and
functionality of our customers’ power converters. We have assembled teams of highly skilled engineers to meet our
research and development goals. These engineers have expertise in high-voltage device structure and process technology,
analog and digital IC design, system architecture and packaging.
Intellectual Property and Other Proprietary Rights
We use a combination of patents, trademarks, copyrights, trade secrets and confidentiality procedures to protect
our intellectual-property rights. In 2021 we received 28 U.S. and 55 foreign patents. As of December 31, 2021, we held
392 U.S. patents and 341 foreign patents. Both U.S. and foreign patents have expiration dates ranging from 2022 to 2040.
While our patent portfolio as a whole is important to the success of our business, we are not materially dependent upon
any single patent. We also hold trademarks in the U.S. and various other geographies including Taiwan, Korea, Hong
Kong, China, United Kingdom, Europe, Japan, India, Brazil and Russia.
We regard as proprietary some equipment, processes, information and knowledge that we have developed and
used in the design and manufacture of our products. Our trade secrets include a high-volume production process used in
the manufacture of our high-voltage ICs. We attempt to protect our trade secrets and other proprietary information through
non-disclosure agreements, proprietary-information agreements with employees and consultants, and other security
measures.
Manufacturing
We contract with three foundries for the manufacture of the vast majority of our silicon wafers: (1) Lapis
Semiconductor Co., Ltd., or Lapis, (formerly OKI Electric Industry), (2) Seiko Epson Corporation, or Epson and (3) X-
FAB Semiconductor Foundries AG, or X-FAB. These contractors manufacture wafers using our proprietary high-voltage
process technologies at fabrication facilities located in Japan, Germany and the United States.
Our ICs are assembled, packaged and tested by independent subcontractors in China, Malaysia, Thailand and the
Philippines; a small percentage of our ICs are tested at our headquarters facility in California. Our gate-driver boards are
assembled and tested by independent subcontractors in Sri Lanka and Thailand; some of the boards are tested at our facility
in Switzerland.
Our fabless manufacturing model enables us to focus on our engineering and design strengths, minimize capital
expenditures and still have access to high-volume manufacturing capacity. We utilize both proprietary and standard IC
packages for assembly. Some of the materials used in our packages and certain aspects of the assembly process are specific
9
to our products. We require our assembly manufacturers to use high-voltage molding compounds which are more difficult
to process than industry standard molding compounds. We work closely with our contractors on a continuous basis to
maintain and improve our manufacturing processes.
Our proprietary high-voltage processes do not require leading-edge geometries, which enables us to use our
foundries’ older, lower-cost facilities for wafer manufacturing. However, because of our highly sensitive high-voltage
process, we must interact closely with our foundries to achieve satisfactory yields. Our wafer supply agreements with
Lapis, Epson and X-FAB expire in April 2028, December 2025 and December 2028, respectively. Under the terms of the
Lapis and Epson agreements, each supplier has agreed to reserve a specified amount of production capacity and to sell
wafers to us at fixed prices, which are subject to periodic review jointly by the supplier and us. In addition, Lapis and
Epson require us to supply them with a rolling six-month forecast on a monthly basis. Our agreements with Lapis and
Epson each provide for the purchase of wafers in U.S. dollars, with mutual sharing of the impact of the fluctuations in the
exchange rate between the Japanese yen and the U.S. dollar. Under the terms of the X-FAB agreement, X-FAB has agreed
to reserve a specified amount of production capacity and to sell wafers to us at fixed prices, which are subject to periodic
review jointly by X-FAB and us. The agreement with X-FAB also requires us to supply them with rolling six-month
forecasts on a monthly basis. Our purchases of wafers from X-FAB are denominated in U.S. dollars.
Although some aspects of our relationships with Lapis, Epson and X-FAB are contractual, some important aspects
of these relationships are not written in binding contracts and depend on the suppliers’ continued cooperation. We cannot
assure that we will continue to work successfully with Lapis, Epson or X-FAB in the future, that they will continue to
provide us with sufficient capacity at their foundries to meet our needs, or that any of them will not seek an early
termination of their wafer supply agreement with us. Our operating results could suffer in the event of a supply disruption
with one or more of our foundries if we were unable to quickly qualify alternative manufacturing sources for existing or
new products or if these sources were unable to produce wafers with acceptable manufacturing yields.
We typically receive shipments from our foundries approximately four to six weeks after placing orders, and lead
times for new products can be substantially longer. To provide sufficient time for assembly, testing and finishing, we
typically need to receive wafers four weeks before the desired ship date to our customers. As a result of these factors and
the fact that customers’ orders can be placed with little advance notice, we have only a limited ability to react to fluctuations
in demand for our products. We try to carry a substantial amount of wafer and finished-goods inventory to help offset
these risks and to better serve our markets and meet customer demand.
Competition
Competing alternatives to our high-voltage ICs for the power-supply market include monolithic and hybrid ICs
from companies such as ON Semiconductor, STMicroelectronics, Infineon, and Sanken Electric Company, as well as
PWM-controller chips paired with discrete high-voltage transistors; such controller chips are produced by a large number
of vendors, including those listed above as well as such companies as NXP Semiconductors, Diodes Inc., On-Bright
Electronics and Renesas Electronics. Self-oscillating switchers, built with discrete components supplied by numerous
vendors, are also commonly used. For some applications, line-frequency transformers are also a competing alternative to
designs utilizing our products. Our gate-driver products compete with alternatives from such companies as Avago, Infineon
and Semikron, as well as driver circuits made up of discrete devices. Our motor-driver ICs compete with alternatives from
such companies as ON Semiconductor, Infineon, STMicroelectronics and Sanken Electric Company.
Generally, our products enable customers to design power converters with total bill-of-materials costs similar to
those of competing alternatives. As a result, the value of our products is influenced by the prices of discrete components,
which fluctuate in relation to market demand, raw-material prices and other factors, but have generally decreased over
time.
While we vary the pricing of our ICs in response to fluctuations in prices of alternative solutions, we also compete
based on a variety of other factors. Most importantly, the highly integrated nature of our products enables designs that
utilize fewer total components than comparable discrete designs or designs using other integrated or hybrid products. This
enables power converters to be designed more quickly and manufactured more efficiently and reliably than competing
designs. We also compete on the basis of product functionality such as safety features and energy-efficiency features and
on the basis of the technical support we provide to our customers. This support includes hands-on design assistance as
well as a range of design tools and documentation such as software and reference designs. We also believe that our record
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of product quality and history of delivering products to our customers on a timely basis serve as additional competitive
advantages.
Warranty
We generally warrant that our products will substantially conform to the published specifications for 12 months
from the date of shipment. Under the terms and conditions of sale, our liability is limited generally to either a credit equal
to the purchase price or replacement of the defective part.
Human Capital
As of December 31, 2021, we employed 773 full-time personnel across 14 countries with 361, or 47% of the
total, residing in North America, while 53% resided offshore comprising 297 in the Asia-Pacific region and 115 across
Europe, Middle East and Africa. As of December 31, 2021, 5% of our worldwide employees were foreign nationals,
defined as individuals requiring employment visas in the countries where they are employed. Women comprise
approximately 36% of our U.S. non-technical workforce and 26% of our U.S. workforce. The ethnic makeup of our U.S.
workforce is approximately as follows: 62% Asian; 28% white; 6% Hispanic or Latino; 4% other.
Innovation is the lifeblood of our company, and we depend on our people to sustain our competitive advantage.
We offer attractive compensation with generous comprehensive benefits for employees and dependents (including
domestic partners), including health, dental and vision insurance, matching 401(k) contributions, employee stock plans,
paid time off and family leave, life insurance, flu vaccinations, charitable gift matching, a health-and-wellness program
designed to promote physical well-being, and an employee assistance program and other mental health services.
Approximately 99% of eligible U.S. employees participate in our 401(k) plan. These benefits, combined with our culture
of innovation and sustainable growth, contribute to low employee turnover and an average tenure of nearly 10 years.
It is our policy to ensure equal employment opportunity for all applicants and employees without regard to
prohibited considerations of race, color, religion, sex (including pregnancy, gender identity and sexual orientation),
national origin, age, disability or genetic information, marital status or any other classification protected by applicable
local, state or federal laws. Our employees are encouraged to engage with company leadership and raise concerns and
questions in-person, via e-mail (anonymously if desired), or at our quarterly employee communications meeting with the
CEO and senior management team. All employees receive training in the prevention of sexual harassment and abusive
conduct in the workplace.
We value our employees, giving them the tools and training to grow as individuals, and the freedom to take risks
in the service of innovation. We offer tuition reimbursement for job-related education and provide live and online classes
covering topics such as communication, leadership and management, software, and time management. Subject to
restrictions due to the current COVID-19 pandemic, we also offer catered lunch-time workshops on a range of personal-
development topics such as financial planning, nutrition and stress management.
Additional information regarding our commitment to our people can be found on our website at
https://www.power.com/company/sustainability-citizenship/.
Investor Information
We make available, free of charge, copies of our annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Exchange Act as soon as reasonably practicable after filing this material electronically or otherwise furnishing it to the
SEC. Investors may obtain free electronic copies or request paper copies of these reports via the “For Investors” section
of our website, www.power.com. Our website address is provided solely for informational purposes. We do not intend, by
this reference, that our website should be deemed to be part of this Annual Report. The reports we file with the SEC are
also available at www.sec.gov.
Our corporate governance guidelines, the charters of our board committees, and our code of business conduct and
ethics, including ethics provisions that apply to our principal executive officer, principal financial officer, controller and
senior financial officers, are also available via the investor website listed above. These items are also available in print to
any stockholder who requests them by calling (408) 414-9200. We intend to satisfy the disclosure requirements of
Form 8-K regarding an amendment to, or a waiver from, a provision of our code of business conduct and ethics that applies
11
to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons
performing similar functions by posting such information on our investor website listed above.
Power Integrations, Inc. was incorporated in California on March 25, 1988, and reincorporated in Delaware in
December 1997.
Information About Our Executive Officers
As of February 1, 2022, our executive officers, who are appointed by and serve at the discretion of the board of
directors, were as follows:
Position With Power Integrations
Name
Balu Balakrishnan ……………………………………… President, Chief Executive Officer and Director
Douglas Bailey …………………………………………. Vice President, Marketing
Radu Barsan …………………………………………….. Vice President, Technology
Sunil Gupta ……………………………………………... Vice President, Operations
David “Mike” Matthews ……………………………….. Vice President, Product Development
Sandeep Nayyar ………………………………………… Vice President, Finance and Chief Financial Officer
Yang Chiah Yee ………………………………………... Vice President, Worldwide Sales
Clifford Walker ………………………………………… Vice President, Corporate Development
Age
67
55
69
49
57
62
55
70
Balu Balakrishnan has served as president and chief executive officer and as a director of Power Integrations
since January 2002. He served as president and chief operating officer from April 2001 to January 2002. From
January 2000 to April 2001, he was vice president of engineering and strategic marketing. From September 1997 to
January 2000, he was vice president of engineering and new business development. From September 1994 to
September 1997, Mr. Balakrishnan served as vice president of engineering and marketing. Prior to joining Power
Integrations in 1989, Mr. Balakrishnan was employed by National Semiconductor Corporation.
Douglas Bailey has served as our vice president of marketing since November 2004. From March 2001 to
April 2004, he served as vice president of marketing at ChipX, a structured-ASIC company. His earlier experience includes
serving as business management and marketing consultant for Sapiential Prime, Inc., director of sales and business unit
manager for 8x8, Inc., and serving in application engineering management for IIT, Inc. and design engineering roles with
LSI Logic, Inmos, Ltd. and Marconi.
Radu Barsan has served as our vice president of technology since January 2013, leading our foundry engineering,
technology development and quality organizations. Prior to joining Power Integrations, Dr. Barsan served as chairman and
CEO at Redfern Integrated Optics, Inc., a supplier of single-frequency narrow linewidth lasers, modules, and subsystems,
from 2001 to 2013. Previously, he served in a succession of engineering-management and technology-development roles
at Phaethon Communications, Inc., a photonics technology company, Cirrus Logic, Inc., a high-precision analog and
digital signal processing company, Advanced Micro Devices, a semiconductor company, Cypress Semiconductor, Inc., a
semiconductor company and Microelectronica, a semiconductor company. Dr. Barsan has 40 years of commercial
experience in semiconductor and photonic components development, engineering and operations.
Sunil Gupta has served as our vice president of operations since August 2020. Prior to joining Power Integrations,
Mr. Gupta was vice president of operations at Renesas Electronics Corporation, a provider of electronics solutions, from
July 2017 until August 2020, in which position he was responsible for global operations for Intersil and IDT products as
well as the integration into the operations of Renesas. Prior to joining Renesas he was Senior Vice President, Global
Operations at Intersil Corporation, a developer of power management and precision analog integrated circuits, from June
2016 to July 2017, in which position he led the global operations and technology teams, and was Vice President, Quality
and Technology Development at Intersil was from September 2013 to June 2016, in which position he led the quality,
reliability, yield, process technology and package technology teams. Mr. Gupta joined Intersil in 2012 as its Vice
President, Quality and Reliability. Prior to joining Intersil, Mr. Gupta was the Director of Worldwide Customer Quality
Engineering at Qualcomm, and prior to Qualcomm Mr. Gupta spent 16 years at National Semiconductor in wafer fab
operations and quality.
Mike Matthews has served as our vice president of product development since August 2012. Mr. Matthews joined
Power Integrations in 1992, managing our European application-engineering group and then our European sales
organization as managing director of Power Integrations (Europe). He has led our product-definition team since 2000,
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serving as director of strategic marketing prior to assuming his current role. Prior to joining Power Integrations,
Mr. Matthews worked at several electric motor-drive companies and then at Siliconix, a semiconductor company, as a
motor-control applications specialist.
Sandeep Nayyar has served as our vice president and chief financial officer since June 2010. From 2002 to 2009
Mr. Nayyar served as vice president of finance at Applied Biosystems, Inc., a developer and manufacturer of life-sciences
products, where he was a member of the executive team with world-wide responsibilities for finance. From 1990 to 2001,
Mr. Nayyar served in a succession of financial roles including vice president of finance at Quantum Corporation, a
computer storage company. Mr. Nayyar also worked for five years in the public-accounting field at Ernst & Young LLP.
Mr. Nayyar is a Certified Public Accountant, Chartered Accountant and has a Bachelor of Commerce from the University
of Delhi, India. Since 2014, Mr. Nayyar has served as a director and audit-committee chairman of Smart Global Holdings,
Inc., a manufacturer of specialty memory solutions; in 2021 he was named lead independent director.
Yang Chiah Yee has served as our vice president, worldwide sales since June 2021. From March 2018 to June
2021, Mr. Yee served as senior vice president of worldwide sales at NeoPhotonics Corporation, a supplier of optoelectronic
modules and subsystems for high-speed communication networks, where he was responsible for managing the worldwide
sales and customer service organization, meeting with major clients, designing effective sales strategies and negotiating
major contracts. From August 2016 to February 2017 Mr. Yee served as senior vice president of worldwide sales at IDEX
Biometrics ASA, a supplier of fingerprint sensor solutions for payment cards, digital wallets and cyber authentication.
From March 2008 to March 2016, Mr. Yee served in various senior sales roles at Atmel Corporation, a semiconductor
designer and manufacturer of microcontroller and memory chips before its acquisition by Microhip Technology, Inc. Mr.
Yee’s earlier experience includes senior sales roles at Xilinx Inc. and Memec LLC focusing on the Asia-Pacific region.
Mr. Yee received a bachelor of engineering degree from Nanyang Technological Institute at the National University of
Singapore, and holds a graduate diploma in marketing management from the Singapore Institute of Management.
Clifford Walker has served as our vice president, corporate development since June 1995. From September 1994
to June 1995, Mr. Walker served as vice president of Reach Software Corporation, a software company. From
December 1993 to September 1994, Mr. Walker served as president of Morgan Walker International, a consulting
company.
Item 1A. Risk Factors.
The following are important factors that could cause actual results or events to differ materially from those
contained in any forward-looking statements made by us or on our behalf. The risks and uncertainties described below
are not the only ones we face. Additional risks and uncertainties not presently known to us or that we deem immaterial
also may impair our business operations. If any of the following risks or such other risks actually occurs, our business
could be harmed.
Risks Related to Ownership of Our Common Stock
Our operating results are volatile and difficult to predict. If we fail to meet the expectations of public market
analysts or investors, the market price of our common stock may decrease significantly. Our net revenues and operating
results have varied significantly in the past, are difficult to forecast, are subject to numerous factors both within and outside
of our control, and may fluctuate significantly in the future. As a result, our operating results could fall below the
expectations of public market analysts or investors. If that occurs, the price of our stock may decline.
Some of the factors that could affect our operating results include the following:
we face risks related to the Novel Coronavirus pandemic (COVID-19), which has disrupted and may
again disrupt our operations, including our manufacturing, research and development, and sales and
marketing activities, which could have a material adverse impact on our business, financial condition,
operating results and cash flows;
risks associated with our supply chain including, the volume, cost and timing of delivery of orders placed
by us with our wafer foundries and assembly subcontractors, and their ability to procure materials;
the volume and timing of orders received from customers;
13
our products are sold through distributors, which limits our direct interaction with our end customers,
which reduces our ability to forecast sales and increases the complexity of our business;
reliance on international sales activities for a substantial portion of our net revenues;
our ability to attract and retain qualified personnel;
interruptions in our information technology systems;
competitive pressures on selling prices;
the ability of our products to penetrate additional markets;
our ability to develop and bring to market new products and technologies on a timely basis;
the lengthy timing of our sales cycle;
the demand for our products declining in the major end markets we serve, which may occur due to
competitive factors, supply-chain fluctuations or changes in macroeconomic conditions;
earthquakes, fire, pandemics or other disasters;
undetected defects and failures in meeting the exact specifications required by our products;
fluctuations in exchange rates, particularly the exchange rate between the U.S. dollar and the Japanese
yen, the Euro and the Swiss franc;
the inability to adequately protect or enforce our intellectual property rights;
expenses we are required to incur (or choose to incur) in connection with our intellectual property
litigations;
changes in tax rules and regulations, changes in interpretation of tax rules and regulations, or
unfavorable assessments from tax audits may increase the amount of taxes we are required to pay;
changes in environmental laws and regulations, including with respect to energy consumption and
climate change;
risks associated with acquisitions and strategic investments;
our ability to successfully integrate, or realize the expected benefits from, our acquisitions;
continued impact of changes in securities laws and regulations, including potential risks resulting from
our evaluation of our internal controls over financial reporting; and
uncertainties arising out of economic consequences of current and potential military actions or terrorist
activities and associated political instability.
Risks Related to the Operation and Growth of Our Business
We face risks related to the Novel Coronavirus pandemic (COVID-19), which has disrupted and may again
disrupt our operations, including our manufacturing, research and development, and sales and marketing activities, which
could have a material adverse impact on our business, financial condition, operating results and cash flows. Our business
as well as the business of our suppliers, customers and distributors have been and may continue to be adversely impacted
by the world-wide response to COVID-19 such as public health measures, travel restrictions, business shutdowns, border
closures, delivery and freight delays and other disruptions. These disruptions may adversely affect not only our sales and
marketing activities, product development, manufacturing and product shipments which could negatively impact our
ability to meet customer commitments but also our customers’ ability to manufacture their products, which could reduce
their demand for our products. The effects of the pandemic have resulted in a significant economic downturn in local and
global economies, as well as a significant downturn in financial markets, and the continuing pandemic could result in
further significant economic downturns which may result in reduced end-customer demand and materially impact our
revenues. All of these effects could have a material adverse effect on our customer relationships, operating results, cash
flows, financial condition and have a negative impact on our stock price.
14
We depend on third-party suppliers to provide us with wafers for our products and if they fail to provide us
sufficient quantities of wafers, our business may suffer. Our primary supply arrangements for the production of wafers are
with Epson, Lapis and X-FAB. Our contracts with these suppliers expire on varying dates, with the earliest to expire in
December 2025. Although some aspects of our relationships with Lapis, X-FAB and Epson are contractual, many
important aspects of these relationships depend on their continued cooperation. We cannot assure that we will continue to
work successfully with Epson, Lapis and X-FAB in the future, and that the wafer foundries’ capacity will meet our needs.
Additionally, one or more of these wafer foundries could seek an early termination of our wafer supply agreements. Any
serious disruption in the supply of wafers from Epson, Lapis and X-FAB could harm our business. We estimate that it
would take 12 to 24 months from the time we identified an alternate manufacturing source to produce wafers with
acceptable manufacturing yields in sufficient quantities to meet our needs.
Although we provide our foundries with rolling forecasts of our production requirements, their ability to provide
wafers to us is ultimately limited by the available capacity of the wafer foundry. Any reduction in wafer foundry capacity
available to us could require us to pay amounts in excess of contracted or anticipated amounts for wafer deliveries or
require us to make other concessions to meet our customers’ requirements, or may limit our ability to meet demand for
our products. Further, to the extent demand for our products exceeds wafer foundry capacity, this could inhibit us from
expanding our business and harm relationships with our customers. Any of these concessions or limitations could harm
our business.
If our third-party suppliers and independent subcontractors do not produce our wafers and assemble our finished
products at acceptable yields, our net revenues may decline. We depend on independent foundries to produce wafers, and
independent subcontractors to assemble and test finished products, at acceptable yields and to deliver them to us in a timely
manner. The failure of the foundries to supply us wafers at acceptable yields could prevent us from selling our products to
our customers and would likely cause a decline in our net revenues and gross margin. In addition, our IC assembly process
requires our manufacturers to use a high-voltage molding compound that has been available from only a few suppliers.
These compounds and their specified processing conditions require a more exacting level of process control than normally
required for standard IC packages. Unavailability of assembly materials or problems with the assembly process can
materially and adversely affect yields, timely delivery and cost to manufacture. We may not be able to maintain acceptable
yields in the future.
In addition, if prices for commodities used in our products increase significantly, raw material costs would
increase for our suppliers which could result in an increase in the prices our suppliers charge us. To the extent we are not
able to pass these costs on to our customers; this would have an adverse effect on our gross margins.
We do not have long-term contracts with any of our customers and if they fail to place, or if they cancel or
reschedule orders for our products, our operating results and our business may suffer. Our business is characterized by
short-term customer orders and shipment schedules, and the ordering patterns of some of our large customers have been
unpredictable in the past and will likely remain unpredictable in the future. Not only does the volume of units ordered by
particular customers vary substantially from period to period, but also purchase orders received from particular customers
often vary substantially from early oral estimates provided by those customers for planning purposes. In addition, customer
orders can be canceled or rescheduled without significant penalty to the customer. In the past, we have experienced
customer cancellations of substantial orders for reasons beyond our control, and significant cancellations could occur again
at any time. Also, a relatively small number of distributors, OEMs and merchant power supply manufacturers account for
a significant portion of our revenues. Specifically, our top ten customers, including distributors, accounted for 78%, 62%
and 54% of our net revenues in each of the years ended December 31, 2021, 2020 and 2019, respectively. However, a
significant portion of these revenues are attributable to sales of our products through distributors of electronic components.
These distributors sell our products to a broad, diverse range of end users, including OEMs and merchant power supply
manufacturers, which mitigates the risk of customer concentration to a large degree.
Our products are sold through distributors, which limits our direct interaction with our end customers, therefore
reducing our ability to forecast sales and increasing the complexity of our business. Sales to distributors accounted for
approximately 75%, 75% and 72% of net revenues in the years ended December 31, 2021, 2020 and 2019, respectively.
Selling through distributors reduces our ability to forecast sales and increases the complexity of our business, requiring us
to:
manage a more complex supply chain;
15
monitor the level of inventory of our products at each distributor, and
monitor the financial condition and credit-worthiness of our distributors, many of which are located
outside of the United States and are not publicly traded.
Since we have limited ability to forecast inventory levels at our end customers, it is possible that there may be
significant build-up of inventories in the distributor channel, with the OEM or the OEM’s contract manufacturer. Such a
buildup could result in a slowdown in orders, requests for returns from customers, or requests to move out planned
shipments. This could adversely impact our revenues and profits. Any failure to manage these complexities could disrupt
or reduce sales of our products and unfavorably impact our financial results.
