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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X Annual report pursuant to section 13 or 15(d) of the Securities and
- ---
Exchange Act of 1934 for the fiscal year ended July 1, 2000.
[_] Transition report pursuant to section 13 or 15(d) of the Securities and
Exchange Act of 1934 for the Transition period from _________ to ________
Commission File Number 0-27026
Pericom Semiconductor Corporation
(Exact Name of Registrant as Specified in Its Charter)
California 77-0254621
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2380 Bering Drive
San Jose, California 95131 95131
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (408) 435-0800
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
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 X No [_]
---
Indicate by check mark if disclosures of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
The aggregate market value of voting stock held by non-affiliates of the
Registrant, based on the closing price of the Common Stock on September 15, 2000
as reported by the Nasdaq National Market was approximately $732,970,000.
As of September 15, 2000 the Registrant had outstanding 24,807,718 shares of
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Registrant's Annual Report to Shareholders for the fiscal year
ended July 1, 2000 and the Registrant's Proxy Statement for the Annual Meeting
of Shareholders to be held December 14, 2000 are incorporated by reference in
Parts II, III and IV of this report on Form 10-K.
Pericom Semiconductor Corporation
Form 10-K for the Year Ended July 1, 2000
INDEX
PART I Page
----
Item 1: Business 2
Item 2: Properties 19
Item 3: Legal Proceedings 19
Item 4: Submission of Matters to a Vote of Security Holders 19
PART II
Item 5: Market for Registrant's Common Stock and Related Stockholder Matters 20
Item 6: Selected Financial Data 20
Item 7: Management's Discussion and Analysis of Financial Condition and
Results of operations 20
Item 7A: Quantitative and Qualitative Disclosures about Market Risk 20
Item 8: Financial Statements and Supplementary Data 20
Item 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 20
PART III
Item 10: Directors and Executive Officers of the Registrant 21
Item 11: Executive Compensation 23
Item 12: Security Ownership of Certain Beneficial Owners and Management 23
Item 13: Certain Relationships and Related Transactions 23
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K 24
Signatures 26
1
PART I
ITEM 1. BUSINESS
We design, develop and market high-performance interface integrated circuits, or
ICs, used in many of today's advanced electronic systems. Interface ICs, such as
interface logic, switches and clock management products, transfer, route and
time electrical signals among a system's microprocessor, memory and various
peripherals and between interconnected systems. The current high demand for
bandwidth to support the growth of the Internet will require continual
improvements in the performance of interface products. Our interface products
increase system bandwidth in applications such as notebook computers, servers,
network switches and routers, storage area networks and wireless base stations.
We offer products that increase bandwidth by widening the data path, or bus
(enlarging the pipe), increasing the data rate (increasing the flow rate through
the pipe), or allowing multiple, simultaneous transactions on the bus.
We have combined our extensive design technology and applications knowledge with
our responsiveness to the specific needs of electronic systems developers to
become a leading supplier of high-performance interface ICs. We have evolved
from one product line in fiscal 1992 to four currently--SiliconSwitch,
SiliconInterface, SiliconClock and SiliconConnect--with a goal of providing an
increasing breadth of interface IC solutions to our customers. We currently
offer over 400 products, of which 90 were introduced during fiscal 2000. Our
customers include leading OEMs, contract manufacturers and distributors.
INDUSTRY BACKGROUND
OVERVIEW
The presence of electronic systems and subsystems permeates our everyday life,
as evidenced by the growth of the personal computer, mobile communications,
networking and consumer electronics markets. The growth of these markets has
been driven by systems characterized by ever-improving performance, flexibility,
reliability and multi-functionality, as well as decreasing size, weight and
power consumption. Advances in ICs through improvements in semiconductor
technology have contributed significantly to the increased performance of, and
demand for, electronic systems and to the increasing representation of ICs as a
proportion of overall system cost. This technological progress has occurred at
an accelerating pace, while the cost of electronic systems has remained steady
or declined.