Our international sales activities account for a substantial portion of our net revenues, which subjects us to
substantial risks. Sales to customers outside of the United States of America account for, and have accounted for a large
portion of our net revenues, including approximately 98% of our net revenues for the years ended December 31, 2021 and
2020, and 97% of our net revenue for the year ended December 31, 2019. If our international sales declined and we were
unable to increase domestic sales, our revenues would decline and our operating results would be harmed. International
sales involve a number of risks to us, including:
tariffs, protectionist measures and other trade barriers and restrictions;
potential insolvency of international distributors and representatives;
reduced protection for intellectual property rights in some countries;
the impact of recessionary environments in economies outside the United States;
the burdens of complying with a variety of foreign and applicable U.S. Federal and state laws; and
foreign-currency exchange risk.
Our failure to adequately address these risks could reduce our international sales and materially and adversely
affect our operating results. Furthermore, because substantially all of our foreign sales are denominated in U.S. dollars,
increases in the value of the dollar cause the price of our products in foreign markets to rise, making our products more
expensive relative to competing products priced in local currencies.
We must attract and retain qualified personnel to be successful and competition for qualified personnel is intense
in our market. Our success depends to a significant extent upon the continued service of our executive officers and other
key management and technical personnel, and on our ability to continue to attract, retain and motivate qualified personnel,
such as experienced analog design engineers and systems applications engineers. The competition for these employees is
intense, particularly in Silicon Valley. The loss of the services of one or more of our engineers, executive officers or other
key personnel could harm our business. In addition, if one or more of these individuals leaves our employ, and we are
unable to quickly and efficiently replace those individuals with qualified personnel who can smoothly transition into their
new roles, our business may suffer. We do not have long-term employment contracts with, and we do not have in place
key person life insurance policies on, any of our employees.
Interruptions in our information technology systems could adversely affect our business. We rely on the efficient
and uninterrupted operation of complex information technology systems and networks to operate our business. Any
significant system or network disruption, including but not limited to new system implementations, computer viruses,
security breaches, or energy blackouts could have a material adverse impact on our operations, sales and operating results.
We have implemented measures to manage our risks related to such disruptions, but such disruptions could still occur and
negatively impact our operations and financial results. In addition, we may incur additional costs to remedy any damages
caused by these disruptions or security breaches.
Intense competition in the high-voltage power supply industry may lead to a decrease in our average selling price
and reduced sales volume of our products. The high-voltage power supply industry is intensely competitive and
characterized by significant price sensitivity. Our products face competition from alternative technologies, such as linear
transformers, discrete switcher power supplies, and other integrated and hybrid solutions. If the price of competing
solutions decreases significantly, the cost effectiveness of our products will be adversely affected. If power requirements
for applications in which our products are currently utilized go outside the cost-effective range of our products, some of
these alternative technologies can be used more cost effectively. In addition, as our patents expire, our competitors could
16
legally begin using the technology covered by the expired patents in their products, potentially increasing the performance
of their products and/or decreasing the cost of their products, which may enable our competitors to compete more
effectively. Our current patents may or may not inhibit our competitors from getting any benefit from an expired patent.
Our U.S. patents have expiration dates ranging from 2022 to 2040. We cannot assure that our products will continue to
compete favorably or that we will be successful in the face of increasing competition from new products and enhancements
introduced by existing competitors or new companies entering this market. We believe our failure to compete successfully
in the high-voltage power supply business, including our ability to introduce new products with higher average selling
prices, would materially harm our operating results.
If our products do not penetrate additional markets, our business will not grow as we expect. We believe that our
future success depends in part upon our ability to penetrate additional markets for our products. We cannot assure that we
will be able to overcome the marketing or technological challenges necessary to penetrate additional markets. To the extent
that a competitor penetrates additional markets before we do, or takes market share from us in our existing markets, our
net revenues and financial condition could be materially adversely affected.
If our efforts to enhance existing products and introduce new products are not successful, we may not be able to
generate demand for our products. Our success depends in significant part upon our ability to develop new ICs for high-
voltage power conversion for existing and new markets, to introduce these products in a timely manner and to have these
products selected for design into products of leading manufacturers. New product introduction schedules are subject to the
risks and uncertainties that typically accompany development and delivery of complex technologies to the market place,
including product development delays and defects. If we fail to develop and sell new products in a timely manner, then
our net revenues could decline.
In addition, we cannot be sure that we will be able to adjust to changing market demands as quickly and cost-
effectively as necessary to compete successfully. Furthermore, we cannot assure that we will be able to introduce new
products in a timely and cost-effective manner or in sufficient quantities to meet customer demand or that these products
will achieve market acceptance. Our failure, or our customers’ failure, to develop and introduce new products successfully
and in a timely manner would harm our business. In addition, customers may defer or return orders for existing products
in response to the introduction of new products. When a potential liability exists we will maintain reserves for customer
returns, however we cannot assure that these reserves will be adequate.
Because the sales cycle for our products can be lengthy, we may incur substantial expenses before we generate
significant revenues, if any. Our products are generally incorporated into a customer’s products at the design stage.
However, customer decisions to use our products, commonly referred to as design wins, can often require us to expend
significant research and development and sales and marketing resources without any assurance of success. These
significant research and development and sales and marketing resources often precede volume sales, if any, by a year or
more. The value of any design win will largely depend upon the commercial success of the customer’s product. We cannot
assure that we will continue to achieve design wins or that any design win will result in future revenues. If a customer
decides at the design stage not to incorporate our products into its product, we may not have another opportunity for a
design win with respect to that product for many months or years.
If demand for our products declines in our major end markets, our net revenues will decrease. A limited number
of applications of our products, such as cellphone chargers and consumer appliances, make up a significant percentage of
our net revenues. We expect that a significant level of our net revenues and operating results will continue to be dependent
upon these applications in the near term. The demand for these products has been highly cyclical and has been impacted
by economic downturns in the past. Any economic slowdown in the end markets that we serve could cause a slowdown in
demand for our ICs. When our customers are not successful in maintaining high levels of demand for their products, their
demand for our ICs decreases, which adversely affects our operating results. Any significant downturn in demand in these
markets would cause our net revenues to decline and could cause the price of our stock to fall.
In the event of an earthquake, fire, other pandemics, natural or other disasters, including with respect to climate
change, our operations may be interrupted and our business would be harmed. Our principal executive offices and
operating facilities are situated near San Francisco, California, and most of our major suppliers, which are wafer foundries
and assembly houses, are located in areas that have been subject to severe earthquakes, such as Japan. Many of our
suppliers are also susceptible to other disasters such as tropical storms, typhoons, tsunamis or other catastrophic events,
including those caused by climate change. In the event of a disaster, we or one or more of our major suppliers may be
temporarily unable to continue operations and may suffer significant property damage. Any interruption in our ability, or
17
that of our major suppliers, to continue operations could delay the development and shipment of our products and have a
substantial negative impact on our financial results.
Our products must meet exacting specifications, and undetected defects and failures may occur which may cause
customers to return or stop buying our products and/or impose significant costs to us. Our customers generally establish
demanding specifications for quality, performance and reliability, and our products must meet these specifications. ICs as
complex as those we sell often encounter development delays and may contain undetected defects or failures when first
introduced or after commencement of commercial shipments. We have from time to time in the past experienced product
quality, performance or reliability problems. If defects and failures occur in our products, we could experience lost revenue,
increased costs, including product warranty or liability claims and costs associated with customer support and product
recalls, delays in or cancellations or rescheduling of orders or shipments and product returns or discounts. While we
specifically exclude consequential damages in our standard terms and conditions, certain of our contracts may not exclude
such liabilities. Our liability insurance which covers certain damages arising out of product defects may not cover all
claims or be of a sufficient amount to fully protect against such claims. Costs or payments in connection with such claims
could harm our operating results.
Risks Related to Financial Performance
Fluctuations in exchange rates, particularly the exchange rate between the U.S. dollar and the Japanese yen,
Swiss franc and euro, may impact our gross margin and net income. Our exchange rate risk related to the Japanese yen
includes two of our major suppliers, Epson and Lapis, with which we have wafer supply agreements based in U.S. dollars;
however, these agreements also allow for mutual sharing of the impact of the exchange rate fluctuation between Japanese
yen and the U.S. dollar. Each year, our management and these suppliers review and negotiate pricing; the negotiated
pricing is denominated in U.S. dollars but is subject to contractual exchange rate provisions. The fluctuation in the
exchange rate is shared equally between Power Integrations and each of these suppliers. We maintain cash denominated
in Swiss francs and euros to fund the operations of our Swiss subsidiary. The functional currency of our Swiss subsidiary
is the U.S. dollar; gains and losses arising from the remeasurement of non-functional currency balances are recorded in
other income in our consolidated statements of income, and material unfavorable exchange-rate fluctuations with the Swiss
franc could negatively impact our net income.
Risks Related to Our Intellectual Property
If we are unable to adequately protect or enforce our intellectual property rights, we could lose market share,
incur costly litigation expenses, suffer incremental price erosion or lose valuable assets, any of which could harm our
operations and negatively impact our profitability. Our success depends upon our ability to continue our technological
innovation and protect our intellectual property, including patents, trade secrets, copyrights and know-how. We are
currently engaged in litigation to enforce our intellectual property rights, and associated expenses have been, and are
expected to remain, material and have adversely affected our operating results. We cannot assure that the steps we have
taken to protect our intellectual property will be adequate to prevent misappropriation, or that others will not develop
competitive technologies or products. From time to time, we have received, and we may receive in the future,
communications alleging possible infringement of patents or other intellectual property rights of others. Costly litigation
may be necessary to enforce our intellectual property rights or to defend us against claimed infringement. The failure to
obtain necessary licenses and other rights, and/or litigation arising out of infringement claims could cause us to lose market
share and harm our business.
As our patents expire, we will lose intellectual property protection previously afforded by those patents.
Additionally, the laws of some foreign countries in which our technology is or may in the future be licensed may not
protect our intellectual property rights to the same extent as the laws of the United States, thus limiting the protections
applicable to our technology.
If we do not prevail in our litigation, we will have expended significant financial resources, potentially without
any benefit, and may also suffer the loss of rights to use some technologies. We are currently involved in a number of
patent litigation matters and the outcome of the litigation is uncertain. See Note 13, Legal Proceedings and Contingencies,
in our Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. For example, we are
being sued in an ongoing case for patent infringement. Should we ultimately be determined to be infringing another party’s
patents, or if an injunction is issued against us while litigation is pending on those claims, such result could have an adverse
impact on our ability to sell products found to be infringing, either directly or indirectly. In the event of an adverse outcome,
we may be required to pay substantial damages, stop our manufacture, use, sale, or importation of infringing products, or
18
obtain licenses to the intellectual property we are found to have infringed. We have also incurred, and expect to continue
to incur, significant legal costs in conducting these lawsuits, including the appeal of the case we won, and our involvement
in this litigation and any future intellectual property litigation could adversely affect sales and divert the efforts and
attention of our technical and management personnel, whether or not such litigation is resolved in our favor. Thus, even if
we are successful in these lawsuits, the benefits of this success may fail to outweigh the significant legal costs we will
have incurred.
Risks Related to Laws and Regulations
Changes in tax rules and regulations, changes in interpretation of tax rules and regulations, or unfavorable
assessments from tax audits may increase the amount of taxes we are required to pay. Our operations are subject to income
and transaction taxes in the United States and in multiple foreign jurisdictions and to review or audit by the U.S. Internal
Revenue Service (IRS) and state, local and foreign tax authorities. In addition, the United States, countries in Asia and
other countries where we do business have recently enacted or are considering changes in relevant tax, accounting and
other laws, regulations and interpretations, including changes to tax laws applicable to multinational companies. These
potential changes could adversely affect our effective tax rates or result in other costs to us.
Recently enacted U.S. tax legislation has significantly changed the taxation of U.S.-based multinational
corporations, by, among other things, reducing the U.S. corporate income tax rate, adopting elements of a territorial tax
system, assessing a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred,
and the creation of new taxes on certain foreign-sourced earnings. The legislation as initially enacted was unclear in some
respects and has required interpretations and implementing regulations by the Internal Revenue Service, as well as state
tax authorities, and the legislation has been subject to amendments and technical corrections. Further amendments and
technical corrections may occur, any of which could lessen or increase certain adverse impacts of the legislation. A
significant portion of our earnings are earned by our subsidiaries outside the U.S. Changes to the taxation of certain foreign
earnings resulting from the newly enacted U.S. tax legislation, along with the state tax impact of these changes and
potential future cash distributions, may have an adverse effect on our effective tax rate. Furthermore, changes to the
taxation of undistributed foreign earnings could change our future intentions regarding reinvestment of such earnings. As
of December 31, 2021, we are currently subject to an ongoing audit with the California Franchise Tax Board for the tax
years 2018 and 2019. The foregoing items could have a material effect on our business, cash flow, results of operations or
financial conditions.
Changes in environmental laws and regulations, including with respect to energy consumption and climate
change, may have a negative impact on our business. Changing environmental regulations and the timetable to implement
them continue to impact our customers’ demand for our products. Currently we have limited visibility into our customers’
strategies to implement these changing environmental regulations into their business. The inability to accurately determine
our customers’ strategies could increase our inventory costs related to obsolescence.
The semiconductor industry is subject to environmental regulations, particularly those that control and restrict
the sourcing, use, transportation, storage, and disposal of certain mineral, chemicals, and materials used in the
semiconductor manufacturing process. We expect the heightened worldwide awareness regarding climate change and the
environmental impact to continue, which may result in new environmental laws and regulations that could affect us, our
suppliers and/or our customers. New environmental laws and regulations could require us or our suppliers to obtain
alternative materials that may increase our costs more or be less available, which may adversely affect our operating
results.
General Risk Factors
We are exposed to risks associated with acquisitions and strategic investments. We have made, and in the future
intend to make, acquisitions of, and investments in, companies, technologies or products in existing, related or new
markets. Acquisitions involve numerous risks, including but not limited to:
inability to realize anticipated benefits, which may occur due to any of the reasons described below, or
for other unanticipated reasons;
the risk of litigation or disputes with customers, suppliers, partners or stockholders of an acquisition
target arising from a proposed or completed transaction;
19
impairment of acquired intangible assets and goodwill as a result of changing business conditions,
technological advancements or worse-than-expected performance, which would adversely affect our
financial results; and
unknown, underestimated and/or undisclosed commitments, liabilities or issues not discovered in our
due diligence of such transactions.
We also in the future may have strategic relationships with other companies, which may decline in value and/or
not meet desired objectives. The success of these strategic relationships depends on various factors over which we may
have limited or no control and requires ongoing and effective cooperation with strategic partners. Moreover, these
relationships are often illiquid, such that it may be difficult or impossible for us to monetize such relationships.
Our inability to successfully integrate, or realize the expected benefits from, our acquisitions could adversely
affect our results. We have made, and in the future intend to make, acquisitions of other businesses and with these
acquisitions there is a risk that integration difficulties may cause us not to realize expected benefits. The success of the
acquisitions could depend, in part, on our ability to realize the anticipated benefits and cost savings (if any) from combining
the businesses of the acquired companies and our business, which may take longer to realize than expected.
Securities laws and regulations, including potential risk resulting from our evaluation of internal controls over
financial reporting, will continue to impact our results. Complying with the requirements of the federal securities laws
and Nasdaq’s conditions for continued listing have imposed significant legal and financial compliance costs, and are
expected to continue to impose significant costs and management burden on us. These rules and regulations also may make
it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced
coverage or incur substantially higher costs to obtain coverage. These rules and regulations could also make it more
difficult for us to attract and retain qualified executive officers and members of our board of directors, particularly qualified
members to serve on our audit committee. Further, the rules and regulations under the Dodd-Frank Wall Street Reform
and Consumer Protection Act, which became effective in 2011, may impose significant costs and management burden on
us.
Additionally, because these laws, regulations and standards are expected to be subject to varying interpretations,
their application in practice may evolve over time as new guidance becomes available. This evolution may result in
continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our
disclosure and governance practices.
Uncertainties arising out of economic consequences of current and potential military actions or terrorist
activities and associated political instability could adversely affect our business. Like other U.S. companies, our business
and operating results are subject to uncertainties arising out of economic consequences of current and potential military
actions or terrorist activities and associated political instability, and the impact of heightened security concerns on domestic
and international travel and commerce. These uncertainties could also lead to delays or cancellations of customer orders,
a general decrease in corporate spending or our inability to effectively market and sell our products. Any of these results
could substantially harm our business and results of operations, causing a decrease in our revenues.
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 2. Properties.
We own our principal executive, administrative, manufacturing and technical offices which are located in San
Jose, California. We also own an R&D facility in New Jersey, a design center in Germany and a multipurpose office
building in Switzerland. We lease administrative office space in Singapore, R&D facilities in Canada, United Kingdom,
the Philippines and Malaysia, in addition to sales offices in various countries around the world to accommodate our sales
force. We believe that our current facilities are sufficient for our company; however, if headcount increases above capacity
we may need to lease additional space.
20
Item 3. Legal Proceedings.
Information with respect to this item may be found in Note 13, Legal Proceedings and Contingencies, in our
Notes to Consolidated Financial Statements included later in this Annual Report on Form 10-K, which information is
incorporated here by reference.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Our common stock trades on the Nasdaq Global Select Market under the symbol “POWI”.
As of February 1, 2022, there were approximately 53 stockholders of record. Because brokers and other
institutions hold many of our shares on behalf of stockholders, we are unable to estimate the total number of stockholders
represented by these record holders.
Issuer Purchases of Equity Securities
Over the years our board of directors has authorized the use of funds to repurchase shares of our common stock.
In October 2018, our board of directors authorized the use of $80.0 million for the repurchase of our common stock, and
in each of April 2021 and October 2021, our board of directors authorized the use of an additional $50.0 million for the
repurchase of our common stock, with repurchases to be executed according to pre-defined price/volume guidelines. As
of December 31, 2021, we had approximately $67.3 million available for future stock repurchases, all of which was utilized
in January 2022. In January 2022, our board of directors authorized the use of an additional $100.0 million for the
repurchase of our common stock, with repurchases to be executed according to pre-defined price/volume guidelines.
Authorization of future stock-repurchase programs is at the discretion of the board of directors and will depend on our
financial condition, results of operations, capital requirements and business conditions as well as other factors.
The following table summarizes repurchases of our common stock during the fourth quarter of fiscal 2021:
Total
Number of
Shares Purchased
Average
Price Paid
Per Share
Total Number of
Shares Purchased
as Part of
Publicly Announced
Plans or Programs
Approximate
Dollar Value that
May Yet be
Repurchased
Under the
Plans or Program
(In millions)
-
12,314 $
410,991 $
423,305
-
99.63
88.92
- $
12,314 $
410,991 $
423,305
105.1
103.9
67.3
Period
October 1, 2021 to October 31, 2021…………
November 1, 2021 to November 30, 2021……
December 1, 2021 to December 31, 2021……
Total………………………………………
21
Performance Graph (1)
The following graph shows the cumulative total return on an investment of $100 in cash on December 31, 2016,
through December 31, 2021, in our common stock, the Nasdaq Composite Index and the Nasdaq Electronic Components
Index and assuming that all dividends were reinvested. The stockholder return shown on the graph below is not necessarily
indicative of future performance, and we do not make or endorse any predictions as to future stockholder returns.
Company/Index
Power Integrations, Inc. ………..………...…………...
Nasdaq Composite ………..………...………………...
Nasdaq Electronic Components ………..………...…...
12/31/16 12/31/17 12/31/18 12/31/19 12/31/20 12/31/21
284.83
304.85
409.17
149.64
172.17
187.76
109.27
129.64
142.31
91.44
125.96
124.99
100.00
100.00
100.00
249.57
249.51
271.08
(1) This Section is not “soliciting material,” is not deemed “filed” with the SEC and is not to be incorporated by reference
in any filing of Power Integrations under the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, whether made before or after the date hereof and irrespective of any general incorporation language in any such
filing.
Item 6. [Reserved]
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis has been prepared as an aid to understanding our financial condition and
results of our operations. It should be read in conjunction with the consolidated financial statements and the notes to those
statements included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements
that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements” at the beginning of
this Form 10-K. Our actual results could differ materially from those contained in these forward-looking statements due
to a number of factors, including those discussed in Part I, Item 1A “Risk Factors” and elsewhere in this report.
Business Overview
We design, develop and market analog and mixed-signal integrated circuits (ICs) and other electronic components
and circuitry used in high-voltage power conversion. Our products are used in power converters that convert electricity
from a high-voltage source to the type of power required for a specified downstream use. In most cases, this conversion
entails, among other functions, converting alternating current (AC) to direct current (DC) or vice versa, reducing or
increasing the voltage, and regulating the output voltage and/or current according to the customer’s specifications.
A large percentage of our products are ICs used in AC-DC power supplies, which convert the high-voltage AC
from a wall outlet to the low-voltage DC required by most electronic devices. Power supplies incorporating our products
are used with all manner of electronic products including mobile phones, computing and networking equipment,
appliances, electronic utility meters, battery-powered tools, industrial controls, and “home-automation,” or “internet of
things” applications such as networked thermostats, power strips and security devices. We also supply high-voltage LED
drivers, which are AC-DC ICs specifically designed for lighting applications that utilize light-emitting diodes, and motor-
driver ICs addressing brushless DC (BLDC) motors used in refrigerators, HVAC systems, ceiling fans and other consumer-
appliance and light commercial applications.
We also offer high-voltage gate drivers, either standalone ICs or circuit boards containing ICs, electrical isolation
components and other circuitry, used to operate high-voltage switches such as insulated-gate bipolar transistors (IGBTs)
and silicon-carbide (SiC) MOSFETs. These combinations of switches and drivers are used for power conversion in high-
power applications (i.e., power levels ranging from a few kilowatts up to gigawatts) such as industrial motors, solar- and
wind-power systems, electric vehicles (EVs) and high-voltage DC transmission systems.
Our net revenues were $703.3 million, $488.3 million and $420.7 million in 2021, 2020 and 2019, respectively.
In 2021, revenues increased by $215.0 million, reflecting the strong demand conditions currently prevalent across the
semiconductor industry, as well as market-share gains for our products in a broad range of applications including consumer
appliances, advanced chargers for mobile devices such as smartphones, tablets and notebook computers, and a range of
industrial applications including home-and-building automation, electronic utility meters, battery-operated tools and
broad-based industrial applications. We believe that a variety of factors contributed to our ability to gain market share
during the year, including: stricter energy-efficiency standards implemented in China for air conditioners; our superior
product availability and delivery performance relative to many competitors whose lead times have extended much more
than ours have; and the fact that our products require a smaller number of external components compared to competing
solutions, as many such components have been in short supply. In 2020, revenues increased by $67.6 million due to growth
across all end markets reflecting increased adoption of higher-power chargers for mobile phones and tablets, increased
sales for desktop computers and monitors, as well as a broad range of industrial and consumer-appliance applications.
Our top ten customers, including distributors that resell to OEMs and merchant power supply manufacturers,
accounted for approximately 78%, 62% and 54% of net revenues in 2021, 2020 and 2019, respectively. In 2021 and 2020,
two customers, which are distributors of our products, each accounted for more than 10% of our net revenues. In 2019,
one of these customers accounted for more than 10% of our net revenues. International sales represented approximately
98%, 98% and 97% of net revenues in 2021, 2020 and 2019, respectively.
Because our industry is intensely price-sensitive, our gross margin (gross profit divided by net revenues) is subject
to change based on the relative pricing of solutions that compete with ours. Variations in product mix, end-market mix
and customer mix can also cause our gross margin to fluctuate. Also, because we purchase a large percentage of our silicon
wafers from foundries located in Japan, our gross margin is influenced by fluctuations in the exchange rate between the
U.S. dollar and the Japanese yen. All else being equal, a 10% change in the value of the U.S. dollar compared to the
Japanese yen would eventually result in a corresponding change in our gross margin of approximately 1.0%; this sensitivity
may increase or decrease depending on the percentage of our wafer supply that we purchase from Japanese suppliers. Also,
23
although our wafer fabrication and assembly operations are outsourced, as are most of our test operations, a portion of our
production costs are fixed in nature. As a result, our unit costs and gross profit margin are impacted by the volume of units
we produce.
Our gross profit, defined as net revenues less cost of revenues, was $360.6 million or 51% of net revenues in
2021, compared to $243.6 million or 50% of net revenues in 2020, and $213.4 million or 51% of net revenues in 2019.