The development of high-performance personal computers, the requirement for
higher network performance and the increased level of connectivity among
different types of electronic devices have driven the demand for high-speed,
high-performance interface circuits to handle the transfer, routing and timing
of digital and analog signals at high speeds with minimal loss of signal
quality. High-speed signal transfer is essential to fully utilize the speed and
bandwidth of the microprocessor, the memory and the LAN or WAN. High signal
quality is equally essential to achieve optimal balance between high data
transmission rates and reliable system operation. Without high signal quality,
transmission errors occur as bandwidth increases. Market requirements for
interface circuits are driven by the same market pressures as those imposed on
microprocessors, including higher speed, reduced power consumption, lower-
voltage operation, smaller size and higher levels of integration.
Our interface products serve to increase system bandwidth in applications such
as servers, network switches and routers, storage area networks, wireless
basestations, and notebook computers. Bandwidth can be increased by widening the
datapath (widening the pipe), increasing the clock rate (increase the flowrate
through the pipe) or allowing multiple, simultaneous transactions on the bus
using a crossbar switch. We are pioneering technology in each of these areas.
The problems associated with signal quality that must be addressed by the
interface ICs are magnified by increases in the speeds at which interface ICs
must transfer, route and time electrical signals, the number of interconnected
devices that send or receive signals and the variety of types of signals
processed by the
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interface ICs. The most significant performance challenges faced by designers of
interface ICs are the requirements to transfer signals at high speed with low
propagation delay, minimize signal degradation caused by "noise," "jitter," and
"skew" and reduce electromagnetic interference ("EMI"). Minimizing propagation
delay, sources of signal degradation and interference is needed to enable
today's state-of-the-art electronic systems to function.
We believe that several major market trends make reliable operations of systems
at high frequency and high data transfer rates critical. Internet and high-
performance network applications continue to push for more data bandwidth on
system buses and across system boundaries. Computer and networking system clock
frequencies continue to increase at a very rapid rate, shortening the time
available to perform data transfers. While the data transfer rate has typically
increased every few years, the continuing desire for higher system reliability
with minimal system downtime creates increasing pressure to achieve lower data
error rates. Increasing system-wide EMI emissions resulting from higher-
frequency ICs compels system designers to develop and implement new ways to
further reduce these emissions. These factors all increase the need for very
high-speed interface circuits with outstanding performance specifications.
With processing power continuing to double every 18 months (Moore's law) the
speed at which microprocessors can access memory becomes the system bandwidth
constraint in high-speed computing. We have developed solutions with Intel and
Rambus to support higher speed processor-memory interfacing to support the PC133
SDRAM, Double Data Rate ("DDR") SDRAM and Direct Rambus standards, both on the
system motherboard and memory modules.
In server applications, we support higher system bandwidth through the use of
bus switches to isolate the system's memory modules from the bus when they are
not being addressed. Our interface products are also used to enable live
insertion of PCI boards ("hot swapping"). This prevents system downtime when
boards need to be replaced. We have similar products for hot-docking notebook
computers and our products are used in virtually every notebook computer.
In all new high-bandwidth systems data transfer needs to be synchronized,
creating a high demand for clock products. Our clock products provide all the
precise timing signals needed to ensure reliable data transfer at high speeds in
applications ranging from notebook computers to network switches. As systems
continue to grow in processing power and complexity the demand for these
products will accelerate. The demand for higher precision will also continue to
increase as timing margins shrink in higher bandwidth systems.
Another trend evident in the communications market (data and voice) and the
storage market is the trend to parallel processing to increase performance. The
need to interface several processors to one another and to memory components is
driving customers to develop new switching fabrics. We have responded to this
opportunity with the development of a high-density crossbar switch technology
which enables point-to-point connection of multiple processors to boost
bandwidth by an order of magnitude.
Electronic systems designers and OEMs have increasingly required solutions to
the technical challenges described above in order to take advantage of
continuing speed and performance enhancements in microprocessor and memory ICs.
These customers have also continued to migrate from single-part vendors to
suppliers who can provide multiple parts for their systems, both to reduce the
number of vendors they must deal with and to address interoperability
requirements among the interface ICs within the system. Due to the short design
times and product life cycles these customers face for their own products, they
are requiring rapid response time and part availability from interface IC
vendors. Interface IC vendors are further required to accomplish these tasks in
a cost-effective manner that flexibly responds to specific customer needs.
THE PERICOM STRATEGY
We are a leading supplier of high-performance interface ICs. While our products
address a wide spectrum of applications, we have focused our resources on
solving bandwidth bottlenecks in customers' systems using our high performance
interface technology. With processing power doubling every 18 months
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historically, the speed at which microprocessors can access memory becomes the
bandwidth constraint in high speed computing. We have developed solutions with
Intel, IBM and Rambus to support higher-speed processor-memory interfacing,
which support the latest memory standards, on both the system motherboard and
the memory modules. In server applications, we support higher system bandwidth
through the use of high frequency clock products, which provide timing signals
to synchronize data transfer, and bus switches that isolate a system's memory
modules from the bus when they are not being addressed.
Products are defined in collaboration with the industry-leading OEMs and
industry enablers such as Intel and IBM, and our modular design methodology
shortens our time to market and time to volume relative to our competitors. The
key elements of our strategy are:
Market Focus. Our market strategy is to focus on the high-growth, high-
performance segments of the computing, networking and telecommunications
markets. Currently, we design and sell products for specific high-volume
applications within these target markets, including notebook computers, computer
servers, local area network, or LAN, and wide area network, or WAN, switches,
routers and hubs and multi-function office peripherals such as printers and
copiers. Our customers and end-users of our products include a number of leading
OEMs in each market:
. Acer, Compaq, Dell, IBM and Toshiba in the notebook market;
. Compaq, Dell and Intel in the server market;
. Alcatel, Motorola, Siemens and Tellabs in the telecommunications equipment
market;
. 3Com, Cabletron Systems, Cisco Systems, Lucent and Nortel Networks in the
network equipment market; and
. Canon, Lexmark and Xerox in the printer and copier market.
During fiscal 2000 our penetration of the data communications and
telecommunication markets continued to increase based on the introduction of new
products targeting these markets. We believe that these markets now account for
a significant portion of our revenues.
We intend to pursue new opportunities in markets where our rapid-cycle IC design
and development expertise and understanding of the product evolution of our
customers gives us the opportunity to become a leading solution supplier.
Customer Focus. Our customer strategy is to use a superior level of
responsiveness to customer needs to continually expand our customer base as well
as sell a wider range of products to our existing customers. Key elements of our
customer strategy are:
. Penetrate target accounts through joint product development. We approach
prospective customers primarily by working with their system design
engineers at the product specification stage with the goal that one or more
Pericom ICs will be incorporated into a new system design. Our
understanding of our customers' requirements combined with our ability to
develop and deliver reliable, high-performance products within our
customers' product introduction schedules has enabled us to establish
strong relationships with several leading OEMs.
. Solidify customer relationships through superior responsiveness. We believe
that our customer service orientation is a significant competitive
advantage. We seek to maintain short product lead times and provide our
customers with excellent on-schedule delivery, in part by having available
adequate finished goods inventory for anticipated customer demands. We
emphasize product quality for our products and have been ISO-9001 certified
since March 1995.
. Expand customer relationships through broad-based solutions. We aim to grow
our business with existing customers by offering product lines that provide
increasingly extensive solutions for our customers' high-speed interfacing
needs. By providing our customers with superior support in existing
programs and anticipating our customers' needs in next- generation
products, we have often been able to substantially increase our overall
volume of business with those customers. With larger customers we have also
initiated electronic data interchange, or EDI, and remote warehousing
programs, annual
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purchase and supply programs, joint development projects and other services
intended to enhance our position as a key vendor.
Technology Focus. Our technology strategy is to maintain a leading position in
the development of new, higher-performance interface ICs by continuing to design
additional core cells that address the more challenging problems of signal
interface as electronic systems become faster and require lower power and
voltages. Our primary efforts are in the creation of additional proprietary
digital, analog and mixed-signal functionality. We are working closely with our
wafer suppliers to incorporate their advanced CMOS process technologies to
improve our ability to introduce next generation products expeditiously. We
intend to expand our patent portfolio with the goal of providing increasingly
proprietary product lines.