Our gross margin increased slightly in 2021 as manufacturing efficiencies were mostly offset by an unfavorable change in
end-market mix. Our gross margin decreased in 2020, as compared to 2019, due to an unfavorable change in end-market
mix with a greater amount of revenues coming from lower-margin end markets.
Total operating expenses in 2021 were $185.6 million, an increase of $12.5 million as compared to 2020 due to
higher salary and related expenses driven by increased headcount and annual merit increases, increased commission
expense driven by increased sales and higher stock-based compensation expense related to performance-based awards.
These increases were partially offset by lower patent-litigation expenses. Total operating expenses in 2020 were $173.1
million as compared to a net gain of $3.6 million in 2019, stemming from a $169.0 million gain on settlement of our
litigation with ON Semiconductor. Apart from the effects of the 2019 legal settlement, the increase in operating expenses
in 2020 was due to higher stock-based compensation expense related mainly to performance-based awards, along with
higher salary and related expenses from annual merit increases and the expansion of our workforce. These increases were
partially offset by lower legal expenses following the conclusion of our litigation with ON Semiconductor as well as lower
travel expenses, trade event and promotional activities due to COVID-19 pandemic-related restrictions.
COVID-19 Pandemic
The COVID-19 pandemic has disrupted everyday life and markets worldwide, and governments around the world
have imposed restrictions aimed at controlling the spread of the virus, including shelter-in-place orders, travel restrictions,
business shutdowns and border closures. Beginning March 16, 2020 our San Jose headquarters location was subject to a
shelter-in-place order, under which most of our employees were required to work from home; other locations around the
world have also been subject to such restrictions. This work from home status continued for many of our employees
throughout 2021 and into 2022. Our employee health and well-being are top priorities. We are actively monitoring the
evolving situation and expect most employees to return to the office when circumstances improve and restrictions are
further lifted. We have implemented a variety of measures to protect the health and safety of our employees, including the
provision of masks, gloves and sanitizers, social-distancing rules, and regular deep cleaning of our facilities.
While we have been able to conduct our day-to-day operations effectively in spite of the restrictions caused by
the pandemic, the pandemic has caused disruptions in our supply chain. While our supply of wafers from our foundry
partners has not been interrupted, government-mandated closures in China, Malaysia, Sri Lanka and the Philippines have
caused temporary shutdowns at our assembly and test sub-contractors at various times. These disruptions have not
materially affected our results due to a variety of mitigation measures including higher-than-normal inventories of wafers
and finished goods in the early stages of the pandemic, safety stocks of certain key inputs, and multiple sources for
components for most of our products. Although there are signs of improvement in many areas around the world, the
potential for new lockdowns and other mitigation efforts to deal with an increase in infection rates due to the emergence
of the omicron variant in certain areas remains a key risk for our supply chain and the results of our business.
While the continuing pandemic brings a greater-than-normal level of uncertainty with respect to the demand for
our products, we believe our business is fundamentally sound with strong, long-term growth prospects. We have increased
headcount and intend to continue investing in research and development and other functions necessary to support our
future growth. We also intend to continue our cash dividend and stock-repurchase programs; however, if the economy
deteriorates or our business outlook changes, our board of directors may choose to suspend or alter these programs at its
discretion. For additional discussion regarding COVID-19 business risks refer to Part I, Item 1A “Risk Factors” in this
Annual Report on Form 10-K.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally
accepted in the United States of America, or U.S. GAAP, requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis,
24
we evaluate our estimates, including those listed below. We base our estimates on historical facts and various other
assumptions that we believe to be reasonable at the time the estimates are made. Actual results could differ from those
estimates.
Our critical accounting policies are as follows:
revenue recognition.
Our critical accounting policies are important to the portrayal of our financial condition and results of operations,
and require us to make judgments and estimates about matters that are inherently uncertain. A brief description of our
critical accounting policies and material estimates is set forth below. For more information regarding our accounting
policies, see Note 2, Summary of Significant Accounting Policies and Recent Accounting Pronouncements, in our Notes to
Consolidated Financial Statements in this Annual Report on Form 10-K.
Revenue recognition
Product revenues consist of sales to original equipment manufacturers, or OEMs, merchant power supply
manufacturers and distributors. We apply the provisions of Accounting Standards Codification (ASC) 606-10, Revenue
from Contracts with Customers, and all related appropriate guidance. We recognize revenue under the core principle to
depict the transfer of control to our customers in an amount reflecting the consideration we expect to be entitled. In order
to achieve that core principle, we apply the following five-step approach: (1) identify the contract with a customer,
(2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction
price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied.
Sales to most distributors are made under terms allowing certain price adjustments and limited rights of return
(known as “stock rotation”) of our products held in their inventory or upon sale to their end customers. We recognize
revenue from sales to distributors upon the transfer of control to the distributor. Frequently, distributors need to sell at a
price lower than the standard distribution price in order to win business. At the time the distributor invoices its customer
or soon thereafter, the distributor submits a “ship and debit” price adjustment claim to us to adjust the distributor’s cost
from the standard price to the pre-approved lower price. After we verify that the claim was pre-approved, we issue a credit
memo to the distributor for the ship and debit claim. In determining the transaction price, we consider ship and debit price
adjustments to be variable consideration. At the time revenue is recognized on sales to distributors, future ship and debit
price adjustments are unknown and therefore subject to uncertainty. Such price adjustments are estimated using the
expected value method based on an analysis of actual ship and debit claims, at the distributor and product level, over a
period of time considered adequate to account for current pricing and business trends. The reserve for ship and debit claims
increased by $15.2 million between December 31, 2020 and December 31, 2021, primarily due to higher inventory levels
held by distributors and expected ship and debit claims related to such inventory. Historically, actual price adjustments for
ship and debit claims relative to those estimated when determining the transaction price have not materially differed. To
the extent future ship and debit claims significantly exceed amounts estimated, there could be a material impact on our
revenues and results of operations.
Stock rotation rights grant the distributor the ability to return certain specified amounts of inventory. Stock
rotation returns are an additional form of variable consideration and are also estimated using the expected value method
based on historical return rates. Historically, these distributor stock rotation returns have not been material.
25
Results of Operations
The following table sets forth statement of income data as a percentage of net revenues for the periods indicated:
Net revenues ………………………………………………………………………
Cost of revenues …………………………………………………………………..
Gross profit ……………………………………………………………………….
Operating expenses:
Research and development ……………………………………………………..
Sales and marketing …………………………………………………………….
General and administrative ……………………………………………………..
Litigation settlement …………………………………………………………….
Total operating expenses ……………………………………………………..
Income from operations …………………………………………………………..
Other income ……………………………………………………………………..
Income before income taxes ……………………………………………………...
Provision for income taxes ……………………………………………………….
Net income ………………………………………………………………………..
Comparison of Years Ended December 31, 2021, 2020 and 2019
Year Ended December 31,
2020
100.0 %
50.1
49.9
2021
100.0 %
48.7
51.3
2019
100.0 %
49.3
50.7
12.1
8.6
5.7
—
26.4
24.9
0.2
25.1
1.7
23.4 %
16.7
11.2
7.6
—
35.5
14.4
1.0
15.4
0.8
14.6 %
17.5
12.9
8.9
(40.2)
(0.9)
51.6
1.3
52.9
6.9
46.0 %
Net revenues. Net revenues consist of revenues from product sales, which are calculated net of returns and
allowances. In 2021, revenues increased by $215.0 million as compared to 2020, reflecting the strong demand conditions
currently prevalent across the semiconductor industry, as well as market-share gains for our products in a broad range of
applications including consumer appliances, advanced chargers for mobile devices such as smartphones, tablets and
notebook computers, and a range of industrial applications including home-and-building automation, electronic utility
meters, battery-operated
increased by $67.6
million compared to 2019 due to growth across all end markets reflecting increased adoption of higher-power chargers for
mobile phones and tablets, increased sales for desktop computers and monitors, as well as a broad range of consumer
appliance and industrial applications.
industrial applications. In 2020, revenues
tools and broad-based
Our approximate net revenue mix by end-markets served in 2021, 2020 and 2019 is as follows:
End Market
Communications …………………………………………………………………
Computer …………………………………………………………………………
Consumer …………………………………………………………………………
Industrial ………………………………………………………………………….
2021
2020
2019
30 %
10 %
32 %
28 %
30 %
7 %
33 %
30 %
26 %
5 %
35 %
34 %
Sales to customers outside of the United States were $686.0 million in 2021, compared to $477.3 million in 2020
and $410.0 million in 2019, representing approximately 98% of net revenues in both 2021 and 2020 and 97% of net
revenue in 2019. Although power supplies using our products are designed and distributed worldwide, most of these power
supplies are manufactured by our customers in Asia. As a result, sales to this region accounted for approximately 83%,
81% and 77% of our net revenues in 2021, 2020 and 2019, respectively. We expect international sales to continue to
account for a large portion of our net revenues for the foreseeable future.
Sales to distributors accounted for 75%, 75% and 72% of our net revenues in 2021, 2020 and 2019, respectively,
with direct sales to OEMs and merchant power supply manufacturers accounting for the remainder in each of the
corresponding years.
26
The following customers represented 10% or more of our net revenues for the respective years:
Customer
Avnet .….….….….….….….……………………….….….….….….….………...
Honestar Technologies Co., Ltd. …………………….….….….….….….……….
2021
2020
30 %
16 %
19 %
11 %
2019
11 %
*
*Total customer revenue was less than 10% of net revenues.
No other customers accounted for 10% or more of net revenues during these years.
Gross profit. Gross profit is net revenues less cost of revenues. Our cost of revenues consists primarily of the
purchase of wafers from our contracted foundries, the assembly, packaging and testing of our products by sub-contractors,
product testing performed in our own facility, overhead associated with the management of our supply chain and the
amortization of acquired intangible assets. Gross margin is gross profit divided by net revenues. The following table
compares gross profit and gross margin for the years ended December 31, 2021, 2020 and 2019:
(dollars in millions)
Gross profit.….….….….….……………………….….….…… $ 360.6
Gross margin.….….….….….……………………….….….…..
2021
51.3 %
Change
2020
Change
2019
48.1 % $ 243.6
14.1 % $ 213.4
49.9 %
50.7 %
Our gross margin increased in 2021 as compared to 2020 as manufacturing efficiencies were mostly offset by an
unfavorable change in end-market mix. Our gross margin decreased in 2020 as compared to 2019 due to an unfavorable
change in end-market mix, with a greater amount of revenues coming from lower-margin end markets.
Research and development expenses. Research and development (R&D) expenses consist primarily of employee-
related expenses including salaries and stock-based compensation, as well as expensed material and facility costs
associated with the development of new processes and products. We also record R&D expenses for prototype wafers
related to new products until the products are released to production. The following table compares R&D expenses for
the years ended December 31, 2021, 2020 and 2019:
(dollars in millions)
R&D expenses.….….….….….……………………….….…… $
Headcount (at period end) ……………………………………..
2021
84.9
304
Change
3.9 % $
2020
81.7
280
Change
11.2 % $
2019
73.5
263
R&D expenses increased in 2021 compared to 2020 due to higher salary and related expenses driven by increased
headcount and annual merit increases, higher stock-based compensation expense related to performance-based awards and
increased equipment-related expenses. R&D expenses increased in 2020 compared to 2019 due to higher salary and
related expenses driven by expansion of headcount and annual merit increases, increased equipment-related expenses in
support of product development as well as higher stock-based compensation expense primarily related to performance-
based awards.
Sales and marketing expenses. Sales and marketing (S&M) expenses consist primarily of employee-related
expenses, including salaries and stock-based compensation, and commissions to sales representatives, as well as
amortization of acquired intangible assets and facilities expenses, including expenses associated with our regional sales
and support offices. The following table compares sales and marketing expenses for the years ended December 31, 2021,
2020 and 2019:
(dollars in millions)
Sales and marketing expenses ………………………………… $
Headcount (at period end) ……………………………………..
2021
60.8
280
Change
11.6 % $
2020
54.5
265
Change
0.4 % $
2019
54.3
260
S&M expenses increased in 2021 compared to 2020 due to increased commissions expense driven by increased
sales, higher salary and related expenses from the expansion of headcount, and higher stock-based compensation expense
primarily related to performance-based awards. S&M expenses increased in 2020 as compared to 2019 due to higher salary
and related expenses from the expansion of headcount and higher stock-based compensation expense primarily related to
performance-based awards. These factors were partially offset by lower travel expenses, trade event and promotional
activities resulting from restrictions associated with the COVID-19 pandemic, as well as lower amortization of intangibles.
27
General and administrative expenses. General and administrative (G&A) expenses consist primarily of
employee-related expenses, including salaries and stock-based compensation expenses for administration, finance, human
resources and general management, as well as consulting, professional services, legal and auditing expenses. The table
below compares G&A expenses for the years ended December 31, 2021, 2020 and 2019:
(dollars in millions)
G&A expenses ………………………………………………... $
Headcount (at period end) ……………………………………..
2021
39.8
70
Change
8.0 % $
Change
(1.8)% $
2020
36.9
68
2019
37.6
63
G&A expenses increased in 2021 due to higher stock-based compensation expense related to performance-based
awards partially offset by lower patent-litigation expenses. G&A expenses decreased in 2020 due to lower patent-litigation
expenses partially offset by higher stock-based compensation expense primarily related to performance-based awards.
Litigation settlement. Litigation settlement in fiscal 2019 represents a $169.0 million gain, net of direct legal fees,
due to a favorable legal settlement with ON Semiconductor Corporation, pursuant to which all outstanding legal and
administrative disputes were dismissed, withdrawn, and/or terminated.
Other income. Other income consists primarily of interest income earned on cash and cash equivalents,
marketable securities and other investments, and the impact of foreign exchange gains or losses. The following table
compares other income for the years ended December 31, 2021, 2020 and 2019:
(dollars in millions)
Other income ………………………………………………….. $
2021
1.1
Change
(77.4)% $
2020
Change
2019
4.8
(11.8) % $
5.4
Other income decreased in 2021 due primarily to lower interest income, as lower yields earned on our cash and
investments more than offset the impact of higher cash and investment balances. Other income decreased in 2020 due
primarily to lower interest income, reflecting lower yields earned on our cash and investments despite higher cash and
investment balances.
Provision for income taxes. Provision for income taxes represents federal, state and foreign taxes. The following
table compares the provision for income taxes for the years ended December 31, 2021, 2020 and 2019:
(dollars in millions)
Provision for income taxes …………………………………… $
Effective tax rate ………………………………………………
2021
11.7
Change
187.7 % $
6.7 %
2020
4.1
5.4 %
Change
(85.9)% $
2019
28.9
13.0 %
In 2021, 2020 and 2019, the effective tax rate was lower than the statutory U.S. federal income-tax rates of 21%
due to the geographic distribution of our world-wide earnings in lower tax jurisdictions, the impact of federal research tax
credits and the recognition of excess tax benefits related to share-based compensation. Additionally, in 2021, our effective
tax rate was favorably impacted by a discrete item associated with the release of an unrecognized tax benefit. These benefits
were offset by U.S. tax on foreign income, known as global intangible low-taxed income. The primary jurisdiction from
which our foreign earnings are derived is the Cayman Islands, which is a non-taxing jurisdiction. Income earned in other
foreign jurisdictions was not material. We have not been granted any incentivized tax rates and do not operate under any
tax holidays in any jurisdiction. For additional details, refer to Note 11, Provision for Income Taxes, in our Notes to
Consolidated Financial Statements included in this Annual Report on Form 10-K.
Liquidity and Capital Resources
We had approximately $530.4 million in cash, cash equivalents and short-term marketable securities at December
31, 2021 compared to $449.2 million at December 31, 2020 and $411.1 million at December 31, 2019. As of December
31, 2021, 2020 and 2019, we had working capital, defined as current assets less current liabilities, of approximately $614.5
million, $538.7 million and $490.9 million, respectively.
We have a Credit Agreement with Wells Fargo Bank, National Association (the "Credit Agreement") that
provides us with a $75.0 million revolving line of credit to use for general corporate purposes with a $20.0 million sub-
limit for the issuance of standby and trade letters of credit. The Credit Agreement was amended on June 7, 2021, to provide
an alternate borrowing rate as a replacement for LIBOR and extend the termination date from April 30, 2022 to June 7,
2026, with all other terms remaining the same. Our ability to borrow under the revolving line of credit is conditioned upon
our compliance with specified covenants, including reporting and financial covenants, primarily a minimum liquidity
measure and a debt to earnings ratio, with which we are currently in compliance. The Credit Agreement terminates on
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June 7, 2026; all advances under the revolving line of credit will become due on such date, or earlier in the event of a
default. As of December 31, 2021 and 2020, we had no advances outstanding under the Credit Agreement.
Cash from Operating Activities
Our operating activities generated cash of $230.9 million, $125.6 million and $224.5 million in the years ended
December 31, 2021, 2020 and 2019, respectively. We generate cash primarily from operating activities in the ordinary
course of business. In addition, in 2019 our cash generated from operating activities was favorably impacted by the
settlement of our patent litigation with ON Semiconductor Corporation.
In 2021, our net income was $164.4 million, which included non-cash expenses of $37.6 million of stock-based
compensation, $31.5 million of depreciation and $3.5 million of intangibles amortization. Sources of cash also included a
$4.1 million increase in accounts payable (excluding payables related to property and equipment) due to timing of
payments, a $4.3 million decrease in prepaid expenses and other assets and a $3.6 million decrease in inventories. These
sources of cash were partially offset by a $13.2 million increase in deferred income taxes, a $5.5 million increase in
accounts receivable due to increased shipments and a $4.1 million decrease in taxes payable and accrued liabilities.
In 2020, our net income was $71.2 million, which included non-cash expenses of $30.9 million of stock-based
compensation, $23.7 million of depreciation and $4.4 million of intangibles amortization. Sources of cash also included a
$9.1 million decrease in prepaid expenses and other assets, primarily driven by taxes refunded, a $5.7 million increase in
accounts payable (excluding payables related to property and equipment) and a $4.1 million increase in taxes payable and
accrued liabilities, in each case due to the timing of payments. These sources of cash were partially offset by an $11.3
million increase in accounts receivable due to increased shipments and the timing of collections, a $12.5 million increase
in inventories, reflecting impact of a market slowdown during the first half of the year and higher inventory levels to
support anticipated future demand.
In 2019, our net income was $193.5 million, which included a $169.0 million gain, net of direct legal fees, from
a favorable litigation settlement, $23.3 million of stock-based compensation, $19.2 million of depreciation and $5.2 million
of intangibles amortization. Sources of cash also included a $10.6 million increase in taxes payable and accrued liabilities
due primarily to increased taxes payable as result of favorable litigation settlement. These sources of cash were partially
offset by a $13.3 million increase in accounts receivable due to increased shipments and the timing of collections, a $9.5
million increase in inventories in anticipation of future demand, and a $6.6 million decrease in accounts payable due to
the timing of payments.
Cash from Investing Activities
Our investing activities in the year ended December 31, 2021 resulted in a $232.8 million net use of cash,
consisting primarily of $185.6 million for purchases of marketable securities, net of sales and maturities, and $47.3 million
for purchases of property and equipment, primarily machinery and equipment for use in the manufacture of our products,
as well as construction of an office building in Switzerland.
Our investing activities in the year ended December 31, 2020 resulted in a $28.3 million net use of cash, consisting
primarily of $41.7 million from purchases of marketable securities, net of sales and maturities, and $70.6 million for
purchases of property and equipment, primarily machinery and equipment for use in the manufacture of our products and
a building for our design center in Germany.
Our investing activities in the year ended December 31, 2019 resulted in a $162.0 million net use of cash,
consisting primarily of $136.9 million from purchases of marketable securities, net of sales and maturities, and $24.1
million for purchases of property and equipment, primarily machinery and equipment for use in the manufacture of our
products.
Cash from Financing Activities
Our financing activities in the year ended December 31, 2021, resulted in a $98.8 million net use of cash.
Financing activities consisted primarily of $73.9 million for the repurchase of our common stock and $32.6 million for the
payment of dividends to stockholders, partially offset by proceeds of $7.7 million from the issuance of common stock,
including the exercise of employee stock options and issuance of shares through our employee stock purchase plan.
Our financing activities in the year ended December 31, 2020, resulted in a net use of $17.2 million of cash.
Financing activities consisted primarily of $25.1 million for the payment of dividends to stockholders and $2.6 million for
29
the repurchase of our common stock, partially offset by proceeds of $10.5 million from the issuance of common stock,
including the exercise of employee stock options and the issuance of shares through our employee stock purchase plan.
Our financing activities in the year ended December 31, 2019, resulted in a net use of $17.9 million of cash.
Financing activities consisted primarily of $20.5 million for the payment of dividends to stockholders and $7.3 million for
the repurchase of our common stock, partially offset by proceeds of $9.9 million from the issuance of common stock,
including the exercise of employee stock options and the issuance of shares through our employee stock purchase plan.
Dividends
In January 2019, our board of directors declared four quarterly cash dividends of $0.085 per share to be paid to
stockholders of record at the end of each quarter in 2019. In October 2019, our board of directors raised the cash dividends
per share with the declaration of five cash dividends, consisting of (a) a dividend of $0.01 per share to be paid to
stockholders of record at the end of the fourth quarter in 2019, that was in addition to the dividend of $0.085 per share to
be paid to stockholders of record at the end of the fourth quarter in 2019 previously declared by the board in January 2019,
and (b) a dividend of $0.095 per share to be paid to stockholders of record at the end of each quarter in 2020.
In April 2020, our board of directors raised the cash dividends with the declaration of three cash dividends of
$0.105 per share (in lieu of the $0.095 per share previously announced in October 2019) to be paid to stockholders of
record at the end of each of the second, third and fourth quarter in 2020. In July 2020, our board of directors raised the
cash dividends further with the declaration of two cash dividends of $0.11 per share (in lieu of the $0.105 per share
announced in April 2020) to be paid to stockholders of record at the end of each of the third and fourth quarter in 2020.
The dividends per share presented above reflect the 2-for-1 stock split implemented as a stock dividend in August 2020.
In January 2021, our board of directors raised the quarterly cash dividend by an additional $0.02 per share with
the declaration of four cash dividends of $0.13 per share to be paid to stockholders of record at the end of each quarter in
2021. In October 2021, our board of directors raised the quarterly cash dividend with the declaration of five cash dividends
of $0.15 per share (the first in lieu of the $0.13 per share announced in January 2021) to be paid to stockholders of record
at the end of the fourth quarter in 2021 and at the end of each quarter in 2022.
In January 2022, our board of directors raised the quarterly cash dividend an additional $0.03 per share with the
declaration of four cash dividends of $0.18 per share (in lieu of the $0.15 per share announced in October 2021) to be paid
to stockholders of record at the end of each quarter in 2022. The declaration of any future cash dividend is at the discretion
of the board of directors and will depend on our financial condition, results of operations, capital requirements, business
conditions and other factors, as well as a determination that cash dividends are in the best interest of our stockholders.
Stock Repurchases
Over the years our board of directors has authorized the use of funds to repurchase shares of our common stock,
including $80.0 million in October 2018, $50.0 million in April 2021 and another $50.0 million in October 2021 with
repurchases to be executed according to pre-defined price/volume guidelines. In 2019, we repurchased 242,000 shares for
approximately $7.3 million. In 2020, we repurchased 63,000 shares for approximately $2.6 million. In 2021, we
repurchased 878,000 shares for approximately $73.9 million. As of December 31, 2021, we had $67.3 million remaining
under our repurchase program, all of which was utilized in January 2022.
In January 2022, our board of directors authorized the use of an additional $100.0 million for the repurchase of
our common stock, with repurchases to be executed according to pre-defined price/volume guidelines. Authorization of
future stock repurchase programs is at the discretion of the board of directors and will depend on our financial condition,
results of operations, capital requirements and business conditions as well as other factors.
Capital Expenditures
Cash paid for property and equipment in the year ended December 31, 2021 was $47.3 million. As of December,
31, 2021, our non-cancelable commitments for property and equipment was $10.9 million. We expect capital expenditures
in fiscal 2022 to be primarily for machinery and equipment for use in the manufacture of our products to support our
30
continued growth. We expect to fund these capital expenditures with cash on hand as well as cash provided by future
operations.