Manufacturing Focus. Our manufacturing strategy is closely integrated with our
focus on customer needs. Central to this strategy is our intent to support high-
volume shipment requirements on short notice from customers. We design products
so that we may manufacture any one of many different ICs from a single
partially-processed wafer. Accordingly, we keep inventory in the form of wafer
banks, from which wafers can be completed to produce a variety of specific ICs
in as little as two to four weeks. This approach has enabled us to reduce our
overall work-in-process inventory while providing increased availability to
produce a variety of finished products. In addition, we keep some inventory in
the form of die banks, which can become finished product in two weeks or less.
We have established relationships with three leading foundries, Chartered
Semiconductor Manufacturing Pte, Ltd. ("Chartered"), Taiwan Semiconductor
Manufacturing Corporation ("TSMC"), and Hyundai Electronics ("Hyundai"). We are
maintaining our relationships with Austria Mikro Systeme GmbH ("AMS") and New
Japan Radio Corporation ("NJRC") for some of our products that are manufactured
in high-voltage CMOS processes.
Strategic and Collaborative Relationships Focus. We pursue a strategy of
entering into new relationships and expanding existing relationships with
companies that engage in the product design, manufacturing and marketing of ICs.
We believe that these relationships have enabled us to access additional design
and application expertise, accelerate product introductions, reduce costs and
obtain additional needed capacity. In product design, we have engaged Pericom
Technology, Inc., an affiliated company, and other design houses to develop
interface ICs as a means of rapidly expanding our product portfolio. We have
established collaborative relationships with leading wafer manufacturers that
have high performance digital core libraries that we can use in our future
products.
PRODUCTS
We have used our expertise in high-performance digital, analog and mixed-signal
IC design, our reusable core cell library and our modular design methodology to
achieve a rapid rate of new product introductions. Within each of our four
product lines, the product portfolio has evolved from a standard building block
into both standard products of increasing performance and application-specific
standard products, or ASSPs, which are tailored to meet a specific high volume
application. Within each product family we continue to address the common trends
of decreasing supply voltage, higher integration and faster speeds.
SiliconSwitch
Through our SiliconSwitch product line, we offer a broad range of high-
performance ICs for switching digital and analog signals. The ability to switch
or route high-speed digital or analog signals with minimal delay and signal
distortion is a critical requirement in many high-speed computers, networking
and multimedia applications. Historically, systems designers have used
mechanical relays, solid-state relays and analog switches, which have
significant disadvantages as compared to IC switches: mechanical relays are
bulky, dissipate significant power and have very low response times; solid-state
relays are expensive and dissipate significant power; and traditional analog
switches have significant signal distortion.
Digital Switches. We offer a family of digital switches in 8-, 16- and 32-bit
densities that address the switching needs of high-performance systems. These
digital switches offer performance and cost advantages over traditional switch
functions, offering low on-resistance (less than 5 ohms), low propagation delay
(less
5
than 250 picoseconds), low standby power (less than 1 microamp) and series
resistor options that support low electromagnetic interference, or EMI, emission
requirements. Applications for our digital switches include 5-volt to 3.3-volt
signal translation, high-speed data transfer and switching between
microprocessors and multiple memories, and hot plug interfaces in notebook and
desktop computers, servers and switching hubs and routers. We also have two
families of 3.3-volt switches offering industry-leading performance in switching
times, and low capacitance for bus isolation applications. We continued to
expand the number of devices and the performance of these families during fiscal
2000.
Analog Switches. We offer a family of analog switches for low-voltage (2- to 5-
volt) applications such as multimedia audio and video signal switching with
enhanced characteristics such as low power, high bandwidth, low crosstalk and
low distortion to maintain analog signal integrity. Our analog switches have
significantly lower distortion than traditional analog switches due to our
advanced CMOS switch design. To support space-constrained applications, such as
wireless handsets and global positioning system receivers, several of these
switches have recently been introduced in the tiny SOT-23 and SC 70 packages. To
complement this low-voltage family we also offer a higher voltage (17-volt)
analog switch family for applications requiring higher signal range, such as
instrumentation, telecommunications and industrial control.
LAN Switches and Video Switches. We offer a line of application specific
standard products ("ASSP") switches for specific applications in LANs and high
bandwidth video switches to switch between different video sources in graphic
and multi-media systems.
SiliconInterface
Through our SiliconInterface product line, we offer a broad range of high-
performance 5-volt, 3.3-volt, and 2.5-volt CMOS logic interface circuits. These
products provide logic functions to handle data transfer between microprocessors
and memory, bus exchange, backplane interface, and other logic interface
functions where high-speed, low-power, low-noise and high-output drive
characteristics are essential.
5-Volt Interface Logic. Our high-speed 5-volt interface logic products in 8-,16-
and 32-bit configurations address specific system applications, including a
"Quiet Series" family for high-speed, low-noise, point-to-point data transfer in
computing and networking systems and a "Balanced Drive" family with series
resistors at output drivers to reduce switching noise in high-performance
computers. We recently introduced a new 5-volt family that achieves lower noise
performance at high speeds, which is particularly useful for large data
communications and telecommunications switches.
3.3-Volt Interface Logic. To support the trend toward lower system voltages for
higher silicon integration, system performance and power savings we offer four
families of 3.3-volt interface logic to address a range of performance and cost
requirements with very low power consumption. Increasingly, networking, PC and
memory module manufacturers are demanding application specific logic products.
We believe we are well positioned to serve this need using our ASIC design
methodology and existing cell designs to achieve rapid product development.
2.5-Volt Interface Logic. Our 2.5-volt product families include:
. three new logic families to address 2.5- and 1.8-volt operation;
. a family of products with high output current offering sub-2.5
nanosecond propagation delays and the lowest power consumption in its
class;
. a lower balanced drive family with a propagation delay of less than 2
nanoseconds to support high speed processor-memory interfacing; and
. a balanced drive family optimized for low-noise operation.
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SiliconClock
In all new high bandwidth systems data transfer needs to be synchronized,
creating a high demand for clock products. Our clock products provide all the
precise timing signals needed to ensure reliable data transfer at high speeds in
applications ranging from notebook computers to network switches. As systems
continue to grow in processing power and complexity, the demand for these
products is expected to accelerate. The demand for precision will also increase
as timing margins shrink in higher bandwidth systems.
Through our SiliconClock product line, we offer a broad range of general-purpose
solutions including clock buffers, zero-delay clock drivers and frequency
synthesizer products for Pentium II, Pentium III and Celeron processor systems,
as well as a number of ASSP clock products for laser printers, networking, and
set-top box applications.
Clock Buffers And Zero-Delay Clock Drivers. Clock buffers receive a digital
signal from a frequency source and create multiple copies of the same frequency
for distribution across system boards. We offer 3.3-volt and 5-volt clock
buffers for high-speed, low-skew applications in computers and networking
equipment. Zero-delay clocks virtually eliminate propagation delays by
synchronizing the clock outputs with the incoming frequency source. Our 5-volt
and 3.3-volt zero-delay clock drivers offer frequencies of up to 134 MHz for
applications in networking switches, routers and hubs, computer servers, and
memory modules. Clock products to support the emerging Rambus and double date
rate, or DDR, memory technologies are also available.
Clock Frequency Synthesizers. Clock frequency synthesizers generate various
output frequencies using a single input frequency source. Clock frequency
synthesizers are used to provide critical timing signals to microprocessors,
memory and peripheral functions. Our clock synthesizers support Pentium II,
Pentium III and Celeron microprocessors and their associated integrated chipsets
for server, notebook and desktop PC products. We also offer a clock synthesizer
developed specifically for laser printer products.
Programmable Clocks. In large computing and communications systems customers
need to provide precise timing across large printed circuit boards, or PCBs. At
the very high frequencies used today these large PCB traces can result in
significant timing delays and matching these delays (or timing skew) can be a
significant challenge for the system designer. We have responded to this
challenge with the introduction of a family of programmable skew clock products.
SiliconConnect
SiliconConnect is our newest product line and offers the highest complexity and
integration among our products. It consists of a family of high-speed serial
drivers, receivers, and transceivers and cross-bar switches. We also introduced
our first three-port PCI-to-PCI bridge that serves to expand the number of
input/output ports in systems using the peripheral component interconnect, or
PCI, bus. Applications range from network routers to telecommunication switches
and server applications.