Other Information
Our cash, cash equivalents and investment balances may change in future periods due to changes in our planned
cash outlays, including changes in incremental costs such as direct and integration costs related to future acquisitions. The
Tax Act signed into law on December 22, 2017 generally allows companies to repatriate accumulated foreign earnings
without incurring additional U.S. federal taxes beginning after December 31, 2017. Accordingly, as of December 31, 2021,
our worldwide cash and marketable securities are available to fund capital allocation needs, including capital and internal
investments, acquisitions, stock repurchases and/or dividends without incurring significant U.S. federal income taxes.
If our operating results deteriorate in future periods, either as a result of a decrease in customer demand or pricing
pressures from our customers or our competitors, or for other reasons, our ability to generate positive cash flow from
operations may be jeopardized. In that case, we may be forced to use our cash, cash equivalents and short-term investments,
use our current financing or seek additional financing from third parties to fund our operations. We believe that cash
generated from operations, together with existing sources of liquidity, will satisfy our projected working capital and other
cash requirements for at least the next 12 months.
Off-Balance-Sheet Arrangements
As of December 31, 2021 and 2020, we did not have any off-balance-sheet arrangements or relationships with
unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose
entities, which are typically established for the purpose of facilitating off-balance-sheet arrangements or other contractually
narrow or limited purposes.
Contractual Obligations
As of December 31, 2021, we had the following non-cancelable contractual obligations:
Payments Due by Period
(In thousands)
Operating lease obligations(1) …………………………... $
Purchase obligations(2) ………………………………….. $
Total
12,493 $
74,191 $
1 - 3 Years 4 - 5 Years Over 5 Years
1,339
—
5,966 $
—
1,716 $
—
3,472 $
74,191
Less than 1
Year
(1) Operating lease obligations represent undiscounted non-cancelable remaining lease payments.
(2) Purchase obligations represent commitments to our suppliers and other parties for the purchases of goods and services,
which primarily consist of wafer and other inventory purchases, assembly and other manufacturing services, and
purchases of property and equipment.
In addition to operating lease and purchase obligations, we have a contractual obligation related to income tax as
of December 31, 2021, which primarily comprises unrecognized tax benefits of approximately $21.4 million, and was
classified as contra deferred tax assets or long-term income taxes payable in our consolidated balance sheet. As of
December 31, 2021 we also had approximately $4.0 million classified as long-term income taxes payable related to the
estimated one-time transition tax from the enactment of the Tax Act which will be payable in four annual installments. We
believe that cash generated from operations, together with existing sources of liquidity, will satisfy the cash requirements
for these contractual obligations.
Recently Issued Accounting Pronouncements
For recently issued accounting announcements, see “Recently Issued Accounting Pronouncements” in Note 2,
Significant Accounting Policies and Recent Accounting Pronouncements, in our Notes to Consolidated Financial
Statements included in this Annual Report on Form 10-K.
31
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk. Our exposure to market risk for changes in interest rates relates primarily to our investment
portfolio. We consider cash invested in highly liquid financial instruments with a remaining maturity of three months or
less at the date of purchase to be cash equivalents. Investments in highly liquid financial instruments with maturities greater
than three months are classified as short-term investments. We generally hold securities until maturity; however, they may
be sold under certain circumstances, including, but not limited to, when necessary for the funding of acquisitions and other
strategic investments. As a result of this policy, we classify our investment portfolio as available-for-sale. We invest in
high-credit quality issuers and, by policy, limit the amount of credit exposure to any one issuer. As stated in our policy,
we seek to ensure the safety and preservation of our invested principal funds by limiting default risk, market risk and
reinvestment risk. We mitigate default risk by investing in safe and high-credit quality securities and by constantly
positioning our portfolio to respond appropriately to a significant reduction in a credit rating of any investment issuer,
guarantor or depository. The portfolio includes only marketable securities with active secondary or resale markets to
facilitate portfolio liquidity. At December 31, 2021 and 2020, we held primarily cash equivalents and short-term
investments with fixed interest rates. We do not hold any instruments for trading purposes.
Our investment securities are subject to market interest rate risk and will vary in value as market interest rates
fluctuate. To minimize market risk, we invest in high-credit quality issuers and, by policy, limit the amount of credit
exposure to any one issuer, and therefore if market interest rates were to increase or decrease by 10% from interest rates
as of December 31, 2021 or December 31, 2020, the increase or decrease in the fair market value of our portfolio on these
dates would not have been material. We monitor our investments for impairment on a periodic basis. Refer to Note 5,
Marketable Securities, in our Notes to Consolidated Financial Statements in this Annual Report on Form 10-K, for a
tabular presentation of our available-for-sale investments and the expected maturity dates.
Foreign Currency Exchange Risk. As of December 31, 2021, our primary transactional currency was the U.S.
dollar; in addition, we hold cash in Swiss francs and euros to fund the operation of our Swiss subsidiary. Cash balances
held in foreign countries are subject to local banking laws and may bear higher or lower risk than cash deposited in the
United States. The following represents the potential impact on our pretax income from a change in the value of the U.S.
dollar compared to the Swiss franc and euro as of December 31, 2021. This sensitivity analysis applies a change in the
U.S. dollar value of 5% and 10%.
(in thousands of USD)
Swiss franc and euro foreign exchange impact ………………………………………………………
December 31, 2021
10%
5%
$
104
$
207
The foreign exchange rate fluctuation between the U.S. dollar versus the Swiss franc and euro is recorded in other
income in our consolidated statements of income.
We have R&D and sales offices in various other foreign countries in which our expenses are denominated in the
local currency, primary Asia and Western Europe. From time to time we may enter into foreign currency hedging contracts
to hedge certain foreign currency transactions. As of December 31, 2021 and 2020, we did not have an open foreign
currency hedge program utilizing foreign currency forward exchange contracts.
With two of our major suppliers, Seiko Epson Corporation (Epson) and ROHM Lapis Semiconductor Co., Ltd.
(Lapis) we have wafer supply agreements based in U.S. dollars; however, our agreements with Epson and Lapis also allow
for mutual sharing of the impact of the exchange rate fluctuation between Japanese yen and the U.S. dollar. Each year, our
management and these suppliers review and negotiate pricing; the negotiated pricing is denominated in U.S. dollars but is
subject to contractual exchange rate provisions. The fluctuation in the exchange rate is shared equally between us and each
of these suppliers.
Nevertheless, as a result of our above-mentioned supplier agreements, our gross margin is influenced by
fluctuations in the exchange rate between the U.S. dollar and the Japanese yen. All else being equal, a 10% change in the
value of the U.S. dollar compared to the Japanese yen would eventually result in a corresponding change in our gross
margin of approximately 1.0%; this sensitivity may increase or decrease depending on the percentage of our wafer supply
that we purchase from some of our Japanese suppliers and could subject our gross profit and operating results to the
potential for material fluctuations.
32
Item 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Power Integrations, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Power Integrations, Inc. and subsidiaries (the
"Company") as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income,
stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related
notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations
and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with the accounting
principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated February 7, 2022 expressed an unqualified opinion on the Company's
internal control over financial reporting.
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 statements based on our audits. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of
the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for
our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current-period audit of the financial statements that were communicated
or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to
the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined
that there are no critical audit matters.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
February 7, 2022
We have served as the Company’s auditor since 2005.
33
POWER INTEGRATIONS, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
December 31,
2021
2020
(In thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ……………………………………………………… $
Short-term marketable securities ………………………………………………..
Accounts receivable, net ………………………………………………………..
Inventories ………………………………………………………………………
Prepaid expenses and other current assets ………………………………………
Total current assets …………………………………………………………….
PROPERTY AND EQUIPMENT, net ……………………………………………
INTANGIBLE ASSETS, net ……………………………………………………..
GOODWILL ……………………………………………………………………...
DEFERRED TAX ASSETS ……………………………………………………...
OTHER ASSETS …………………………………………………………………
Total assets ……………………………………………………………………. $
158,117 $
372,235
41,393
99,266
15,804
686,815
179,824
9,012
91,849
16,433
30,554
1,014,487 $
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable ……………………………………………………………….. $
Accrued payroll and related expenses …………………………………………..
Taxes payable …………………………………………………………………...
Other accrued liabilities …………………………………………………………
Total current liabilities ………………………………………………………...
LONG-TERM INCOME TAXES PAYABLE …………………………………...
OTHER LIABILITIES ……………………………………………………………
Total liabilities …………………………………………………………………
43,721 $
15,492
1,210
11,898
72,321
15,280
14,854
102,455
258,874
190,318
35,910
102,878
13,252
601,232
166,188
12,506
91,849
3,339
28,225
903,339
34,712
14,806
902
12,106
62,526
15,588
14,814
92,928
COMMITMENTS AND CONTINGENCIES (Notes 11, 12 and 13)
STOCKHOLDERS’ EQUITY:
Common stock, $0.001 par value
Authorized - 140,000 shares
Outstanding - 59,913 and 59,910 shares in 2021 and 2020, respectively ……..
Additional paid-in capital ……………………………………………………….
Accumulated other comprehensive loss ………………………………………...
Retained earnings ………………………………………………………………..
Total stockholders’ equity ……………………………………………………..
Total liabilities and stockholders’ equity ……………………………………... $
28
162,301
(3,737)
753,440
912,032
1,014,487 $
28
190,920
(2,163)
621,626
810,411
903,339
The accompanying notes are an integral part of these consolidated financial statements.
34
POWER INTEGRATIONS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
NET REVENUES……………………………………………………….. $ 703,277 $ 488,318 $
COST OF REVENUES…………………………………………………..
GROSS PROFIT…………………………………………………………
244,728
243,590
342,638
360,639
2021
Year Ended December 31,
2020
2019
420,669
207,267
213,402
OPERATING EXPENSES:
Research and development ……………………………………………..
Sales and marketing…………………………………………………….
General and administrative……………………………………………..
Litigation settlement……………………………………………………
Total operating expenses……………………………………………...
INCOME FROM OPERATIONS………………………………………..
OTHER INCOME………………………………………………………..
INCOME BEFORE INCOME TAXES………………………………….
PROVISION FOR INCOME TAXES…………………………………...
NET INCOME…………………………………………………………... $ 164,413 $
84,933
60,808
39,840
—
185,581
175,058
1,077
176,135
11,722
81,711
54,497
36,895
—
173,103
70,487
4,764
75,251
4,075
71,176 $
73,470
54,297
37,582
(168,969)
(3,620)
217,022
5,392
222,414
28,946
193,468
EARNINGS PER SHARE:
Basic ……………………………………………………………………. $
Diluted ………………………………………………………………….. $
2.73 $
2.67 $
1.19 $
1.17 $
3.31
3.24
SHARES USED IN PER SHARE CALCULATION:
Basic …………………………………………………………………….
Diluted …………………………………………………………………..
60,327
61,467
59,657
60,845
58,534
59,632
The accompanying notes are an integral part of these consolidated financial statements. The Earnings Per Share
and Shares Used in Per Share Calculation information presented above reflects the effect of the August 2020 stock split.
Refer to Note 10, Earnings Per Share, in this Form 10-K for details.
35
POWER INTEGRATIONS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income ………………………………………………………………….. $ 164,413 $
2021
Year Ended December 31,
2020
71,176 $ 193,468
2019
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments, net of $0 tax in 2021, 2020
and 2019 …………………………………………………………………
Unrealized gain (loss) on marketable securities, net of $0 tax in 2021,
2020 and 2019 ……………………………………………………………
Unrealized actuarial gain (loss) on pension benefits, net of tax of ($334),
($308) and $497 in 2021, 2020 and 2019, respectively ………………….
Total other comprehensive income (loss) ………………………………
TOTAL COMPREHENSIVE INCOME …………………………………… $ 162,839 $
(486)
(183)
(518)
(2,055)
307
849
967
(1,574)
843
967
(1,772)
(1,441)
72,143 $ 192,027
The accompanying notes are an integral part of these consolidated financial statements.
36
POWER INTEGRATIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Additional
Common Stock
Paid-In
Shares Amount Capital
Accumulated
Other
Comprehensive Retained
Loss
Earnings
Total
Stockholders’
Equity
—
196
963
(63)
1,130
(242)
(In thousands)
BALANCE AT JANUARY 1, 2019 .………………… 57,778 $
Issuance of common stock under employee stock
option and stock award plans .…………………………
Repurchase of common stock …………………………
Issuance of common stock under employee stock
purchase plan .…………………………………………
Stock-based compensation expense related to
employee stock options and awards ..…………………
Stock-based compensation expense related to
—
employee stock purchases .……………………………
—
Payment of dividends to stockholders…………………
—
Unrealized actuarial loss on pension benefits …………
—
Unrealized gain on marketable securities ..……………
—
Foreign currency translation adjustment………………
—
Net income …………………………………………….
BALANCE AT DECEMBER 31, 2019 ……………… 58,862
Issuance of common stock under employee stock
option and stock award plans .…………………………
Repurchase of common stock …………………………
Issuance of common stock under employee stock
purchase plan ………………………………………….
Stock-based compensation expense related to
employee stock awards ………………………………..
Stock-based compensation expense related to
employee stock purchases …………………………….
—
Payment of dividends to stockholders ………………...
—
Unrealized actuarial gain on pension benefits…………
—
Unrealized gain on marketable securities ..……………
—
Foreign currency translation adjustment………………
—
—
Net income …………………………………………….
BALANCE AT DECEMBER 31, 2020 ……………… 59,910
Issuance of common stock under employee stock
option and stock award plans ………………………….
Repurchase of common stock …………………………
Issuance of common stock under employee stock
purchase plan ………………………….………………
Stock-based compensation expense related to
employee stock awards ………………………………..
Stock-based compensation expense related to
employee stock purchases …………………………….
Payment of dividends to stockholders ………………...
Unrealized actuarial gain on pension benefits .………..
Unrealized loss on marketable securities………………
Foreign currency translation adjustment………………
Net income …………………………………………….
BALANCE AT DECEMBER 31, 2021 ……………… 59,913 $
—
—
—
—
—
—
780
(878)
101
148
—
—
28 $ 126,164 $
(1,689) $ 402,569 $ 527,072
—
—
4,359
(7,302)
—
5,549
—
21,686
—
—
—
—
—
—
28
—
—
1,661
—
—
—
—
—
152,117
4,608
(2,636)
—
5,919
—
28,952
—
—
—
—
—
—
28
1,960
—
—
—
—
—
190,920
—
(1)
1,644
(73,937)
1
6,065
—
35,647
—
—
—
—
—
—
28 $ 162,301 $
1,962
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1,772)
849
(518)
—
(3,130)
—
(20,506)
—
—
—
193,468
575,531
—
—
—
—
—
—
—
—
—
—
843
307
(183)
—
(2,163)
—
(25,081)
—
—
—
71,176
621,626
—
—
—
—
—
—
—
—
4,359
(7,302)
5,549
21,686
1,661
(20,506)
(1,772)
849
(518)
193,468
724,546
4,608
(2,636)
5,919
28,952
1,960
(25,081)
843
307
(183)
71,176
810,411
1,644
(73,938)
6,066
35,647
—
—
967
(2,055)
(486)
—
1,962
(32,599)
967
(2,055)
(486)
164,413
(3,737) $ 753,440 $ 912,032
—
(32,599)
—
—
—
164,413
The accompanying notes are an integral part of these consolidated financial statements. The Shares presented
above reflects the effect of the August 2020 stock split. Refer to Note 10, Earnings Per Share, in this Form 10-K for
details.
37
POWER INTEGRATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income …………………………………………………………………………... $ 164,413 $
Adjustments to reconcile net income to net cash provided by operating activities:
2021
Year Ended December 31,
2020
2019
71,176 $ 193,468
Depreciation ………………………………………………………………………..
Amortization of intangibles ………………………………………………………..
Loss on disposal of property and equipment ……………………………………….
Stock-based compensation expense ………………………………………………..
Amortization of premium on marketable securities …..……………………………
Deferred income taxes ……………………………………………………………..
Increase (decrease) in accounts receivable allowance for credit losses ……………
Change in operating assets and liabilities:
Accounts receivable ………………………………………………………………
Inventories ………………………………………………………………………..
Prepaid expenses and other assets ………………………………………………..
Accounts payable …………………………………………………………………
Taxes payable and accrued liabilities …………………………………………….
Net cash provided by operating activities ………………………………………
31,454
3,494
3,105
37,609
1,590
(13,240)
18
(5,501)
3,612
4,326
4,067
(4,079)
230,868
23,743
4,359
525
30,912
705
(592)
(336)
(11,300)
(12,498)
9,153
5,697
4,095
125,639
19,190
5,213
249
23,347
(192)
4,019
57
(13,259)
(9,523)
(2,132)
(6,556)
10,618
224,499
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ………………………………………………
Proceeds from sale of property and equipment …………………………………….
Acquisition of technology licenses …………………………………………………
Purchases of marketable securities …………………………………………………
Proceeds from sales and maturities of marketable securities ………………………
Net cash used in investing activities ……………………………………………
(47,272)
35
—
(554,018)
368,457
(232,798)
(70,598)
651
—
(109,703)
151,385
(28,265)
(24,114)
—
(1,026)
(207,240)
70,334
(162,046)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock under employee stock plans …………………………...
Repurchase of common stock ………………………………………………………
Payments of dividends to stockholders …………………………………………….
Net cash used in financing activities ……………………………………………
7,710
(73,938)
(32,599)
(98,827)
10,527
(2,636)
(25,081)
(17,190)
9,908
(7,302)
(20,506)
(17,900)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ………..
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ……………..
CASH AND CASH EQUIVALENTS AT END OF PERIOD ……………………… $ 158,117 $
(100,757)
258,874
44,553
80,184
134,137
178,690
258,874 $ 178,690
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Unpaid property and equipment …………………………………………………… $
10,879 $
5,937 $
4,355
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid (received) for income taxes, net ………………………………………… $
25,644 $
(1,973) $
21,327
The accompanying notes are an integral part of these consolidated financial statements.
38
POWER INTEGRATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY:
Power Integrations, Inc. (“Power Integrations” or the “Company”), incorporated in California on March 25, 1988,
and reincorporated in Delaware in December 1997, designs, develops, manufactures and markets analog and mixed-signal
integrated circuits (ICs) and other electronic components and circuitry used in high-voltage power conversion. The
Company’s products are used in power converters that convert electricity from a high-voltage source to the type of power
required for a specified downstream use. A large percentage of the Company’s products are ICs used in AC-DC power
supplies, which convert the high-voltage AC from a wall outlet to the low-voltage DC required by most electronic devices.
Power supplies incorporating the Company’s products are used with all manner of electronic products including mobile
phones, computing and networking equipment, appliances, electronic utility meters, battery-powered tools, industrial
controls, and “home-automation,” or “internet of things” applications such as networked thermostats, power strips and
other building-automation and security devices. The Company also supplies high-voltage LED drivers, which are AC-DC
ICs specifically designed for lighting applications that utilize light-emitting diodes. In 2018, the Company introduced a
new category of power-conversion ICs: a family of motor-driver ICs addressing brushless DC (BLDC) motors used in
refrigerators, HVAC systems, ceiling fans and other consumer-appliance and light commercial applications. The Company
also offers high-voltage gate drivers—either standalone ICs or circuit boards containing ICs, electrical isolation
components and other circuitry—used to operate high-voltage switches such as insulated-gate bipolar transistors (IGBTs)
and silicon-carbide (SiC) MOSFETs. These combinations of switches and drivers are used for power conversion in high-
power applications (i.e., power levels ranging from a few kilowatts up to gigawatts) such as industrial motors, solar- and
wind-power systems, electric vehicles and high-voltage DC transmission systems.
2. SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS:
Significant Accounting Policies and Estimates
Segment Reporting
The Company is organized and operates as one reportable segment, the design, development, manufacture and
marketing of integrated circuits and related components for use primarily in the high-voltage power conversion markets.
The Company’s chief operating decision maker, the Chief Executive Officer, reviews financial information presented on
a consolidated basis for purposes of making operating decisions and assessing financial performance.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries
after elimination of all intercompany transactions and balances.
Estimates
The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles
(GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis,
the Company evaluates its estimates, including those related to revenue recognition, allowances for receivables,
inventories, litigation and income taxes. These estimates are based on historical facts and various other factors, which the
Company believes to be reasonable at the time the estimates are made. However, as the effects of future events cannot be
determined with precision, actual results could differ significantly from management’s estimates.
Revenue Recognition
The Company applies the provisions of Accounting Standards Codification (ASC) 606-10, Revenue from
Contracts with Customers, and all related appropriate guidance. The Company recognizes revenue under the core principle
to depict the transfer of control to the Company’s customers in an amount reflecting the consideration the Company expects
to be entitled. In order to achieve that core principle, the Company applies the following five-step approach: (1) identify
39
the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price,
(4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a
performance obligation is satisfied.
Product revenues consist of sales to original equipment manufacturers, or OEMs, merchant power supply
manufacturers and distributors. The Company considers customer purchase orders, which in some cases are governed by
master sales agreements, to be the contracts with a customer. In situations where sales are to a distributor, the Company
has concluded that its contracts are with the distributor as the Company holds a contract bearing enforceable rights and
obligations only with the distributor. As part of its consideration of the contract, the Company evaluates certain factors
including the customer’s ability to pay (or credit risk). For each contract, the Company considers the promise to transfer
products, each of which is distinct, to be the identified performance obligations. In determining the transaction price the
Company evaluates whether the price is subject to refund or adjustment to determine the net consideration to which the
Company expects to be entitled. As the Company’s standard payment terms are less than one year, the Company has
elected the practical expedient under ASC 606-10-32-18 to not assess whether a contract has a significant financing
component. The Company allocates the transaction price to each distinct product based on their relative standalone selling
price. The product price as specified on the purchase order is considered the standalone selling price as it is an observable
input which depicts the price as if sold to a similar customer in similar circumstances. Revenue is recognized when control
of the product is transferred to the customer (i.e., when the Company’s performance obligation is satisfied), which typically
occurs at shipment. Further, in determining whether control has transferred, the Company considers if there is a present
right to payment and legal title, along with risks and rewards of ownership having transferred to the customer.
Frequently, the Company receives orders for products to be delivered over multiple dates that may extend across
several reporting periods. The Company invoices for each delivery upon shipment and recognizes revenues for each
distinct product delivered, assuming transfer of control has occurred. As scheduled delivery dates are within one year,
under the optional exemption provided by ASC 606-10-50-14 revenues allocated to future shipments of partially completed
contracts are not disclosed. The Company has also elected the practical expedient under ASC 340-40-25-4 to expense
commissions when incurred as the amortization period of the commission asset the Company would have otherwise
recognized is less than one year.
Sales to international customers that are shipped from the Company’s facility outside of the United States are
pursuant to EX Works, or EXW, shipping terms, meaning that control of the product transfers to the customer upon
shipment from the Company’s foreign warehouse. Sales to international customers that are shipped from the Company’s
facility in California are pursuant to Delivered at Frontier, or DAF, shipping terms. As such, control of the product passes
to the customer when the shipment reaches the destination country and revenue is recognized upon the arrival of the
product in that country. Shipments to customers in the Americas are pursuant to Free on Board, or FOB, point of origin
shipping terms meaning that control is passed to the customer upon shipment.
Sales to most distributors are made under terms allowing certain price adjustments and limited rights of return
(known as “stock rotation”) of the Company’s products held in their inventory or upon sale to their end customers. Revenue
from sales to distributors is recognized upon the transfer of control to the distributor. Frequently, distributors need to sell
at a price lower than the standard distribution price in order to win business. At the time the distributor invoices its customer
or soon thereafter, the distributor submits a “ship and debit” price adjustment claim to the Company to adjust the
distributor’s cost from the standard price to the pre-approved lower price. After the Company verifies that the claim was
pre-approved, a credit memo is issued to the distributor for the ship and debit claim. In determining the transaction price,
the Company considers ship and debit price adjustments to be variable consideration. Such price adjustments are estimated
using the expected value method based on an analysis of actual ship and debit claims, at the distributor and product level,
over a period of time considered adequate to account for current pricing and business trends. Historically, actual price
adjustments for ship and debit claims relative to those estimated and included when determining the transaction price have
not materially differed. Stock rotation rights grant the distributor the ability to return certain specified amounts of
inventory. Stock rotation adjustments are an additional form of variable consideration and are also estimated using the
expected value method based on historical return rates. Historically, distributor stock rotation adjustments have not been
material.