To support higher system bandwidth at acceptable noise and power levels
customers are increasingly moving to serial rather than parallel architectures
and using differential signaling to reduce noise and EMI. We have responded to
this trend with the development of a family of drivers, receivers and
transceivers offering data rates of 660 megabits per second, or mbps, and
allowing point-to-point connections over distances greater than 10 meters. This
new low-voltage differential signaling, or LVDS, standard offers a number of
improvements over the older emitter-coupled logic, or ECL, and pseudo emitter-
coupled logic, or PECL, in applications requiring lower power consumption and
noise.
Another technology recently introduced by us to support higher bandwidth is
cross-bar switching to allow multiple processors and memory modules to
communicate on point-to-point connections across a shared bus. This enables a
significant boost in bandwidth in data communications, telecommunications and
storage
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area network applications. The first product in this new family is a 10-port,
18-bit crossbar switch that can support a bandwidth of 742 Megabytes per second.
We are continuing to enhance and refine our existing product lines, while
working to add next-generation products that address new market opportunities on
a timely basis. The failure of the Company to complete and introduce new
products in a timely manner at competitive price/performance levels would
materially and adversely affect the Company's business and results of
operations. See "Risk Factors - If we do not develop products that our customers
and end-users design into their products, or if their products do not sell
successfully, our business and operating results could be harmed."
CUSTOMERS
The following is a list of some of our customers and end-users:
Computer Networking
Acer 3Com
Apple Alcatel
Asustek Cabletron
Compal Cisco
Compaq Lucent
Dell Nortel Networks
Futitsu
Hitachi
IBM Telecommunications, Peripherals and Others
Intel Adaptec
Inventec Canon
NEC Hewlett Packard
Quanta Lexmark
Sony Motorola
Toshiba Philips/Grundig
Quantel
S3
Contract Manufacturing Xerox
Celestica
Flextronics
Jabil Circuit
Natsteel
SCI
Solectron
Our customers include a broad range of end-user customers and OEMs in the
computer, peripherals, networking and contract manufacturing markets. Our direct
sales are billings directly to a customer who may in turn sell through to an
end-user customer. Our end-user customers may buy directly or through our
distribution or contract manufacturing channels. In fiscal 2000, our direct
sales to Techmosa, a distributor in Taiwan, accounted for 11% of net revenues,
and direct sales to our top five customers accounted for 37% of net revenues. In
fiscal 2000 one end-user customer, Cisco Systems, accounted for 14% of gross
revenues and sales to our top five end-user customers were 35% of gross
revenues. In fiscal 1999, direct sales to Techmosa, a distributor in Taiwan,
accounted for 14% of net revenues, and direct sales to the Company's top five
customers accounted for 36% of net revenues. In fiscal 1998, direct sales to
Techmosa accounted for 11% of net revenues, and direct sales to the Company's'
top five customers accounted for 36% of net
8
revenues. See "Risk Factors--The demand for our products depends on the growth
of our end-user customer markets" and "Risk Factors--A large portion of our
revenues is derived from sales to a few customers, who may cease purchasing from
us at any time."
Contract manufacturers have become important customers for us as systems
designers in our target markets are increasingly outsourcing portions of their
manufacturing. In addition, these contract manufacturers are playing an
increasingly vital role in determining which vendors' ICs are incorporated into
new designs.
DESIGN AND PROCESS TECHNOLOGY
Our design efforts focus on the development of high-performance digital, analog
and mixed-signal ICs. To minimize design cycle times of high-performance
products, we use a modular design methodology that has enabled us to produce
many new products each year and to meet our customers' need for fast time-to-
market response. This methodology uses state-of-the-art computer-aided design
software tools such as high-level description language, or HDL, logic synthesis,
full-chip mixed-signal simulation, and automated design layout and verification
and uses our library of high-performance digital and analog core cells. This
family of core cells has been developed over several years and contains high-
performance, specialized digital and analog functions not available in
commercial ASIC libraries. Among these cells are our proprietary mixed-voltage
input/output, or I/O, cells, high-speed, low-noise I/O cells, analog and digital
phase-locked loops, or PLLs, charge pumps and data communication transceiver
circuits using low voltage differential signaling. We have been granted 21 U.S.
patents relating to our circuit designs and have at least 14 U.S. patent
applications pending. Another advantage of this modular design methodology is
that it allows the application of final design options late in the wafer
manufacturing process to determine a product's specific function. This option
gives us the ability to use pre-staged wafers, which significantly reduces the
design and manufacturing cycle time and enables us to respond rapidly to a
customer's prototype needs and volume requirements.
We use advanced CMOS processes to achieve higher performance and lower die cost.
Our process and device engineers work closely with our independent wafer foundry
partners to develop and evaluate new process technologies. Our process engineers
also work closely with circuit design engineers to improve the performance and
reliability of our cell library. We currently manufacture a majority of our
products using 0.6-, 0.5- and 0.35-micron CMOS process technologies and
anticipate developing new products using 0.25-microntechnology over the next 12
months. We are also using a high-voltage CMOS process developed by one of our
wafer suppliers in the design of higher voltage switch products.
SALES AND MARKETING
We market and distribute our products through a worldwide network of independent
sales representatives and distributors. Sales to domestic and international
distributors represented 56.4% of our net revenues in fiscal 2000, 57.2% of our
net revenues in fiscal 1999, and 49.1% of our net revenues in fiscal 1998. Our
major distributors in the United States include All American Semiconductor, Bell
Microproducts, Future Electronics, Interface Electronics, Nu Horizons
Electronics, and Pioneer Standard. Our major international distributors include
EPCO Technology Co., Ltd (Taiwan), Desner Electronics (Singapore), Internix
(Japan), MCM (Japan) and Techmosa(Taiwan).
We have four regional sales offices in the United States and sales offices in
Taiwan, Singapore, Japan and Europe. International sales comprised approximately
46% of our net revenues in fiscal 2000, approximately 48% of our net revenues in
fiscal 1999 and approximately 45% of our net revenues in fiscal 1998. We also
support field sales design-in and training activities with application
engineers. All marketing and product management personnel are located at our
corporate headquarters in San Jose, California.
We focus our marketing efforts on product definition, new product introduction,
product marketing, advertising and public relations. We use advertising both
domestically and internationally to market our products independently and in
cooperation with our distributors. Pericom product information is available on
our web site, which contains technical information on all of our products and
offers design modeling
9
support and sample-request capabilities online. We also publish and circulate
technical briefs relating to our products and their applications.
We believe that contract manufacturing customers are strategically important and
we employ sales and marketing personnel who focus on servicing these customers
and on expanding our product sales via these customers to OEMs. In addition, we
use programs such as EDI bonded inventories and remote warehousing to enhance
our service and attractiveness to contract manufacturers.
MANUFACTURING
We have adopted a fabless manufacturing strategy by subcontracting our wafer
production to independent wafer foundries. We have established collaborative
relationships with selected independent foundries and target additional foundry
partners with which we can develop a strategic relationship to the benefit of
both parties. We believe that our fabless strategy enables us to introduce high
performance products quickly at competitive cost. To date, our principal
manufacturing relationships have been with Chartered Semiconductor Manufacturing
Pte, Ltd., Taiwan Semiconductor Manufacturing Corporation and Hyundai
Electronics. We provide Chartered with new product designs to be used for
testing and qualifying advanced manufacturing processes from development to
production. In exchange, Chartered provides us with wafer allocation and early
access to process technology. We have also used Austria Mikro Systeme GmbH as a
foundry since 1992 as well as New Japan Radio Corporation.
We rely on foreign subcontractors primarily for the assembly and packaging of
our products and, to a lesser extent, for the testing of our finished products.
Some of these subcontractors are our single source supplier for certain new
packages.
COMPETITION
The semiconductor industry is intensely competitive. Significant competitive
factors in the market for high-performance ICs include the following:
. product features and performance;
. product quality;
. price;
. success in developing new products;
. adequate wafer fabrication capacity and sources of raw materials;
. efficiency of production;
. timing of new product introductions;
. ability to protect intellectual property rights and proprietary information;
and
. general market and economic conditions.
Our competitors include Cypress Semiconductor Corporation, Integrated Circuit
Systems, Inc., Integrated Device Technology, Inc., Maxim Integrated Products,
Inc., and Texas Instruments, Inc. Most of those competitors have substantially
greater financial, technical, marketing, distribution and other resources,
broader product lines and longer-standing customer relationships than we do. We
also compete with other major or emerging companies that sell products to
certain segments of our markets. Competitors with greater financial resources or
broader product lines may have a greater ability to sustain price reductions in
our primary markets in order to gain or maintain market share. We also face
competition from the makers of ASICs and other system devices. These devices may
include interface logic functions, which may eliminate the need or sharply
reduce the demand for our products in particular applications.