Sales to certain distributors are made under terms that do not include rights of return or price concessions after
the product is shipped to the distributor. Accordingly, upon application of steps one through five above, product revenue
is recognized upon shipment and transfer of control.
40
The Company generally provides an assurance warranty that its products will substantially conform to the
published specifications for twelve months from the date of shipment. The Company’s liability is limited to either a credit
equal to the purchase price or replacement of the defective part. Returns under warranty have historically been immaterial.
As such, the Company does not record a specific warranty reserve or consider activities related to such warranty, if any,
to be a separate performance obligation.
Inventories
Inventories (which consist of costs associated with the purchases of wafers from domestic and offshore foundries
and of packaged components from offshore assembly manufacturers, as well as internal labor and overhead associated
with the testing of both wafers and packaged components) are stated at the lower of cost (first-in, first-out) or market.
Provisions, when required, are made to reduce inventories to their estimated net realizable values.
Income Taxes
Income-tax expense is an estimate of current income taxes payable or refundable in the current fiscal year based
on reported income before income taxes. Deferred income taxes reflect the effect of temporary differences and carry-
forwards that are recognized for financial reporting and income tax purposes.
The Company accounts for income taxes under the provisions of ASC 740, Income Taxes. Under the provisions
of ASC 740, deferred tax assets and liabilities are recognized based on the differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases, utilizing the tax rates that are expected to
apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The
Company recognizes valuation allowances to reduce any deferred tax assets to the amount that it estimates will more likely
than not be realized based on available evidence and management’s judgment. The Company limits the deferred tax assets
recognized related to certain officers’ compensation to amounts that it estimates will be deductible in future periods based
upon Internal Revenue Code Section 162(m). In the event that the Company determines, based on available evidence and
management judgment, that all or part of the net deferred tax assets will not be realized in the future, it would record a
valuation allowance in the period the determination is made. In addition, the calculation of tax liabilities involves
significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Resolution of these
uncertainties in a manner inconsistent with the Company’s expectations could have a material impact on the Company’s
results of operations and financial position.
Goodwill and Intangible Assets
Goodwill and the Company’s domain name are evaluated in accordance with ASC 350-10, Goodwill and Other
Intangible Assets, and an impairment analysis is conducted on an annual basis, or sooner if indicators exist for a potential
impairment.
In accordance with ASC 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived
assets, such as property and equipment and intangible assets, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows
expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the
asset.
Cash and Cash Equivalents
The Company considers cash invested in highly liquid financial instruments with maturities of three months or
less at the date of purchase to be cash equivalents.
Marketable Securities
The Company generally holds securities until maturity; however, they may be sold under certain circumstances
including, but not limited to, when necessary for the funding of acquisitions and other strategic investments. As a result,
the Company classifies its investment portfolio as available-for-sale. The Company classifies all investments with a
41
maturity date greater than three months at the date of purchase as short-term marketable securities in its consolidated
balance sheet. As of December 31, 2021 and 2020, the Company’s marketable securities consisted primarily of commercial
paper, corporate bonds, government securities and/or other high-quality commercial securities.
Employee Benefits Plan
The Company sponsors a 401(k) tax-deferred savings plan for all employees in the United States who meet certain
eligibility requirements. Participants may contribute up to the amount allowable as a deduction for federal income tax
purposes. The Company is not required to contribute; however, the Company contributes a certain percentage of employee
annual salaries on a discretionary basis, not to exceed an established threshold. The Company provided for a contribution
of approximately $1.9 million, $1.8 million and $1.4 million in 2021, 2020 and 2019, respectively.
Retirement Benefit Obligations (Pension)
The Company recognizes the over-funded or under-funded status of a defined benefit pension or post-retirement
plan as an asset or liability in the accompanying consolidated balance sheets. Actuarial gains and losses are recorded in
accumulated other comprehensive loss, a component of stockholders’ equity, and are amortized as a component of net
periodic cost over the remaining estimated service period of participants.
Foreign Currency Risk and Foreign Currency Translation
As of December 31, 2021, the Company’s primary transactional currency was U.S. dollars; in addition, the
Company holds cash in Swiss francs and euros to fund the operations of the Company’s Swiss subsidiary. The foreign
exchange rate fluctuation between the U.S. dollar versus the Swiss franc and euro is recorded in other income in the
consolidated statements of income.
Gains and losses arising from the remeasurement of non-functional currency balances are recorded in other
income in the accompanying consolidated statements of income. The Company realized a foreign exchange transaction
loss of $0.6 million, $0.5 million and $0.3 million in 2021, 2020 and 2019 respectively.
The functional currencies of the Company’s other subsidiaries are the local currencies. Accordingly, all assets
and liabilities are translated into U.S. dollars at the current exchange rates as of the applicable balance sheet date. Revenues
and expenses are translated at the average exchange rate prevailing during the period. Cumulative gains and losses from
the translation of the foreign subsidiaries’ financial statements have been included accumulated other comprehensive loss
in stockholders’ equity.
Warranty
The Company generally warrants that its products will substantially conform to the published specifications for
12 months from the date of shipment. The Company’s liability is limited to either a credit equal to the purchase price or
replacement of the defective part. Returns under warranty have historically been immaterial, and as a result, the Company
does not record a specific warranty reserve.
Advertising
Advertising costs are expensed as incurred and amounted to $1.3 million, $1.2 million and $1.4 million in 2021,
2020 and 2019, respectively.
Research and Development
Research and development costs are expensed as incurred.
Indemnifications
The Company sells products to its distributors under contracts, collectively referred to as Distributor Sales
Agreements (DSA). Each DSA contains the relevant terms of the contractual arrangement with the distributor, and
generally includes certain provisions for indemnifying the distributor against losses, expenses, and liabilities from damages
that may be awarded against the distributor in the event the Company’s products are found to infringe upon a patent,
42
copyright, trademark, or other proprietary right of a third party (Customer Indemnification). The DSA generally limits the
scope of and remedies for the Customer Indemnification obligations in a variety of industry-standard respects, including,
but not limited to, limitations based on time and geography, and a right to replace an infringing product. The Company
also, from time to time, has granted a specific indemnification right to individual customers.
The Company believes its internal development processes and other policies and practices limit its exposure
related to such indemnifications. In addition, the Company requires its employees to sign a proprietary information and
inventions agreement, which assigns the rights to its employees’ development work to the Company. To date, the Company
has not had to reimburse any of its distributors or customers for any losses related to these indemnifications and no material
claims were outstanding as of December 31, 2021. For several reasons, including the lack of prior indemnification claims
and the lack of a monetary liability limit for certain infringement cases, the Company cannot determine the maximum
amount of potential future payments, if any, related to such indemnifications.
Recent Accounting Pronouncements
The Company has considered all recent accounting pronouncements issued, but not yet effective, and does not
expect any to have a material effect on the Company’s condensed consolidated financial statements.
3. COMPONENTS OF THE COMPANY’S CONSOLIDATED BALANCE SHEETS:
Accounts Receivable
(In thousands)
Accounts receivable trade…………………………………………………………………… $
Allowance for ship and debit ..………………………………………………………………
Allowance for stock rotation and rebate .……………………………………………………
Allowance for credit losses …………………………………………………………………
Total .……………………………………………………………………………………… $
2021
2020
87,503 $
(41,599)
(4,066)
(445)
41,393 $
66,703
(26,435)
(3,931)
(427)
35,910
December 31,
December 31,
The Company maintains an allowance for estimated credit losses resulting from the inability of customers to
make required payments. This allowance is established using estimates formulated by the Company’s management based
upon factors such as the composition of the accounts receivable aging, historical losses, changes in payments patterns,
customer creditworthiness, and current economic trends. Receivables determined to be uncollectible are written off and
deducted from the allowance.
(In thousands)
Beginning balance …………………………………………………………………………
Provision for credit loss expense…………………………………………………………
Receivables written off ..…………………………………………………………………
Recoveries collected ..……………………………………………………………………
Ending balance .……………………………………………………………………………
$
$
Inventories
Year Ended
December 31,
2021
2020
(427)
(1,023)
74
931
(445)
$
$
(763)
(621)
198
759
(427)
(In thousands)
Raw materials ………………………………………………………………………………. $
Work-in-process .……………………………………………………………………………
Finished goods ………………………………………………………………………………
Total ………………………………………………………………………………………. $
2021
2020
24,131 $
31,788
43,347
99,266 $
32,131
39,469
31,278
102,878
December 31,
December 31,
43
Property and Equipment
(In thousands)
Land ……………………………………………………………………..………………….. $
Construction-in-progress ……………………………………………………………………
Building and improvements…………………………………………………………………
Machinery and equipment ..…………………………………………………………………
Computer software and hardware and office furniture and fixtures…………………………
Total …………………………………………………………………………………………
Less: Accumulated depreciation ……………………………………………………………
Property and equipment, net ……………………………………………………………… $
2021
2020
22,187 $
22,661
81,027
235,066
57,926
418,867
(239,043)
179,824 $
22,189
34,886
64,808
202,698
55,591
380,172
(213,984)
166,188
December 31,
December 31,
Depreciation expense for property and equipment for fiscal years ended December 31, 2021, 2020 and 2019, was
approximately $31.5 million, $23.7 million and $19.2 million, respectively, and was determined using the straight-line
method over the following useful lives:
Building and improvements .……………………………………………………………………………
Machinery and equipment ………………………………………………………………………………
Computer software and hardware and office furniture and fixtures .………………………………
4 - 40 years
2 - 8 years
4 - 7 years
Total property and equipment (excluding accumulated depreciation) located in the United States at December 31,
2021, 2020 and 2019, was approximately $174.6 million, $167.0 million and $160.7 million, respectively. In 2021, 2020
and 2019, approximately 14%, 14% and 14%, respectively, of total property and equipment (excluding accumulated
depreciation) was held in Thailand by one of the Company’s subcontractors. Also in 2021 and 2020, approximately 15%
and 14% of total property and equipment (excluding accumulated depreciation) was held by one of the Company’s
subcontractors in Malaysia. No other country held 10% or more of total property and equipment in the periods presented.
Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss for the three years ended December 31, 2021:
Unrealized Gains
and Losses on
Foreign
Available-for-Sale Defined Benefit Currency
Securities
Pension Items
(In thousands)
Balance at January 1, 2019 ………………………………………… $
Other comprehensive income (loss) before reclassifications ………
Amounts reclassified from accumulated other comprehensive loss...
Other comprehensive loss ..…………………………………………
Balance at December 31, 2019 ..……………………………………
Other comprehensive income (loss) before reclassifications ………
Amounts reclassified from accumulated other comprehensive loss...
Other comprehensive income ………………………………………
Balance at December 31, 2020 ..……………………………………
Other comprehensive income (loss) before reclassifications ………
Amounts reclassified from accumulated other comprehensive loss...
Other comprehensive loss ..…………………………………………
Balance at December 31, 2021 ..…………………………………… $
(266) $
849
—
849
583
307
—
307
890
(2,055)
—
(2,055)
(1,165) $
Items
67 (1)
(1,839)
(712) $
Total
(711) $ (1,689)
(1,508)
(518)
67
—
(1,772)
(1,441)
(518)
(3,130)
(1,229)
(2,484)
760
(183)
636
207
—
207 (1)
967
(183)
843
(2,163)
(1,412)
(1,641)
(1,741)
(486)
800
167
—
167 (1)
967
(1,574)
(486)
(674) $ (1,898) $ (3,737)
(1) This component of accumulated other comprehensive loss is included in the computation of net periodic pension cost for the years
ended December 31, 2021, 2020 and 2019.
44
4. FAIR VALUE MEASUREMENTS:
ASC 820-10, Fair Value Measurements, clarifies that fair value is an exit price, representing the amount that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As
such, fair value is a market-based measurement that should be determined based on assumptions that market participants
would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820-10 establishes a three-tier
value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as
quoted prices for identical assets in active markets; (Level 2) inputs other than the quoted prices in active markets that are
observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which
requires the Company to develop its own assumptions. This hierarchy requires the Company to use observable market
data, when available, and to minimize the use of unobservable inputs when determining fair value.
The Company’s cash equivalents and investment instruments are classified within Level 1 or Level 2 of the fair-
value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing
sources with reasonable levels of price transparency. The type of instrument valued based on quoted market prices in
active markets primarily includes money market securities. This type of instrument is generally classified within Level 1
of the fair-value hierarchy. The types of instruments valued based on other observable inputs (Level 2 of the fair-value
hierarchy) include investment-grade corporate bonds and commercial paper. Such types of investments are valued by using
a multi-dimensional relational model, the inputs are primarily benchmark yields, reported trades, broker/dealer quotes,
issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research
publications. The Company does not hold any instruments that would be classified within Level 3 of the fair-value
hierarchy.
The fair value hierarchy of the Company’s cash equivalents and marketable securities at December 31, 2021, and
2020, was as follows:
(In thousands)
Commercial paper …………………………………………………… $
Corporate securities ..…………………………………………………
Money market funds …………………………………………………
Total ..……………………………………………………………… $
Total Fair Value
Fair Value Measurement at
December 31, 2021
Quoted Prices in
Active Markets for Significant Other
Observable Inputs
(Level 2)
Identical Assets
(Level 1)
172,237 $
282,540
29,793
484,570 $
— $
—
29,793
29,793 $
172,237
282,540
—
454,777
(In thousands)
Commercial paper …………………………………………………... $
Corporate securities .…………………………………………………
Money market funds ………………………………………………...
Total ..……………………………………………………………… $
Total Fair Value
Fair Value Measurement at
December 31, 2020
Quoted Prices in
Active Markets for Significant Other
Observable Inputs
(Level 2)
Identical Assets
(Level 1)
253,855 $
146,658
1,634
402,147 $
— $
—
1,634
1,634 $
253,855
146,658
—
400,513
The Company did not transfer any investments between level 1 and level 2 of the fair value hierarchy in the years
ended December 31, 2021, and 2020.
45
5. MARKETABLE SECURITIES:
Amortized cost and estimated fair market value of marketable securities classified as available-for-sale (excluding
cash equivalents) at December 31, 2021, were as follows:
(In thousands)
Investments due in 3 months or less:
Amortized Gross Unrealized
Losses
Gains
Cost
Estimated Fair
Market Value
Commercial paper ……………………………………………………… $ 89,965 $
Corporate securities …………………………………………………….
Total …………………………………………………………………..
7,285
97,250
— $
—
—
Investments due in 4-12 months:
Corporate securities …………………………………………………….
Total …………………………………………………………………..
25,054
25,054
—
—
—
(3)
(3)
(42)
(42)
Investments due in 12 months or greater:
Corporate securities …………………………………………………….
Total …………………………………………………………………..
251,096
251,096
Total marketable securities ……………………………………………. $ 373,400 $
21
21
21 $
(1,141)
(1,141)
(1,186)
$
$
89,965
7,282
97,247
25,012
25,012
249,976
249,976
372,235
Accrued interest receivable was $1.5 million at December 31, 2021 and was recorded within prepaid expenses
and other current assets on the condensed consolidated balance sheet.
Amortized cost and estimated fair market value of marketable securities classified as available-for-sale (excluding
cash equivalents) at December 31, 2020, were as follows:
(In thousands)
Investments due in 3 months or less:
Amortized Gross Unrealized
Losses
Gains
Cost
Estimated Fair
Market Value
Commercial paper ……………………………………………………… $ 43,660 $
Corporate securities …………………………………………………….
Total …………………………………………………………………..
19,846
63,506
Investments due in 4-12 months:
Corporate securities …………………………………………………….
Total …………………………………………………………………..
125,922
125,922
Total marketable securities ……………………………………………. $ 189,428 $
— $
44
44
846
846
890 $
—
—
—
—
—
—
$
$
43,660
19,890
63,550
126,768
126,768
190,318
The Company did not have any investments due in twelve months or greater as of December 31, 2020. Accrued
interest receivable was $0.8 million at December 31, 2020 and was recorded within prepaid expenses and other current
assets on the condensed consolidated balance sheet.
As of December 31, 2021, the Company had no marketable securities classified as available-for-sale (excluding
cash equivalents) in a continuous unrealized loss position for which an allowance for credit losses was recorded. The
following table summarizes marketable securities classified as available-for-sale (excluding cash equivalents) in a
continuous unrealized loss position for which an allowance for credit losses was not recorded at December 31, 2021:
Less Than 12 Months
Estimated Gross
Fair Market Unrealized Fair Market Unrealized Fair Market Unrealized
12 Months or Longer
Estimated Gross
Estimated Gross
Total
(In thousands)
Corporate securities……………………... $
Total marketable securities……………. $
Losses
Value
274,380 $ (1,186) $
274,380 $ (1,186) $
Value
Losses
—
—
$
$
— $
— $
Value
274,380 $
274,380 $
Losses
(1,186)
(1,186)
As of December 31, 2020, the Company had no marketable securities classified as available-for-sale (excluding
cash equivalents) in a continuous unrealized loss position for which an allowance for credit losses was recorded.
46
The weighted average interest rate of investments at December 31, 2021 and 2020, was approximately 0.45% and
0.89%, respectively. In the year ended December 31, 2021 and 2020, no unrealized losses on marketable securities were
recognized in income.
6. GOODWILL AND INTANGIBLE ASSETS:
The carrying amount of goodwill as of December 31, 2021 and 2020 was $91.8 million; there were no changes
to goodwill in either of the respective fiscal years.
Intangible assets consist primarily of developed technology, acquired licenses, customer relationships, trade
name, domain name, in-process R&D and patent rights, and are reported net of accumulated amortization.
The Company amortizes the cost of all intangible assets over the shorter of the estimated useful life or the term
of the developed technology, customer relationships, technology licenses and in-place leases, which range from two to
twelve years, with the exception of $1.3 million paid to acquire an internet domain name. The Company acquired the rights
to the internet domain name www.power.com, which is now the Company’s primary domain name; the cost to acquire the
domain name has been recorded as an intangible asset and will not be amortized as it has an indefinite useful life.
Amortization of acquired intangible assets was approximately $3.5 million, $4.4 million and $5.2 million in the years
ended December 31, 2021, 2020 and 2019, respectively. The Company does not believe there is any significant residual
value associated with the following intangible assets:
(In thousands)
Domain name …………………………………… $ 1,261 $
Developed technology …………………………..
Customer relationships …………………………..
Technology licenses ……………………………..
37,960
16,700
1,926
Gross
Total intangible assets …………………………. $ 57,847 $
December 31, 2021
Accumulated
Amortization
Net
Gross
December 31, 2020
Accumulated
Amortization
Net
— $ 1,261 $ 1,261 $
(31,603)
(16,458)
(774)
6,357
242
1,152
(48,835) $ 9,012 $ 57,847 $
37,960
16,700
1,926
(29,126)
(15,687)
(528)
— $ 1,261
8,834
1,013
1,398
(45,341) $ 12,506
The estimated future amortization expense related to definite-lived intangible assets at December 31, 2021, is as
follows:
Fiscal Year
2022 ………………………………………………………………………………………………………
2023 ………………………………………………………………………………………………………
2024 ………………………………………………………………………………………………………
2025 ………………………………………………………………………………………………………
2026 ………………………………………………………………………………………………………
Thereafter …………………………………………………………………………………………………
Total ……………………………………………………………………………………………………..
$
$
Estimated
Amortization
(In thousands)
2,415
2,173
1,279
832
687
365
7,751
7. STOCK PLANS AND SHARE BASED COMPENSATION:
The share and per share information for all periods presented in this Form 10-K has been adjusted for the effect
of the August 2020 stock split. Refer to Note 10, Earnings Per Share, in this Form 10-K for details.
Stock Plans
As of December 31, 2021, the Company had three stock-based compensation plans (the “Plans”) which are
described below.
2007 Equity Incentive Plan
The 2007 Equity Incentive Plan (2007 Plan) was adopted by the board of directors on September 10, 2007, and
approved by the stockholders on November 7, 2007, as an amendment and restatement of the 1997 Stock Option Plan
(1997 Plan). The 2007 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock
47
awards, restricted stock unit (RSU) awards, stock appreciation rights, performance-based (PSU) awards, long-term
performance based (PRSU) awards and other stock awards to employees, directors and consultants. Pursuant to the 2007
Plan, the exercise price for incentive stock options and non-statutory stock options is generally at least 100% of the fair
market value of the underlying shares on the date of grant. Options generally vest over 48 months measured from the date
of grant. Options generally expire no later than ten years after the date of grant, subject to earlier termination upon an
optionee’s cessation of employment or service. The 2007 Plan expired in September 2017 with no further grants to be
made under this plan; however previous grants under this plan shall remain outstanding until they are exercised, vest,
forfeited or expire.
2016 Incentive Award Plan
The 2016 Incentive Award Plan (2016 Plan) was adopted by the board of directors on March 17, 2016 and
approved by the stockholders on May 13, 2016. The 2016 Plan provides for the grant of RSU awards, PSU awards and
PRSU awards. No other forms of equity-based awards, including stock options and stock appreciation rights, may be
granted under the 2016 Plan. As of December 31, 2021, 2.6 million awards have been issued, net of forfeitures or
cancellations, and approximately 4.4 million shares of common stock remain available for future grant under the 2016
Plan.
1997 Employee Stock Purchase Plan
Under the 1997 Employee Stock Purchase Plan (Purchase Plan), eligible employees may apply accumulated
payroll deductions, which may not exceed 15% of an employee’s compensation, to the purchase of shares of the
Company’s common stock at periodic intervals. The purchase price of stock under the Purchase Plan is equal to 85% of
the lower of (i) the fair market value of the Company’s common stock on the first day of each offering period, or (ii) the
fair market value of the Company’s common stock on the purchase date (as defined in the Purchase Plan). Each offering
period consists of one purchase period of approximately six months' duration. An aggregate of 7.5 million shares of
common stock were reserved for issuance to employees under the Purchase Plan. As of December 31, 2021, of the shares
reserved for issuance, 6.7 million shares had been purchased and 0.8 million shares were reserved for future issuance under
the Purchase Plan.
Shares Reserved
As of December 31, 2021, the Company had approximately 5.5 million shares of common stock reserved for
future grant under all stock plans.
Stock-Based Compensation
The Company applies the provisions of ASC 718-10, Stock Compensation. Under the provisions of ASC 718-10,
the Company recognizes the fair value of stock-based compensation in its financial statements over the requisite service
period of the individual grants, which generally equals a four-year vesting period. The Company uses estimates of
volatility, expected term, risk-free interest rate, dividend yield and forfeitures in determining the fair value of these awards
and the amount of compensation expense to recognize. The Company uses the straight-line method to amortize all stock
awards granted over the requisite service period of the award.
The following table summarizes the stock-based compensation expense recognized in accordance with ASC
718-10 for the years ended December 31, 2021, 2020 and 2019:
(In thousands)
Cost of revenues …………………………………………………………………
Research and development ………………………………………………………
Sales and marketing………………………………………………………………
General and administrative ………………………………………………………
Total stock-based compensation expense………………………………………
$
$
Year Ended December 31,
2020
2019
2021
2,359
12,127
7,630
15,493
37,609
$
$
1,963
10,378
6,290
12,281
30,912
$
$
1,237
8,423
5,015
8,672
23,347
48
The following table summarizes total compensation expense related to unvested awards not yet recognized, net
of expected forfeitures, and the weighted average period over which it is expected to be recognized as of December 31,
2021:
Unrecognized Compensation Weighted Average
Expense for Unvested
Awards
(In thousands)
Remaining Recognition
Period
(In years)
Long-term performance-based awards ……………………………….. $
Restricted stock units ………………………………………………….
Purchase plan ………………………………………………………….
Total unrecognized compensation expense …………………………… $
7,474
35,707
174
43,355
1.19
2.26
0.08
Stock-based compensation expense in the year ended December 31, 2021, was approximately $37.6 million,
comprising approximately $19.9 million related to restricted stock units, $15.7 million related to performance-based
awards and $2.0 million related to the Company’s Purchase Plan.
Stock-based compensation expense in the year ended December 31, 2020, was approximately $30.9 million,
comprising approximately $18.7 million related to restricted stock units, $10.2 million related to performance-based
awards and $2.0 million related to the Company’s Purchase Plan.
Stock-based compensation expense in the year ended December 31, 2019, was approximately $23.3 million,
comprising approximately $17.5 million related to restricted stock units, $4.1 million related to performance-based awards
and $1.7 million related to the Company’s Purchase Plan.
The Company did not grant stock options in the years ended December 31, 2021, 2020 and 2019, and therefore
no fair-value assumptions are reported.
The fair value of employees’ stock purchase rights under the Purchase Plan was estimated using the Black-
Scholes model with the following weighted-average assumptions used during the three years ended December 31, 2021,
2020 and 2019:
Risk-free interest rates ……………………………………………………………
Expected volatility rates …………………………………………………………..
Expected dividend yield …………………………………………………………..
Expected term of purchase rights (in years) ………………………………………
Weighted-average estimated fair value of purchase rights ……………………….. $
Year Ended December 31,
2021
0.07 %
41 %
0.57 %
0.50
23.92
$
2020
0.90 %
47 %
0.78 %
0.50
15.73
$
2019
2.28 %
37 %
0.91 %
0.50
19.39
49
A summary of stock options outstanding as of December 31, 2021, and activity during three years then ended, is
presented below:
Weighted-
Average
Exercise
(In thousands) Price
Shares
Weighted-
Average
Remaining
Aggregate
Contractual Term Intrinsic Value
(In thousands)
(In years)
Outstanding at January 1, 2019 ………………………………
Granted ………………………………………………………..
Exercised ……………………………………………………..
Forfeited or expired …………………………………………..
Outstanding at December 31, 2019 …………………………..
Granted ………………………………………………………..
Exercised ……………………………………………………..
Forfeited or expired …………………………………………..
Outstanding at December 31, 2020 …………………………..
Granted ……………………………………………………….
Exercised ……………………………………………………..
Forfeited or expired .………………………………………….
Outstanding at December 31, 2021 ..…………………………
Vested and Exercisable at December 31, 2021 ………………
670 $
—
(335) $
—
335 $
—
(243) $
—
92 $
—
(80) $
—
12 $
12
16.21
—
12.98
—
19.44
—
18.99
—
20.63
—
20.50
—
21.44
0.35 $
0.35 $
857
857
The total intrinsic value of options exercised during the year ended December 31, 2021, 2020 and 2019, was $4.9
million, $9.1 million and $8.3 million, respectively.
The following table summarizes the stock options outstanding at December 31, 2021:
(Shares in thousands)
Range of Exercise Prices
$21.44 - $21.44 ………………………………………..
PSU Awards
Options
Outstanding
12
Options Outstanding
Weighted Average Weighted
Remaining
Average
Contractual Term Exercise Options
Options Exercisable
Weighted
Average
Exercise
Price
12 $ 21.44
Exercisable
(In years)
Price
0.35 $ 21.44
Under the performance-based awards program, the Company grants awards in the performance year in an amount
equal to twice the target number of shares to be issued if the maximum performance metrics are met. The number of shares
that are released at the end of the performance year can range from zero to 200% of the target number depending on the
Company’s performance. The performance metrics of this program are annual targets consisting of a combination of net
revenue, non-GAAP operating earnings and strategic goals.
As the net revenue, non-GAAP operating income and strategic goals are considered performance conditions,
expense associated with these awards, net of estimated forfeitures, is recognized over the service period based on an
assessment of the achievement of the performance targets. The fair value of these PSUs is determined using the fair value
of the Company’s common stock on the date of the grant, reduced by the discounted present value of dividends expected
to be declared before the awards vest. If the performance conditions are not achieved, no compensation cost is recognized
and any previously recognized compensation is reversed.
50
A summary of PSU awards outstanding as of December 31, 2021, and activity during the three years then ended,
is presented below:
Weighted-
Average
Weighted-
Average
Remaining
Aggregate
Shares
(In thousands) Value Per Share
Grant Date Fair Contractual Term Intrinsic Value
(In thousands)
(In years)
Outstanding at January 1, 2019 ………………………..
Granted ………………………………………………...
Vested ………………………………………………….
Forfeited or canceled …………………………………..
Outstanding at December 31, 2019 ……………………
Granted ………………………………………………...
Vested .…………………………………………………
Forfeited or canceled .………………………………….
Outstanding at December 31, 2020 ……………………
Granted ………………………………………………...
Vested .…………………………………………………
Forfeited or canceled …………………………………..
Outstanding at December 31, 2021 ……………………
Outstanding and expected to vest at December 31, 2021
52 $
185 $
(52) $
(64) $
121 $
150 $
(121) $
—
150 $
105 $
(150) $
(1) $
104 $
104
31.44
35.06
31.44
35.06
35.06
46.31
35.06
—
46.27
84.48
46.27
85.01
84.47
— $
— $
9,701
9,701
In January 2021, it was determined that approximately 150,000 shares subject to the PSUs granted in 2020 vested
in aggregate; the shares were released to the Company’s employees and executives in the first quarter of 2021. The grant-
date fair value of PSU awards released, which were fully vested, in the years ended December 31, 2021, 2020 and 2019
was approximately $6.9 million, $4.2 million and $1.6 million, respectively.
PRSU Awards (Long-term Performance Based)
The Company’s PRSU program provides for the issuance of PRSUs which will vest based on the Company’s
performance measured against the PRSU Plan’s established revenue targets. The PRSUs were granted in an amount equal
to twice the target number of shares to be issued if the maximum performance metrics are met. The actual number of
shares the recipient receives is determined at the end of a three-year performance period based on results achieved versus
the Company’s performance goals, and may range from zero to 200% of the target number. Recipients of a PRSU award
generally must remain employed by the Company on a continuous basis through the end of the applicable three-year
performance period in order to receive shares subject to that award. The performance goals for PRSUs granted in fiscal
2021, 2020 and 2019 were based on the Company’s annual revenue growth over the respective three-year performance
period.
Expense associated with these awards, net of estimated forfeitures, is recorded throughout the year based on an
assessment of the expected achievement of the performance targets. If the performance conditions are not achieved, no
compensation cost is recognized and any previously recognized compensation is reversed.
51
A summary of PRSU awards outstanding as of December 31, 2021, and activity during the three years then ended,
is presented below:
Shares
Weighted-Average
Grant Date Fair
(In thousands) Value Per Share
Weighted-Average Aggregate
Intrinsic
Value
Remaining
Contractual Term
(In years)
(In thousands)
Outstanding at January 1, 2019 ………………………..
Granted ………………………………………………...
Vested ………………………………………………….
Forfeited or canceled ………………….………………..
Outstanding at December 31, 2019 …………………….
Granted ………………………………………………...
Vested ………………………………………………….
Forfeited or canceled ………………….……………….
Outstanding at December 31, 2020 …………………….
Granted ………………………………………………...
Vested ………………………………………………….
Forfeited or canceled ………………….……………….
Outstanding at December 31, 2021 …………………….
Outstanding and expected to vest at December 31, 2021
426 $
144 $
(140) $
(143) $
287 $
152 $
—
(138) $
301 $
103 $
(6) $
(15) $
383 $
383
27.74
34.09
21.63
31.50
32.03
49.67
—
29.95
41.90
82.92
29.94
40.05
53.14
0.92 $
0.92 $
35,537
35,537
In January 2021 it was determined that approximately 6,000 shares subject to the PRSUs granted in 2018 vested
in aggregate; the shares were released to the Company’s executives in the first quarter of 2021. The grant-date fair value
of PRSU awards released, which were fully vested, in the years ended December 31, 2021 and 2019 was approximately
$0.2 million and $3.0 million, respectively.
RSU Awards
RSUs granted to employees typically vest ratably over a four-year period, and are converted into shares of the
Company’s common stock upon vesting on a one-for-one basis subject to the employee’s continued service to the
Company over that period. The fair value of RSUs is determined using the fair value of the Company’s common stock on
the date of the grant, reduced by the discounted present value of dividends expected to be declared before the awards vest.
Compensation expense is recognized on a straight-line basis over the requisite service period of each grant adjusted for
estimated forfeitures.
A summary of RSU awards outstanding as of December 31, 2021, and activity during the three years then ended,
is presented below:
Shares
Weighted-Average
Grant Date Fair
(In thousands) Value Per Share
Weighted-Average Aggregate
Intrinsic
Value
Remaining
Contractual Term
(In years)
(In thousands)
Outstanding at January 1, 2019 ………………………...
Granted …………………………………………………
Vested .…………………………………………………
Forfeited ..………………………………………………
Outstanding at December 31, 2019 .……………………
Granted …………………………………………………
Vested .…………………………………………………
Forfeited ..………………………………………………
Outstanding at December 31, 2020 ….…………………
Granted …………………………………………………
Vested .…………………………………………………
Forfeited ..………………………………………………
Outstanding at December 31, 2021 .……………………
Outstanding and expected to vest at December 31, 2021
29.10
34.90
28.10
31.72
31.33
44.82
30.25
36.77
35.51
83.79
35.03
39.85
46.81
1,790 $
582 $
(603) $
(50) $
1,719 $
439 $
(599) $
(41) $
1,518 $
271 $
(546) $
(99) $
1,144 $
1,081
52
1.25 $
1.20 $
106,306
100,433
The grant-date fair value of RSUs vested in the years ended December 31, 2021, 2020 and 2019, was
approximately $19.1 million, $18.1 million and $16.9 million, respectively.
8. SIGNIFICANT CUSTOMERS AND GEOGRAPHIC NET REVENUES:
Customer Concentration
The Company’s top ten customers accounted for approximately 78%, 62% and 54% of revenues in 2021, 2020
and 2019, respectively. A significant portion of these revenues are attributable to sales of the Company’s products to
distributors of electronic components. These distributors sell the Company’s products to a broad, diverse range of end
users, including OEMs and merchant power supply manufacturers. Sales to distributors in 2021, 2020 and 2019 were
$525.7 million, $367.7 million and $304.6 million, respectively. Direct sales to OEMs and power-supply manufacturers
accounted for the remainder.
The following customers represented 10% or more of the Company’s net revenues for the respective years:
Customer
Avnet ………………….……………….………………….……………….…………..
Honestar Technologies Co., Ltd. ..…………………….……………….………………
Year Ended December 31,
2020
2021
2019
30 %
16 %
19 %
11 %
11 %
*
*Total customer revenue was less than 10% of net revenues.
No other customers accounted for 10% or more of the Company’s net revenues in the periods presented.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consisted principally
of cash investments and trade receivables. The Company does not have any off-balance-sheet credit exposure related to
its customers. As of December 31, 2021 and 2020, 86% and 90% of accounts receivable were concentrated with the
Company’s top ten customers, respectively.
The following customers represented 10% or more of accounts receivable:
Customer
Avnet ………………….……………….………………….……………….………………….
Powertech Distribution Ltd. ..…………………………………………………………………
December 31,
2021
December 31,
2020
45 %
* %
50 %
10 %
*Total customer accounts receivable was less than 10% of net accounts receivables.
No other customers accounted for 10% or more of the Company’s accounts receivable in the periods presented.
Geographic Net Revenues
The Company markets its products globally through its sales personnel and a worldwide network of independent
sales representatives and distributors. Geographic net revenues based on “bill to” customer locations were as follows:
(In thousands)
United States of America ……………………………………………………………. $
Hong Kong/China ……………………………………………………………………
Taiwan ……………………………………………………………………………….
Korea …………………………………………………………………………………
Western Europe (excluding Germany) ………………………………………………
Japan …………………………………………………………………………………
Germany ……………………………………………………………………………..
Other …………………………………………………………………………………
446,980
25,991
59,501
35,835
25,101
32,664
59,967
Total net revenues …………………………………………………………………. $
703,277 $
53
Year Ended December 31,
2020
11,065 $
2021
17,238 $
2019
10,662
237,341
36,297
30,395
36,025
15,496
20,197
34,256
420,669
306,938
21,650
40,059
33,564
17,453
23,242
34,347
488,318 $
9. COMMON STOCK REPURCHASES AND CASH DIVIDENDS:
Common Stock Repurchases
Over the years the Company’s board of directors has authorized the use of funds to repurchase shares of the
Company’s common stock. In October 2018, the Company’s board of director’s authorized the use of $80.0 million for
the repurchase of the Company’s common stock, and in each of April 2021 and October 2021, the Company’s board of
directors authorized the use of an additional $50.0 million for the repurchase of the Company’s common stock, with
repurchases to be executed according to pre-defined price/volume guidelines. In 2021, 2020 and 2019 the Company
purchased approximately 878,000, 63,000 and 242,000 shares, respectively, for approximately $73.9 million, $2.6 million
and $7.3 million, respectively. As of December 31, 2021, the Company had $67.3 million available for future stock
repurchases, all of which was utilized in January 2022.
In January 2022, the Company’s board of directors authorized the use of an additional $100.0 million for the
repurchase of the Company’s common stock, with repurchases to be executed according to pre-defined price/volume
guidelines. Authorization of future stock repurchase programs is at the discretion of the board of directors and will depend
on the Company’s financial condition, results of operations, capital requirements and business conditions as well as other
factors.
Common Stock Dividend
The following table presents the quarterly dividends declared per share of the Company’s common stock for the
periods indicated:
Year Ended December 31,
2020
2019
2021
First Quarter ………………………………………………………………………… $
Second Quarter ……………………………………………………………………… $
Third Quarter………………………………………………………………………… $
Fourth Quarter ………………………………………………………………………. $
0.13 $
0.13 $
0.13 $
0.15 $
0.095 $
0.105 $
0.110 $
0.110 $
0.085
0.085
0.085
0.095
The Company paid a total of approximately $32.6 million, $25.1 million and $20.5 million in cash dividends
during 2021, 2020 and 2019, respectively.
In January 2019, the Company’s board of directors declared four quarterly cash dividends of $0.085 per share to
be paid to stockholders of record at the end of each quarter in 2019. In October 2019, the Company’s board of directors
raised the cash dividends per share with the declaration of five cash dividends, consisting of (a) a dividend of $0.01 per
share to be paid to stockholders of record at the end of the fourth quarter in 2019, that was in addition to the dividend of
$0.085 per share to be paid to stockholders of record at the end of the fourth quarter in 2019 previously declared by the
board in January 2019, and (b) a dividend of $0.095 per share to be paid to stockholders of record at the end of each quarter
in 2020.
In April 2020, the Company’s board of directors raised the cash dividends with the declaration of three cash
dividends of $0.105 per share (in lieu of the $0.095 per share previously announced in October 2019) to be paid to
stockholders of record at the end of each of the second, third and fourth quarter in 2020. In July 2020, the Company’s
board of directors raised the cash dividends further with the declaration of two cash dividends of $0.11 per share (in lieu
of the $0.105 per share announced in April 2020) to be paid to stockholders of record at the end of each of the third and
fourth quarter in 2020.
In January 2021, the Company’s board of directors raised the quarterly cash dividend by $0.02 per share with the
declaration of four cash dividends of $0.13 per share to be paid to stockholders of record at the end of each quarter in
2021. In October 2021, the Company’s board of directors raised the quarterly cash dividend with the declaration of five
cash dividends of $0.15 per share (the first in lieu of the $0.13 per share announced in January 2021) to be paid to
stockholders of record at the end of the fourth quarter in 2021 and at the end of each quarter in 2022.
In January 2022, the Company’s board of directors raised the quarterly cash dividend by an additional $0.03 per
share with the declaration of four cash dividends of $0.18 per share (in lieu of the $0.15 per share announced in October
2021) to be paid to stockholders of record at the end of each quarter in 2022.
54
10. EARNINGS PER SHARE:
Basic earnings per share are calculated by dividing net income by the weighted-average shares of common stock
outstanding during the period. Diluted earnings per share are calculated by dividing net income by the weighted-average
shares of common stock and dilutive common equivalent shares outstanding during the period. Dilutive common
equivalent shares included in this calculation consist of dilutive shares issuable upon the assumed exercise of outstanding
common stock options, the assumed vesting of outstanding restricted stock units, the assumed issuance of awards under
the stock purchase plan and contingently issuable performance-based awards, as computed using the treasury stock
method.
A summary of the earnings per share calculation is as follows:
(In thousands, except per share amounts)
Basic earnings per share:
Year Ended December 31,
2020
2019
2021
Net income ………………………………………………………………………… $
Weighted-average common shares ………………………………………………...
Basic earnings per share …………………………………………………………… $
164,413 $
60,327
2.73 $
71,176 $
59,657
1.19 $
193,468
58,534
3.31
Diluted earnings per share: (1)
Net income ………………………………………………………………………… $
Weighted-average common shares ………………………………………………...
Effect of dilutive awards:
Employee stock plans …………………………………………………………….
Diluted weighted-average common shares ………………………………………...
Diluted earnings per share ………………………………………………………… $
164,413 $
60,327
71,176 $
59,657
193,468
58,534
1,140
61,467
1,188
60,845
2.67 $
1.17 $
1,098
59,632
3.24
(1) The Company includes the shares underlying performance-based awards in the calculation of diluted earnings per share if the
performance conditions have been satisfied as of the end of the reporting period and excludes such shares when the necessary
conditions have not been met. The Company has included in the 2021, 2020 and 2019 calculations those shares that were
contingently issuable upon the satisfaction of the performance conditions as of the end of the respective periods.
In the years ended December 31, 2021, 2020 and 2019, no outstanding stock awards were determined to be anti-
dilutive and therefore were excluded from the computation of diluted earnings per share.
In July 2020, the Company’s board of directors approved a two-for-one stock split in the form of a stock dividend,
payable on August 18, 2020, to stockholders of record as of the close of business on August 14, 2020. The Company’s
stockholders received one additional share of common stock for each share of common stock held on August 14, 2020.
The share and per share information for all periods presented in this Form 10-K has been adjusted for the effect of the
stock split.
11. PROVISION FOR INCOME TAXES:
Income Taxes
The Company accounts for income taxes under the provisions of ASC 740, Income Taxes. Under the provisions
of ASC 740, deferred tax assets and liabilities are recognized based on the differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases, utilizing the tax rates that are expected to
apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
U.S. and foreign components of income (loss) before income taxes were:
(In thousands)
U.S. operations ……………………………………………………………………… $
Foreign operations……………………………………………………………………
Total income before income taxes ………………………………………………… $
55
Year Ended December 31,
2020
2021
241 $
175,894
176,135 $
(6,252) $
81,503
75,251 $
2019
82,692
139,722
222,414
The components of the provision for income taxes are as follows:
(In thousands)
Current provision (benefit):
Year Ended December 31,
2020
2019
2021
Federal …………………………………………………………………………….. $
State ………………………………………………………………………………..
Foreign ……………………………………………………………………………..
Deferred provision (benefit):
Federal ……………………………………………………………………………..
State ………………………………………………………………………………..
Foreign ……………………………………………………………………………..
Total ……………………………………………………………………………… $
23,648 $
2
1,608
25,258
(11,449)
—
(2,087)
(13,536)
11,722 $
2,788 $
(181)
1,677
4,284
348
—
(557)
(209)
4,075 $
18,293
184
1,293
19,770
9,683
—
(507)
9,176
28,946
The provision for income taxes differs from the amount that would result by applying the applicable federal
income tax rate to income before income taxes, as follows:
Provision (benefit) computed at Federal statutory rate……………………………
Business tax credits .………………………………………………………………
Stock-based compensation ………………………………………………………..
Foreign income taxed at different rate ……………………………………………
GILTI inclusion …………………………………………………………………..
Valuation allowance ………………………………………………………………
Other ………………………………………………………………………………
Total ……………………………………………………………………………..
Year Ended December 31,
2020
21.0 %
(7.4)
(0.1)
(22.0)
10.7
2.6
0.6
5.4 %
2021
21.0 %
(3.6)
(0.6)
(23.8)
13.1
1.3
(0.7)
6.7 %
2019
21.0 %
(2.4)
(0.2)
(12.7)
6.2
0.8
0.3
13.0 %
The Company’s effective tax rate is impacted by the geographic distribution of the Company’s world-wide
earnings in lower-tax jurisdictions, federal research tax credits and the recognition of excess tax benefits related to share-
based payments. These benefits were partially offset by foreign income subject to U.S. tax, known as global intangible
low-taxed income. The Company’s primary jurisdiction where foreign earnings are derived is the Cayman Islands, which
is a non-taxing jurisdiction. Income earned in other foreign jurisdictions was not material. The Company has not been
granted any incentivized tax rates and does not operate under any tax holidays in any jurisdiction.
The components of the net deferred income tax assets (liabilities) were as follows:
(In thousands)
Deferred tax assets:
Other reserves and accruals ……………………………………………………………………….
Tax credit carry-forwards …………………………………………………………………………
Stock compensation ……………………………………………………………………………….
Capital losses ……………………………………………………………………………..……….
Net operating loss ……………………………………………………………………………..…..
Other ……………………………………………………………………………..………………..
Valuation allowance ………………………………………………………………………………
$
Deferred tax liabilities:
Depreciation ………………………………………………………………………………………
Net deferred tax assets …………………………………………………………………………….
$
December 31,
2021
2020
$
17,193
23,647
1,278
159
2,370
692
(27,085)
18,254
(1,750)
(1,750)
16,504
$
3,707
20,713
1,494
158
2,303
1,023
(24,160)
5,238
(1,974)
(1,974)
3,264
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that
some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities and projected future taxable income. In the event
56
that the Company determines, based on available evidence and management judgment, that all or part of the net deferred
tax assets will not be realized in the future, the Company would record a valuation allowance in the period the
determination is made. In addition, the calculation of tax liabilities involves significant judgment in estimating the impact
of uncertainties in the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with the
Company’s expectations could have a material impact on its results of operations and financial position.
As of December 31, 2021, the Company continues to maintain a valuation allowance primarily as a result of
capital losses for federal purposes, and on its California, New Jersey and Canada deferred tax assets as the Company
believes that it is not more likely than not that the deferred tax assets will be fully realized.
As of December 31, 2021, the Company had utilized all of its federal research and development tax credit
carryforwards. As of December 31, 2021, the Company had California research and development tax credit carryforwards
of approximately $33.9 million (there is no expiration of research and development tax credit carryforwards for the state
of California) and California net operating losses of $45.6 million which will begin to expire in 2032. As of December 31,
2021, the Company had Canadian scientific research and experimental development tax credit carryforwards of
approximately $3.9 million and New Jersey research and experimental development tax credit carryforwards of
approximately $0.8 million, which will start to expire in 2030 and 2026, respectively.
The Tax Act signed into law on December 22, 2017, generally allows companies to repatriate accumulated
foreign earnings without incurring additional U.S. federal taxes beginning after December 31, 2017. Local foreign and
U.S. states taxes may still be incurred upon repatriation. The Company has not provided for U.S. taxes on its undistributed
earnings of foreign subsidiaries. The determination of the future tax consequences of the remittance of these earnings is
not practicable.
Unrecognized Tax Benefits
The Company applies the provisions of ASC 740-10, relating to accounting for uncertain income taxes.
Reconciliation of the beginning and ending amount of unrecognized tax benefits:
(In thousands)
Unrecognized Tax Benefits Balance at January 1, 2019 ……………………………………………………………..
Gross Increase for Tax Positions of Current Year …………………………………………………………………...
Gross Decrease for Tax Positions of Prior Years ……………………………………………………………………
Unrecognized Tax Benefits Balance at December 31, 2019 …………………………………………………………
Gross Increase for Tax Positions of Current Year …………………………………………………………………...
Gross Decrease for Tax Positions of Prior Years ……………………………………………………………………
Unrecognized Tax Benefits Balance at December 31, 2020 …………………………………………………………
Gross Increase for Tax Positions of Current Year …………………………………………………………………...
Gross Decrease for Tax Positions of Prior Years ……………………………………………………………………
Unrecognized Tax Benefits Balance at December 31, 2021 …………………………………………………………
$
Unrecognized
Tax Benefits
18,607
1,379
(937)
19,049
2,002
—
21,051
2,068
(1,756)
21,363
$
The Company’s total unrecognized tax benefits as of December 31, 2021, 2020 and 2019, were $21.4 million,
$21.1 million and $19.0 million, respectively. An income tax benefit of $10.6 million, net of valuation allowance
adjustments, would be recorded if these unrecognized tax benefits are recognized. The Company cannot reasonably
estimate the amount of the unrecognized tax benefit that could be adjusted in the next twelve months.
The Company’s continuing practice is to recognize interest and/or penalties related to income tax matters in
income tax expense. The Company had accrued interest and penalties of $0.8 million and $0.1 million as of December 31,
2021 and 2020, respectively, which have been recorded in long-term income taxes payable in the accompanying
consolidated balance sheets.
As of December 31, 2021, the Company has concluded all U.S. federal income tax matters for the years through
2012. However, due to tax attributes, the IRS may calculate tax adjustments for subsequent years for positions taken prior
to 2012. As of December 31, 2021, the Company’s 2018 and 2019 tax years are under audit by the California Franchise
Tax Board.
57
12. LEASES AND COMMITMENTS:
Facilities and Leases
The Company owns its main executive, administrative, manufacturing and technical offices in San Jose,
California. The Company also owns a research and development facility in New Jersey, a design center in Germany and a
multipurpose office building in Switzerland. The Company’s leases consist of operating leases for administrative office
spaces, research-and-development facilities and sales offices in various countries around the world. The Company
determines if an arrangement is a lease at inception. Some lease agreements contain lease and non-lease components,
which are accounted for as a single lease component. Total lease expense was $3.3 million, $2.7 million and $2.5 million
in the years ended December 31, 2021, 2020 and 2019, respectively, while short-term and variable lease expenses were
not material during these periods.
Balance sheet information related to leases was as follows:
(In thousands)
Right-of-use assets
Operating lease assets .………………………………….. Other assets
Balance Sheet Classification
Lease liabilities
Current operating lease liabilities .……………………… Other accrued liabilities
Non-current operating lease liabilities …………………. Other liabilities
Total……………………………………………………
December 31, December 31,
2021
2020
$
$
$
11,887 $
10,295
3,050 $
8,371
11,421 $
2,682
7,345
10,027
Initial lease terms are determined at commencement and may include options to extend or terminate the lease
when it is reasonably certain the Company will exercise the option. Remaining lease terms range from one to eight years,
some of which include options to extend for up to six years, and some of which include options to terminate within
one year. Leases with an initial term of twelve months or less are not recorded on the balance sheet. As the Company’s
leases do not provide an implicit rate, the present value of future lease payments is determined using the Company’s
incremental borrowing rate based on information available at commencement date.
Lease term and discount rate
Weighted average remaining lease term …………………………………………………………
Weighted average discount rate ………………………………………………………………….
2021
4.2 years
3.3 %
2020
4.2 years
3.3 %
December 31,
December 31,
Supplemental cash flows information related to leases was as follow:
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Year Ended December 31,
2021
2020
Operating cash flows from operating leases ……………………………………………………..
Right-of-use assets obtained in exchange for new operating lease obligations …………………...
$
$
3,538
5,225
$
$
2,459
2,947
Future minimum lease payments under all non-cancelable lease agreements as of December 31, 2021, are as
follows:
(In thousands)
2022 ………………………………………………………………….………………………….……………………
2023 ………………………………………………………………….………………………….……………………
2024 ………………………………………………………………….………………………….……………………
2025 ………………………………………………………………….………………………….……………………
2026 ………………………………………………………………….………………………….……………………
Thereafter ………………………………………………………………….………………………….……………...
Total future minimum lease payments ………………………………………………………………….………….
Less imputed interest ………………………………………………………………….………………………….…..
Total ………………………………………………………………….………………………….………………….
$
$
2021
3,472
3,672
2,294
1,047
669
1,339
12,493
(1,072)
11,421
December 31,
58
Purchase Obligations
At December 31, 2021, the Company had no non-cancelable purchase obligations that were due beyond one year.
13. LEGAL PROCEEDINGS AND CONTINGENCIES:
From time to time in the ordinary course of business, the Company becomes involved in lawsuits, or customers
and distributors may make claims against the Company. In accordance with ASC 450-10, Contingencies, the Company
makes a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can
be reasonably estimated.
On April 1, 2016, Opticurrent, LLC filed a complaint against the Company in the United States District Court for
the Eastern District of Texas alleging that the Company infringed one patent pertaining to transistor switch devices and
seeking damages for the alleged infringement. The Company filed a motion to transfer the case to the Northern District of
California, which the Court granted, and the case was assigned to a new judge in San Francisco following the transfer. On
December 21, 2018, the Court granted the Company’s challenge to Opticurrent’s damages expert but denied the
Company’s motion for summary judgment. Following a trial in February 2019, a jury issued a finding of direct
infringement by the Company but found that the Company did not induce infringement, and awarded Opticurrent damages
of $6.7 million. The Company challenged those findings in post-trial proceedings, and the Court granted one of the
Company’s post-trial motions, reducing the damages award to $1.2 million. The Court of Appeals affirmed the original
findings and the reduced damages award, but the Company believes Opticurrent made key disclaimers during
reexamination proceedings after the original trial, giving rise to a motion to set aside the original judgment in view of a
disclaimer, an issue that is currently on appeal to the Federal Circuit. Briefing and oral argument on the Company’s appeal
are completed, with a ruling expected in the coming months. The District Court has issued an order staying execution on
the original judgment pending the Company’s appeal, and the Federal Circuit rejected Opticurrent’s challenge to the order
staying execution pending appeal. As such, the Company continues to believe it has strong defenses, and intends to
continue to vigorously defend itself against Opticurrent’s claims.
On June 19, 2019, Opticurrent, LLC filed a follow-on lawsuit in the United States District Court for the Northern
District of California accusing more of the Company’s products of infringement and seeking damages for the alleged
infringement of the same claim of the same patent asserted in the parties’ prior litigation, as described above. Limited
discovery has taken place, but proceedings are currently stayed for all but written discovery; no schedule has yet been set
for expert discovery, dispositive motions, or trial. The Company believes it has strong defenses, independent of the issue
on appeal in the first case, and intends to vigorously defend itself against Opticurrent’s claims, with appeals to follow if
necessary.
On May 10, 2021, Opticurrent, LLC filed another follow-on lawsuit in the United States District Court for the
Eastern District of Texas accusing one of the Company’s customers of infringement based on the use of the Company’s
products and seeking damages for the alleged infringement of the same claim of the same patent asserted in the parties’
prior litigation, as described above. The case is at the pleadings stage, but the Company believes it has strong defenses,
independent of the issue on appeal in the parties’ first case, and intends to vigorously defend against Opticurrent’s claims
against the Company’s technology, with appeals to follow if necessary.
On January 6, 2020, the Company filed a complaint against CogniPower LLC in the United States District Court
for the District of Delaware for infringement of two of the Company’s patents and seeking a declaration of non-
infringement with respect to patents that CogniPower had charged the Company’s customers with infringing, based on
customer use of the Company’s products. In response, CogniPower filed a motion to dismiss the Company’s declaratory
judgment claims on the basis that CogniPower had not threatened the Company directly with suit. That motion was granted,
so CogniPower’s claims for infringement initially went forward separately in their lawsuit against the Company’s
customers in the District of Delaware, but the Company filed a motion to intervene in that lawsuit and received a ruling
allowing the Company to intervene in CogniPower’s customer lawsuit on February 1, 2021. The Company believes it has
strong claims and defenses, and intends to vigorously defend itself against CogniPower’s claims against the Company’s
technology, with appeals to follow if necessary. Moreover, given the United States Patent and Trademark Office’s
institution of inter partes review proceedings against every independent claim CogniPower asserted in the litigation, the
parties have agreed to stay the associated District Court litigation pending resolution of the IPRs.
The Company is unable to predict the outcome of legal proceedings with certainty, and there can be no assurance
that the Company will prevail in the above-mentioned unsettled litigations. These litigations, whether or not determined
59
in the Company’s favor or settled, will be costly and will divert the efforts and attention of the Company’s management
and technical personnel from normal business operations, potentially causing a material adverse effect on the business,
financial condition and operating results. Currently, the Company is not able to estimate a loss or a range of loss for the
ongoing litigation disclosed above, however adverse determinations in litigation could result in monetary losses, the loss
of proprietary rights, subject the Company to significant liabilities, require the Company to seek licenses from third parties
or prevent the Company from licensing the technology, any of which could have a material adverse effect on the
Company’s business, financial condition and operating results.
14. RETIREMENT PLANS:
The Company sponsors a defined benefit pension plan (Pension Plan) for its Swiss subsidiary in accordance with
the legal requirements of Switzerland. The plan assets, which provide benefits in the event of an employee’s retirement,
death or disability, are held in legally autonomous trustee-administered funds that are subject to Swiss law. Benefits are
based on the employee’s age, years of service and salary, and the plan is financed by contributions by both the employee
and the Company.
The net periodic benefit cost of the Pension Plan was not material to the Company’s financial statements during
the years ended December 31, 2021, 2020 and 2019. At December 31, 2021, the projected benefit obligation was $15.5
million, the plan assets were $9.5 million and the net pension liability was $6.0 million. As of December 31, 2020, the
projected benefit obligation was $16.6 million, the plan assets were $9.7 million, and the net pension liability was $6.9
million. The Company has recorded the unfunded amount as a liability in its consolidated balance sheet at December 31,
2021 and 2020, under the other liabilities caption. The Company expects to make contributions to the Pension Plan of
approximately $0.4 million during 2022. The unrealized actuarial loss on pension benefits, net of tax, at December 31,
2021, 2020 and 2019 was $0.7 million, $1.6 million and $2.5 million, respectively. These amounts were reflected in Note 3
under the caption accumulated other comprehensive loss.
In accordance with the Compensation-Retirement Benefits Topic of ASC 715-20, Defined Benefits Plan, the
Company recognizes the over-funded or under-funded status of its defined post-retirement plan as an asset or liability in
its statement of financial position. The Company measured the plan assets and benefit obligations as of the date of the
fiscal year-end.
15. BANK LINE OF CREDIT:
On July 27, 2016, the Company entered into a credit agreement with Wells Fargo Bank, National Association
(the "Credit Agreement") that provides the Company with a $75.0 million revolving line of credit to use for general
corporate purposes with a $20.0 million sub-limit for the issuance of standby and trade letters of credit. The Credit
Agreement was amended on April 30, 2018, to extend the termination date from July 26, 2019, to April 30, 2022, with all
other terms remaining the same. The Credit Agreement was amended on June 7, 2021, to provide an alternate borrowing
rate as a replacement for LIBOR and extend the termination date from April 30, 2022, to June 7, 2026, with all other terms
remaining the same.
The Company’s ability to borrow under the revolving line of credit is conditioned upon the Company’s
compliance with specified covenants, including reporting and financial covenants, primarily a minimum cash requirement
and a debt to earnings ratio. The Credit Agreement terminates on June 7, 2026; all advances under the revolving line of
credit will become due on such date, or earlier in the event of a default. The Company was compliant with all covenants
and had no advances outstanding under the Credit Agreement as of December 31, 2021.
60
Schedule II
Valuation and Qualifying Accounts
The Company maintains an allowance for the distributors’ ship and debit credits relating to the sell-through of
the Company’s products. This reserve is established using the Company’s historical ship and debit amounts and levels of
inventory in the distributor channels.
The following is a summary of the activity in the allowance for ship and debit credits:
(In thousands)
Allowance for ship and debit credits:
Year ended December 31, 2019 …………………………………….
$
Year ended December 31, 2020 ……………………………………. $
Year ended December 31, 2021 ……………………………………. $
Balance at Charged to
Beginning of Costs and
Period
Expenses Deductions (1)
Balance at End
of Period
40,118 $ 230,278 $
33,475 $ 257,765 $
26,435 $ 311,443 $
(236,921) $
(264,805) $
(296,279) $
33,475
26,435
41,599
(1) Deductions relate to ship and debit credits issued which adjust the sales price from the standard distribution price to
the pre-approved lower price. Refer to Note 2, Significant Accounting Policies and Recent Accounting
Pronouncements, for the Company’s revenue recognition policy, including the Company’s accounting for ship and
debit claims.
61
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Management is required to evaluate our disclosure controls and procedures, as defined in Rule 13a-15(e) under
the Securities Exchange Act of 1934, as amended, or the Exchange Act. Disclosure controls and procedures are controls
and other procedures designed to provide reasonable assurance that information required to be disclosed in our reports
filed under the Exchange Act, such as this Annual Report on Form 10-K, is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and
procedures include controls and procedures designed to provide reasonable assurance that such information is accumulated
and communicated to our management, including our Chief Executive Officer and Chief Financial Officer as appropriate
to allow timely decisions regarding required disclosure. Our disclosure controls and procedures include components of
our internal control over financial reporting, which consists of control processes designed to provide reasonable assurance
regarding the reliability of our financial reporting and the preparation of financial statements in accordance with generally
accepted accounting principles in the U.S. To the extent that components of our internal control over financial reporting
are included within our disclosure controls and procedures, they are included in the scope of our periodic controls
evaluation. Based on our management’s evaluation (with the participation of our principal executive officer and principal
financial officer), our principal executive officer and principal financial officer have concluded that our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective as of the end of the
period covered by this report.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting,
as defined in Rule 13a-15(f) under the Exchange Act. Internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
reporting purposes in accordance with generally accepted accounting principles. Internal control over financial reporting
includes those policies and procedures that:
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of our assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles and that receipts and
expenditures are being made only in accordance with authorizations of our management and
directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use
or disposition of our assets that could have a material effect on the financial statements.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting
objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human
diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Because of
such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal
control over financial reporting.
Management conducted an assessment of Power Integrations’ internal control over financial reporting as of
December 31, 2021, based on the framework established by the Committee of Sponsoring Organization (COSO) of the
Treadway Commission in Internal Control - Integrated Framework issued in 2013. Based on this assessment, management
concluded that, as of December 31, 2021, our internal control over financial reporting was effective.
The effectiveness of Power Integrations’ internal control over financial reporting as of December 31, 2021, has
been audited by Deloitte & Touche LLP (PCAOB ID No. 34), an independent registered public accounting firm, as stated
in their report which appears below.
Changes in Internal Control over Financial Reporting
There were no changes in our internal controls over financial reporting during the fourth quarter of 2021, which
were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under
the Exchange Act, that have materially affected or are reasonably likely to materially affect our internal control over
financial reporting.
62
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Power Integrations, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Power Integrations, Inc. and subsidiaries (the “Company”)
as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria
established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2021, of the Company
and our report dated February 7, 2022 expressed an unqualified opinion on those consolidated financial statements.
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 internal control over financial reporting, included in the accompanying Management’s
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion 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 be independent with respect to the Company in accordance with the U.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 assurance about 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 the design and operating effectiveness of internal
control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.
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 the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations 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 effectiveness to 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 or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
February 7, 2022
63
Item 9B. Other Information.
Compensation Matters
On February 2, 2022, the Compensation Committee of the Board of Directors of Power Integrations, Inc. (the
“Company”) took the following compensation actions with respect to the Company’s chief executive officer, chief
financial officer, and other “named executive officers” as defined in Rule 402 of SEC Regulation S-K (collectively, the
“Officers”).
2022 Performance-based Incentive Plan
Approved the 2022 Performance-based Incentive Plan (the “2022 PSU Plan”) as follows:
Each Officer, as described below, was granted performance stock units, referred to as “PSUs,” which will vest
(referred to as a “payout” below) based on Company performance as against the 2022 PSU Plan’s established net revenue
targets, non-GAAP operating income targets and strategic goals, each as established by the Compensation Committee. The
2022 target net revenue and non-GAAP operating income levels are intended to have difficulty in attainment levels
consistent with the Company’s 2021 PSU Plan.
The portion of the performance stock units granted under the 2022 PSU Plan that will vest will be calculated
independently for each of its net revenue, non-GAAP operating income and strategic goals components. “Net revenue” is
as set forth in the Company’s annual report for 2022 to be filed with the Securities and Exchange Commission (“SEC”).
“Non-GAAP operating income” means operating income for 2022 determined in accordance with GAAP but excluding
the following items: (i) stock-based compensation expenses recorded under Accounting Standards Codification 718;
(ii) amortization of acquisition-related intangible assets, and the fair-value write-up of acquired inventory; (iii) any other
mergers and acquisitions related expenses; and (iv) any other adjustment made to arrive at the Company’s non-GAAP
financial information as presented in the Company’s SEC filings. Further, in the event of any mergers, acquisitions or
divestitures, or any patent or other litigation settlements or judgments, during the performance period, the net revenue and
non-GAAP operating income targets shall be adjusted based on a revised plan approved by the Board of Directors. The
strategic goals component is made up of five different strategic goals for the Company.
Weighting of the target components is as follows:
Net revenue……………………………………….…………………………………….……………………………
Non-GAAP operating income……………………………………….…………………………………….…………
Strategic goals……………………………………….…………………………………….…………………………
Total……………………………………….…………………………………….…………………………………
40 %
30 %
30 %
100 %
Net Revenue Component of the 2022 PSU Plan:
No payout will be made under the net revenue component of the 2022 PSU Plan if the Company’s 2022 actual
net revenue or relative revenue growth does not exceed at least the established minimum amount as set forth in the 2022
PSU Plan. To the extent 2022 actual net revenue or relative revenue growth is above the minimum amount, the payout
increases linearly from zero at the minimum amount of net revenue or relative revenue growth as set forth in the 2022 PSU
Plan up to 100% of the net revenue component of the target when actual net revenue equals target net revenue or relative
revenue growth equals target relative revenue growth in the 2022 PSU Plan. If 2022 actual net revenue or relative revenue
growth is above the target amount of net revenue or relative revenue growth, then the payout for performance above target
increases linearly from the target amount up to a maximum of 200% of the net revenue component of the target when
actual net revenue or relative revenue growth equals or exceeds the established target to achieve the maximum payout
under the net revenue component of the 2022 PSU Plan.
Non-GAAP Operating Income Component of the 2022 PSU Plan:
No payout will be made under the non-GAAP operating income component of the 2022 PSU Plan if the
Company’s 2022 actual non-GAAP operating income does not exceed at least the established minimum amount of non-
GAAP operating income as set forth in the 2022 PSU Plan. To the extent 2022 actual non-GAAP operating income is
above the minimum amount of non-GAAP operating income, the payout increases linearly from zero at the minimum
amount of non-GAAP operating income as set forth in the 2022 PSU Plan up to 100% of the non-GAAP operating income
component of the target when actual non-GAAP operating income equals target non-GAAP operating income in the 2022
64
PSU Plan. If 2022 actual non-GAAP operating income is above the target amount of non-GAAP operating income, then
the payout for performance above target increases linearly from the target amount up to a maximum of 200% of the non-
GAAP operating income component of the target when actual non-GAAP operating income equals or exceeds the
established target to achieve the maximum payout under the non-GAAP operating income component of the 2022 PSU
Plan.
Strategic Goals Component of the 2022 PSU Plan:
Each of the five goals in the strategic goals component of the 2022 PSU Plan is assigned a weighting percentage,
which percentages range from 2% to 18%, and which collectively add up to 30%. If the Company’s 2022 actual
achievement of a goal does not exceed at least the established minimum requirement for a particular goal, then no amount
is earned for that goal. To the extent 2022 actual performance for a goal is better than the established minimum for the
goal, then the payout increases linearly from zero at the minimum amount of performance as set forth in the 2022 PSU
Plan up to 100% of the amount for that goal when actual performance equals target performance for that goal in the 2022
PSU Plan. To the extent 2022 actual performance for a goal is better than the established target for the goal, then the payout
for performance above target increases linearly from the target amount actual performance, up to a maximum of 200% for
the specific goal when actual performance equals or exceeds the established target to achieve the maximum payout under
the specific goal as set forth in the 2022 PSU Plan.
2022 Target Performance Stock Units
Approved the 2022 target performance stock units for the Officers as follows:
Executive Officer
Balu Balakrishnan ………………………….. President and Chief Executive Officer
Sandeep Nayyar .…………………………… Chief Financial Officer
Radu Barsan………………………………… Vice President, Technology
David “Mike” Matthews …………………… Vice President, Product Development
Title
2022 Target PSUs
12,000
4,000
3,500
2,500
The actual number of shares subject to the performance stock units is twice the target level shown in the table
above to enable the payout of up to 200% of the target amount if the actual net revenue, non-GAAP operating income and
strategic goals achievement equal or exceed the established levels to achieve the maximum amount of the 2022 PSU Plan.
2022 Restricted Stock Unit Grants
Approved restricted stock units, referred to as “RSUs,” grants to the following Officers:
Executive Officer
Balu Balakrishnan ..………………………… President and Chief Executive Officer
Sandeep Nayyar .…………………………… Chief Financial Officer
Radu Barsan………………………………… Vice President, Technology
David “Mike” Matthews …………………… Vice President, Product Development
Title
2022 RSU Grants
34,000
13,500
10,800
8,400
The RSU grants will be effective on the grant date. Twenty-five percent (25%) of the RSUs vest on the one-year
anniversary of the vesting commencement date (as specified in the Officers’ RSU award agreements), and an additional
twenty-five percent (25%) of the RSUs vest annually over the next three (3) years thereafter, subject to the respective
Officer’s continuous service.
2022 Long-term Performance-Based Incentive Plan
Approved the 2022 Long-term Performance-Based Incentive Plan (“2022 PRSU Plan”) as follows:
Each Officer, as described below, was granted long term performance stock units, referred to as “PRSUs,” which
will vest (referred to as a “payout” below) based on Company revenue performance as against the 2022 PRSU Plan’s
established three-year (years 2022, 2023 and 2024) compound annual growth rate (“CAGR”) of revenue as measured
against a specified index of the analog semiconductor industry CAGR (the “Index”). The level of performance of the
Company’s three-year revenue CAGR as against the Index is intended to have a difficulty in attainment level consistent
with the Company’s 2021 PRSU Plan. The portion of the performance stock units that will vest will be calculated based
65
on the Company’s actual three-year revenue CAGR as compared to the Index and awarded in early 2025 upon approval
by the Compensation Committee. In the event of any mergers, acquisitions or divestitures, or any patent or other litigation
settlements or judgments, during the performance period, the Company’s target three-year revenue CAGR as against the
Index shall be adjusted based on a revised plan approved by the Board of Directors.
No payout will be made in early 2025 under the 2022 PRSU Plan if the Company’s actual three-year revenue
CAGR does not exceed at least the established minimum amount as measured against the Index as set forth in the 2022
PRSU Plan. To the extent the Company’s actual three-year revenue CAGR exceeds at least the established minimum
amount as measured against the Index as set forth in the 2022 PRSU Plan, the payout increases linearly from zero at the
minimum CAGR performance level as measured against the Index as set forth in the 2022 PRSU Plan up to 100% when
the Company’s actual three-year revenue CAGR equals the target at the specified level as set forth in the 2022 PRSU Plan.
If the Company’s actual three-year revenue CAGR exceeds the target, then the payout for performance above target
increases linearly from the target amount up to a maximum of 200% of the target when the Company’s actual three-year
revenue CAGR equals or exceeds the established amount to achieve the maximum payout as set forth in the 2022 PRSU
Plan. Except to the extent provided in the executive officer benefits agreements between the Company and each Officer,
each Officer must be employed by the Company through the end of the performance period to receive stock pursuant to
the PRSUs under the 2022 PRSU Plan.
2022 Target PRSUs
Approved the target 2022 PRSUs for the Officers as follows:
Executive Officer
Balu Balakrishnan ..………………………… President and Chief Executive Officer
Sandeep Nayyar .…………………………… Chief Financial Officer
Radu Barsan………………………………… Vice President, Technology
David “Mike” Matthews …………………… Vice President, Product Development
Title
2022 Target PRSUs
34,000
4,500
3,600
2,800
The actual number of shares subject to the PRSUs is twice the target level shown in the table above to enable the
payout of up to 200% of the target amount if actual net revenue equals or exceeds the established level to achieve the
maximum amount of the 2022 PRSU Plan.
2022 Salaries
Approved the 2022 salaries for the Officers, to be effective at the end of March 2022, as follows:
Executive Officer
Balu Balakrishnan ..………………………… President and Chief Executive Officer
Sandeep Nayyar .…………………………… Chief Financial Officer
Radu Barsan………………………………… Vice President, Technology
David “Mike” Matthews …………………… Vice President, Product Development
Title
$
$
$
$
2022 Salary
695,000
430,000
400,000
365,000
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
66
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The names of our executive officers and their ages, titles and biographies as of the date hereof are set forth under
the caption “Information About our Executive Officers” in Part I, Item 1, above.
The following information is included in our Notice of Annual Meeting of Stockholders and Proxy Statement to
be filed within 120 days after our fiscal year end of December 31, 2021, or the Proxy Statement, and is incorporated herein
by reference:
Information regarding our directors and any persons nominated to become a director is set forth under
the caption “Proposal 1 Election of Directors.”
Information regarding our audit committee and our designated “audit committee financial expert” is set
forth under the captions “Information Regarding the Board and its Committees” and “Audit Committee”
under “Proposal 1 Election of Directors” and “Report of the Audit Committee of the Board.”
Information on our code of business conduct and ethics for directors, officers and employees is set forth
under the caption “Code of Business Conduct and Ethics” under “Proposal 1 Election of Directors.”
Information regarding Section 16(a) beneficial ownership reporting compliance, if any, will be set forth
under the caption “Delinquent Section 16(a) Reports.”
Information regarding procedures by which stockholders may recommend nominees to our board of
directors is set forth under the caption “Nominating and Governance Committee” under “Proposal 1
Election of Directors.”
Item 11. Executive Compensation.
Information regarding compensation of our named executive officers is set forth under the caption “Compensation
of Executive Officers” in the Proxy Statement, which information is incorporated herein by reference.
Information regarding compensation of our directors is set forth under the caption “Compensation of Directors”
in the Proxy Statement, which information is incorporated herein by reference.
Information relating to compensation policies and practices as they relate to risk management is set forth under
the caption “Compensation Policies and Practices as They Relate to Risk Management” under “Proposal 1 Election of
Directors” in the Proxy Statement, which information is incorporated herein by reference.
Information regarding compensation committee interlocks is set forth under the caption "Compensation
Committee Interlocks and Insider Participation" in the Proxy Statement, which information is incorporated herein by
reference.
The Compensation Committee Report is set forth under the caption “Compensation Committee Report” in the
Proxy Statement, which report is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Information regarding security ownership of certain beneficial owners, directors and executive officers is set forth
under the caption “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement, which
information is incorporated herein by reference.
Information regarding our equity compensation plans, including both stockholder approved plans and non-
stockholder approved plans, is set forth under the caption “Equity Compensation Plan Information” in the Proxy Statement,
which information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information regarding certain relationships and related transactions is set forth under the caption “Certain
Relationships and Related Transactions” in the Proxy Statement, which information is incorporated herein by reference.
Information regarding director independence is set forth under the caption “Proposal 1 - Election of Directors” in
the Proxy Statement, which information is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services.
Information regarding principal auditor fees and services is set forth under “Principal Accountant Fees and
Services” in the Proposal with the caption “Ratification of Selection of Independent Registered Public Accounting Firm”
in the Proxy Statement, which information is incorporated herein by reference.
67
Item 15. Exhibits and Financial Statement Schedules
(a)
PART IV
1. The financial statements required by Item 15(a) are included in Item 8 of this Annual Report on Form 10-K.
2. The financial statement schedule required by Item 15(a) (Schedule II, Valuation and Qualifying Accounts) is
included in Item 8 of this Annual Report on Form 10-K.
All other schedules are omitted because they are not applicable or the required information is shown in the
consolidated financial statements or notes thereto.
(b) Exhibits
Exhibit
Number
Exhibit Description
Form
Incorporation by Reference
Exhibit/Appendix
Reference
File
Number
Filing Date
Filed
Herewith
3.1 Restated Certificate of Incorporation
10-K
000-23441
3.2 Amended and Restated Bylaws
8-K
000-23441
4.1 Description of Power Integrations, Inc.
10-K
000-23441
Common Stock
3.1
3.1
4.1
2/29/2012
4/26/2013
2/6/2020
4.2 Reference is made to Exhibits 3.1 to 3.2
10.1* Form of Indemnity Agreement for directors
S-1
333-35421
10.1
9/11/1997
and officers
10.2* Power Integrations, Inc. Compliance Policy
10-K
000-23441
10.63
3/2/2009
Regarding IRC Section 409A
10.3* 1997 Employee Stock Purchase Plan, as
10-Q
000-23441
10.1
7/29/2021
amended
10.4* Forms of agreement under 1997 Employee
S-1
333-35421
10.5
9/11/1997
Stock Purchase Plan
10.5* 1997 Outside Directors Stock Option Plan
10-Q
000-23441
10.6* Forms of agreement under 1997 Outside
S-1
333-35421
Directors Stock Option Plan
10.7* Form of Director Option Grant Agreement.
10-Q
000-23441
10.8* Director Equity Compensation Program
10-K
000-23441
10.9* Forms of Stock Option Agreements to be
10-Q
000-23441
used in Director Equity Compensation
Program
10.2
10.4
10.9
10.1
10.5
10/29/2020
9/11/1997
5/6/2009
2/7/2020
11/7/2008
10.10* Outside Director Cash Compensation
10-K
000-23441
10.12
2/7/2020
Arrangements
10.11* 2007 Equity Incentive Plan, as amended and
10-Q
000-23441
10.3
10/29/2020
restated
68
Filed
Herewith
X
Exhibit
Number
Exhibit Description
Form
Incorporation by Reference
Exhibit/Appendix
Reference
File
Number
Filing Date
10.12* Forms of Option Agreements under the 2007
Schedule TO 000-23441
99.(D)(4)
12/3/2008
Equity Incentive Plan
10.13* Power Integrations, Inc. Amended and
10-Q
000-23441
10.2
7/29/2021
Restated 2016 Incentive Award Plan
10.14* Form of Restricted Stock Unit Grant Notice
10-K
000-23441
10.25
2/8/2017
and Agreement under the 2016 Incentive
Award Plan
10.15* Form of Performance Stock Unit Notice and
Agreement under the 2016 Equity Incentive
Plan
10.16* Form of Long Term Performance Stock Unit
Notice and Agreement under the 2016 Equity
Incentive Plan
10-K
000-23441
10.26
2/8/2017
10.17† Wafer Supply Agreement between us and
10-Q
000-23441
10.32
8/7/2003
ZMD Analog Mixed Signal Services GmbH
& Co. KG, dated as of May 23, 2003
10.18† Amended and Restated Wafer Supply
10-Q
000-23441
10.31
8/7/2003
Agreement between us and OKI Electric
Industry Co., Ltd., dated as of April 1, 2003
10.19† Amendment Number One to the Amended
8-K
000-23441
10.22
4/18/2006
and Restated Wafer Supply Agreement
between us and OKI Electric Industry Co.,
Ltd., effective as of August 11, 2004
10.20 Amendment Number Two to the Amended
10-Q
000-23441
10.5
8/8/2008
and Restated Wafer Supply Agreement
between Power Integrations International,
Ltd. and OKI Electric Industry Co., Ltd.,
effective as of April 1, 2008
10.21 Amendment Number Three to the Amended
and Restated Wafer Supply Agreement
between Power Integrations International,
Ltd. and OKI Electric Industry Co., Ltd.,
effective as of June 9, 2008
10-Q
000-23441
10.6
8/8/2008
10.22† Amendment Number Four to the Amended
10-Q
000-23441
10.2
11/7/2008
and Restated Wafer Supply Agreement
between Power Integrations International,
Ltd. and OKI Electric Industry Co., Ltd.,
dated September 15, 2008
10.23† Amendment Number Five to the Amended
10-K
000-23441
10.61
3/2/2009
and Restated Wafer Supply Agreement
between Power Integrations International,
Ltd. and OKI Semiconductor Co., Ltd.,
effective as of November 14, 2008
69
Exhibit
Number
Exhibit Description
Form
Incorporation by Reference
Exhibit/Appendix
Reference
File
Number
Filing Date
Filed
Herewith
10.24† Amendment Number Six to the Amended and
10-K
000-23441
10.32
2/11/2016
Restated Wafer Supply Agreement between
Power Integrations International, Ltd. and
OKI Semiconductor Co., Ltd., effective as of
November 1, 2015
10.25† Amendment Number Seven to the Amended
10-Q
000-23441
10.1
11/1/2016
and Restated Wafer Supply Agreement
between Power Integrations International,
Ltd. and OKI Semiconductor Co., Ltd.,
effective as of August 8, 2016
10.26† Amendment Number Eight to the Amended
10-Q
000-23441
10.1
10/26/2017
and Restated Wafer Supply Agreement
between Power Integrations International,
Ltd. and OKI Semiconductor Co., Ltd.,
effective as of July 26, 2017
10.27†† Amendment Number Nine to the Amended
10-Q
000-23441
10.2
4/25/2019
and Restated Wafer Supply Agreement,
between Power Integrations International,
Ltd. and Lapis Semiconductor Co., Ltd.
(formerly OKI Semiconductor Co., Ltd.),
effective as of February 6, 2019
10.28† Wafer Supply Agreement, between Seiko
Epson Corporation and Power Integrations
International, Ltd. effective as of April 1,
2005
10-Q
000-23441
10.1
11/7/2008
10.29† Amendment Number One to the Wafer
10-Q
000-23441
10.1
5/6/2009
Supply Agreement between Power
Integrations International, Ltd. and Seiko
Epson Corporation, with an effective date of
December 19, 2008
10.30† Amendment Number Two to Wafer Supply
Agreement, between Seiko Epson
Corporation and Power Integrations
International, Ltd., entered into on January 5,
2011
10.31† Amendment Number Three to Wafer Supply
Agreement, effective as of February 1, 2012,
by Power Integrations International Ltd. and
Seiko Epson Corporation
10-K
000-23441
10.47
2/25/2011
10-K
000-23441
10.35
2/5/2021
10.32† Development Addendum to Wafer Supply
10-K
000-23441
10.36
2/5/2021
Agreement, dated September 22, 2013,
between Seiko Epson Corporation and Power
Integrations International Ltd
10.33† Amendment Number Four to Wafer Supply
Agreement, effective as of April 1, 2015, by
Power Integrations International Ltd. and
Seiko Epson Corporation
10-K
000-23441
10.37
2/5/2021
70
Exhibit
Number
Exhibit Description
Form
Incorporation by Reference
Exhibit/Appendix
Reference
File
Number
Filing Date
Filed
Herewith
10.34† Amendment Number Five to Wafer Supply
10-K
000-23441
10.38
2/5/2021
Agreement, effective as of November 2,
2015, by Power Integrations International
Ltd. and Seiko Epson Corporation
10.35† Amendment Number Six to Wafer Supply
10-K
000-23441
10.39
2/5/2021
Agreement, effective as of December 8,
2015, by Power Integrations International
Ltd. and Seiko Epson Corporation
10.36† Amendment Number Seven to Wafer Supply
Agreement, effective as of October 3, 2016,
by Power Integrations International Ltd. and
Seiko Epson Corporation
10-K
000-23441
10.46
2/8/2017
10.37† Amendment Number Eight to Wafer Supply
10-K
000-23441
10.47
2/8/2017
Agreement, effective as of November 8, 2016
by Power Integrations International Ltd. and
Seiko Epson Corporation
10.38† Amendment Number One to the Amended
10-K
000-23441
10.66
2/26/2010
and Restated Wafer Supply Agreement
between Power Integrations International,
Ltd. and XFAB Dresden GmbH & Co. KG,
effective as of July 20, 2005
10.39† Wafer Supply Agreement, made and entered
10-Q
000-23441
10.2
5/8/2012
into as of October 1, 2010, by and between
Power Integrations International, Ltd., and X-
FAB Semiconductor Foundries AG
10.40† Amendment Number One to Wafer Supply
Agreement, effective as of January 1, 2014,
between Power Integrations International,
Ltd., and X-FAB Semiconductor Foundries
AG
10-Q/A
000-23441
10.2
9/19/2014
10.41† Amendment Number Two to the Wafer
10-K
000-23441
10.52
2/13/2019
Supply Agreement, effective as of December
1, 2018, between Power Integrations
International, Ltd., and X-FAB
Semiconductor Foundries GmbH (formerly
X-FAB Semiconductor Foundries AG)
10.42 Amendment Number Three to the Amended
and Restated Wafer Supply Agreement
between Power Integrations International,
Ltd. And X-FAB Semiconductor Foundries
AG, effective as of April 21, 2021
10-Q
000-23441
10.4
7/29/2021
10.43 Credit Agreement, dated July 27, 2016, by
10-Q
000-23441
10.1
7/29/2016
and between Power Integrations Inc. and
Wells Fargo Bank, National Association
71
Exhibit
Number
Exhibit Description
Form
Incorporation by Reference
Exhibit/Appendix
Reference
File
Number
Filing Date
Filed
Herewith
10.44 First Amendment to Credit Agreement, dated
April 30, 2018 by and between Power
Integrations, Inc. and Wells Fargo Bank,
National Association
10.45 Second Amendment to Credit Agreement,
dated June 7, 2021 by and between Power
Integrations, Inc. and Wells Fargo Bank,
National Association
10-Q
000-23441
10.1
7/26/2018
10-Q
000-23441
10.3
7/29/2021
10.46* 2019 Executive Officer Compensation
10-K
000-23441
Item 9B
2/13/2019
Arrangements and 2019 Performance Based
Incentive Plan
10.47* 2018 Executive Officer Cash Compensation
Arrangements and 2018 Performance Based
Incentive Plan
10-K
000-23441
Item 9B
2/14/2018
10.48* Form of Restricted Stock Unit Grant Notice
10-Q
000-23441
10.6
8/6/2010
and Form of Restricted Stock Unit Award
Agreement for executive officers for use
prior to January 2013
10.49* Form of Restricted Stock Unit Grant Notice
10-K
000-23441
10.48
2/22/2013
and Form of Restricted Stock Unit Award
Agreement for executive officers for use after
January 2013
10.50* Amended and Restated Chief Executive
10-Q
000-23441
10.3
5/5/2014
Officer Benefits Agreement, dated as of May
1, 2014, between Power Integrations, Inc. and
Balu Balakrishnan
10.51* Amended and Restated Executive Officer
10-Q
000-23441
10.5
5/5/2014
Benefits Agreement, dated as of May 1,
2014, between Power Integrations, Inc. and
Cliff Walker
10.52* Amended and Restated Executive Officer
10-Q
000-23441
10.6
5/5/2014
Benefits Agreement, dated as of May 1,
2014, between Power Integrations, Inc. and
Doug Bailey
10.53* Amended and Restated Executive Officer
10-Q
000-23441
10.7
5/5/2014
Benefits Agreement, dated as of May 1,
2014, between Power Integrations, Inc. and
Ben Sutherland
10.54* Amended and Restated Executive Officer
10-Q
000-23441
10.8
5/5/2014
Benefits Agreement, dated as of May 1,
2014, between Power Integrations, Inc. and
Sandeep Nayyar
10.55* Amended and Restated Executive Officer
10-Q
000-23441
10.10
5/5/2014
Benefits Agreement, dated as of May 1,
2014, between Power Integrations, Inc. and
Mike Matthews
72
Exhibit
Number
Exhibit Description
Form
Incorporation by Reference
Exhibit/Appendix
Reference
File
Number
Filing Date
Filed
Herewith
10.56* Amended and Restated Executive Officer
10-Q
000-23441
10.11
5/5/2014
Benefits Agreement, dated as of May 1,
2014, between Power Integrations, Inc. and
Radu Barsan
10.57†† ON Semiconductor Corporation Settlement
10-K
000-23441
10.61
2/7/2020
Agreement
10.58†† ON Semiconductor Corporation Term Sheet
10-K
000-23441
10.62
2/7/2020
10.59† Amendment Number Ten to the Amended
10-Q
000-23441
10.1
5/7/2020
and Restated Wafer Supply Agreement,
between Power Integrations International,
Ltd. and Lapis Semiconductor Co., Ltd.
(formerly OKI Semiconductor Co., Ltd.),
effective as of December 16, 2019
10.60† Amendment Number Eleven to the Amended
and Restated Wafer Supply Agreement,
between Power Integrations International,
Ltd. and Lapis Semiconductor Co., Ltd.
(formerly OKI Semiconductor Co., Ltd.),
effective as of December 20, 2019
10-Q
000-23441
10.2
5/7/2020
10.61††† Amendment Number Twelve to the Amended
10-Q
000-23441
10.1
4/29/2021
and Restated Wafer Supply Agreement,
between Power Integrations International,
Ltd. and Lapis Semiconductor Co., Ltd.
(formerly OKI Semiconductor Co., Ltd.),
effective as of September 17, 2020
10.62† Amendment Number Nine to Wafer Supply
10-Q
000-23441
10.3
5/7/2020
Agreement, effective as of November 1, 2017
by Power Integrations International Ltd. and
Seiko Epson Corporation
10.63* 2020 Compensation Arrangements with
10-K
000-23441
Item 9B
2/7/2020
Named Executive Officers
10.64* Amendment to the Amended and Restated
10-Q
000-23441
10.2
7/30/2020
Executive Officer Benefits Agreement, dated
as of June 1, 2020, between Power
Integrations, Inc. and Balu Balakrishnan
10.65* Amendment to the Amended and Restated
10-Q
000-23441
10.3
7/30/2020
Executive Officer Benefits Agreement, dated
as of June 1, 2020, between Power
Integrations, Inc. and Douglas Bailey
10.66* Amendment to the Amended and Restated
10-Q
000-23441
10.4
7/30/2020
Executive Officer Benefits Agreement, dated
as of June 1, 2020, between Power
Integrations, Inc. and Radu Barsan
73
Exhibit
Number
Exhibit Description
Form
Incorporation by Reference
Exhibit/Appendix
Reference
File
Number
Filing Date
10.67* Amendment to the Amended and Restated
10-Q
000-23441
10.5
7/30/2020
Executive Officer Benefits Agreement, dated
as of June 1, 2020, between Power
Integrations, Inc. and Ben Sutherland
10.68* Amendment to the Amended and Restated
10-Q
000-23441
10.6
7/30/2020
Executive Officer Benefits Agreement, dated
as of June 1, 2020, between Power
Integrations, Inc. and Mike Matthews
10.69* Amendment to the Amended and Restated
10-Q
000-23441
10.7
7/30/2020
Executive Officer Benefits Agreement, dated
as of June 1, 2020, between Power
Integrations, Inc. and Sandeep Nayyar
10.70* Amendment to the Amended and Restated
10-Q
000-23441
10.9
7/30/2020
Executive Officer Benefits Agreement, dated
as of June 1, 2020, between Power
Integrations, Inc. and Clifford Walker
10.71* Executive Officer Benefits Agreement, dated
as of February 1, 2021, between Power
Integrations, Inc. and Sunil Gupta
10.72* Executive Officer Benefits Agreement, dated
as of June 14, 2021, between Power
Integrations, Inc. and Yang Chiah Yee
10.73 Amendment Number Ten to Wafer Supply
Agreement, effective as of August 26, 2020
by Power Integrations International Ltd. and
Seiko Epson Corporation
21.1 List of subsidiaries
23.1 Consent of Independent Registered Public
Accounting Firm
24.1 Power of Attorney (see signature page)
31.1 Certification of Chief Executive Officer
pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
31.2 Certification of Chief Financial Officer
pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
32.1** Certification of Chief Executive Officer
pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
32.2** Certification of Chief Financial Officer
pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
10-K
000-23441
10.73
2/5/2021
10-Q
000-23441
10.5
7/29/2021
10-Q
000-23441
10.5
10/29/2020
74
Filed
Herewith
X
X
X
X
X
X
X
Exhibit
Number
Exhibit Description
Form
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema
Document
101.CAL XBRL Taxonomy Extension Calculation
Linkbase Document
101.DEF XBRL Taxonomy Extension Definition
Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase
Document
101.PRE XBRL Taxonomy Extension Presentation
Linkbase Document
104 The cover page from this Annual Report on
Form 10-K, formatted in Inline XBRL.
Incorporation by Reference
Exhibit/Appendix
Reference
File
Number
Filing Date
Filed
Herewith
X
X
X
X
X
X
X
All references in the table above to previously filed documents or descriptions are incorporating those documents
and descriptions by reference thereto.
† This Exhibit has been filed separately with the Commission pursuant to an application for confidential treatment. The
confidential portions of this Exhibit have been omitted and are marked by an asterisk.
†† Portions of this exhibit have been omitted as being immaterial and would be competitively harmful if disclosed.
††† Portions of this exhibit have been omitted as being immaterial and is the type of information that Power
Integrations, Inc. treats as private or confidential.
*
Indicates a management contract or compensatory plan or arrangement.
** The certifications attached as Exhibits 32.1 and 32.2 accompanying this Form 10-K, are not deemed filed with the
SEC, and are not to be incorporated by reference into any filing of Power Integrations, Inc. under the Securities Act
of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of
this Form 10-K, irrespective of any general incorporation language contained in such filing.
Item 16. Form 10-K Summary
Not provided.
75
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
POWER INTEGRATIONS, INC.
SIGNATURES
Dated: February 7, 2022
By:
/s/ SANDEEP NAYYAR
Sandeep Nayyar
Chief Financial Officer (Duly Authorized Officer,
Principal Financial Officer and Chief Accounting
Officer)
76
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes
and appoints Balu Balakrishnan and Sandeep Nayyar his or her true and lawful attorney-in-fact and agent, with full power
of substitution and, for him or her and in his or her name, place and stead, in any and all capacities to sign any and all
amendments to this Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as
fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his or her substitute or substitutes, may lawfully 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 BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE
CAPACITIES AND ON THE DATES INDICATED.
Dated: February 7, 2022
Dated: February 7, 2022
Dated: February 4, 2022
Dated: February 4, 2022
Dated: February 6, 2022
Dated: February 4, 2022
Dated: February 4, 2022
Dated: February 4, 2022
Dated: February 4, 2022
Dated: February 4, 2022
By:
By:
/s/ BALU BALAKRISHNAN
Balu Balakrishnan
President, Chief Executive Officer
(Principal Executive Officer)
/s/ SANDEEP NAYYAR
Sandeep Nayyar
Chief Financial Officer
(Principal Financial and Principal Accounting
Officer)
By:
/s/ WILLIAM GEORGE
William George
Director and Chairman of the Board
By:
/s/ WENDY ARIENZO
Wendy Arienzo
Director
By:
/s/ NICHOLAS E. BRATHWAITE
Nicholas E. Brathwaite
Director
By:
/s/ ANITA GANTI
Anita Ganti
Director
By:
/s/ BALAKRISHNAN S. IYER
Balakrishnan S. Iyer
Director
By:
/s/ JENNIFER LLOYD
Jennifer Lloyd
Director
By:
/s/ NECIP SAYINER
Necip Sayiner
Director
By:
/s/ STEVEN J. SHARP
Steven J. Sharp
Director
77
(This page intentionally left blank)
Balu Balakrishnan
President and Chief Executive Officer
Corporate Counsel
Cooley LLP
Palo Alto, CA
Doug Bailey
Vice President, Marketing
Radu Barsan
Vice President, Technology
Sunny Gupta
Vice President, Operations
Mike Matthews
Vice President, Product Development
Sandeep Nayyar
Vice President, Finance
Chief Financial Officer
Clifford J. Walker
Vice President,
Corporate Development
Yang Chiah Yee
Vice President, Worldwide Sales
Transfer Agent
Computershare
P.O. Box 30170
College Station, TX 77842-3170
Independent Auditors
Deloitte & Touche LLP
San Jose, CA
Investor Information
For additional information about
Power Integrations, visit:
www.power.com
Investor Relations
Investor Relations Department
Power Integrations, Inc.
5245 Hellyer Avenue
San Jose, CA 95138
ir@power.com
William L. George (Chairman)
Former Executive Vice President
ON Semiconductor Corporation,
Retired
Wendy A. Arienzo
Former Vice President, Operations
FUJIFILM Dimatix, Inc., Retired
Balu Balakrishnan
President and Chief Executive Officer
Power Integrations, Inc.
Nicholas E. Brathwaite
Founding Managing Partner,
Celesta Capital
Anita Ganti
Former Senior Vice President,
Product Engineering Services
Wipro Limited
Balakrishnan S. Iyer
Former Senior Vice President
and Chief Financial Officer
Conexant Systems, Inc., Retired
Jennifer A. Lloyd
Vice President,
Precision Platforms
and Technology Group
Analog Devices, Inc.
Necip Sayiner
Former Executive Vice President
Renesas Electronics Corporation
Steven J. Sharp
Former Chairman and CEO
TriQuint Semiconductor, Inc., Retired
Power Integrations, Inc. 5245 Hellyer Avenue, San Jose, CA 95138 www.power.com
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All rights reserved.
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