RESEARCH AND DEVELOPMENT
We believe that the continued timely development of new interface ICs is
essential to maintaining our competitive position. Accordingly, we have
assembled a team of highly skilled engineers whose activities
10
are focused on the development of signal transfer, routing and timing
technologies and products. Research and development expenses were $8.1 million
in fiscal 2000, $6.0 million in fiscal 1999, and $5.1 million in fiscal 1998.
We actively seek cooperative relationships in product development. For example,
we have signed agreements with Lexmark to license its spread spectrum technology
and with Rambus to develop the Direct Rambus Clock Generator IC.
INTELLECTUAL PROPERTY
In the United States, we hold 21 patents covering certain aspects of our product
designs and have at least 14 additional patent applications pending. We expect
to continue to file patent applications where appropriate to protect our
proprietary technologies; however, we believe that our continued success depends
primarily on factors such as the technological skills and innovation of our
personnel, rather than on our patents.
EMPLOYEES
As of June 30, 2000, we had 229 full-time employees and 2 part-time employees
(21 are temporary employees), including 41 in sales, marketing and customer
support, 105 in manufacturing, assembly and testing, 59 in engineering and
quality assurance and 26 in finance and administration, including information
systems. We have never had a work stoppage and no employee is represented by a
labor organization. We consider our employee relations to be good.
RISK FACTORS; FACTORS THAT MAY AFFECT OPERATING RESULTS
In addition to other information contained in this Form 10-K, investors should
carefully consider the following factors that could adversely affect our
business, financial condition and operating results as well as adversely affect
the value of an investment in our common stock. This Form 10-K includes
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. All statements other than statements of historical fact are
"forward-looking statements" for purposes of these provisions, including any
statements regarding projections of earnings, revenues or other financial items;
plans and objectives of management for future operations; proposed new products
or services; industry, technological or market trends, our ability to address
the need for application specific logic products; our ability to respond rapidly
to customer needs; expanding product sales; future economic conditions or
performance, and any statement of assumptions underlying any of the foregoing.
In some cases, forward-looking statements can be identified by the use of
terminology such as "may," "will," "expects," "plans," "anticipates,"
"estimates," "potential," or "continue," or the negative thereof or other
comparable terminology. Although we believe that the expectations reflected in
the forward-looking statements contained herein are reasonable, there can be no
assurance that such expectations or any of the forward-looking statements will
prove to be correct, and actual results could differ materially from those
projected or assumed in the forward-looking statements. Our future financial
condition and results of operations, as well as any forward-looking statements,
are subject to risks and uncertainties, including but not limited to the factors
set forth below and elsewhere in this report. All forward-looking statements
and reasons why results may differ included in this Form 10-K are made as of the
date hereof, and we assume no obligation to update any such forward-looking
statement or reason why actual results may differ.
If we do not develop products that our customers and end-users design into their
products, or if their products do not sell successfully, our business and
operating results would be harmed.
We have relied in the past and continue to rely upon our relationships with our
customers and end-users for insights into product development strategies for
emerging system requirements. We generally incorporate new products into a
customer's or end-user's product or system at the design stage. However, these
design efforts, which can often require significant expenditures by us, may
precede product sales, if any, by a year
11
or more. Moreover, the value to us of any design win will depend in large part
on the ultimate success of the customer's or end-user's product and on the
extent to which the system's design accommodates components manufactured by our
competitors. If we fail to achieve design wins or if the design wins fail to
result in significant future revenues, our operating results would be harmed. If
we have problems developing or maintaining our relationships with our customers
and end-users, our ability to develop well-accepted new products may be
impaired.
The trading price of our common stock and our operating results are likely to
fluctuate substantially in the future.
The trading price of our common stock has been and is likely to continue to be
highly volatile. Our stock price could fluctuate widely in response to factors
some of which are not within our control, including:
. quarter-to-quarter variations in operating results;
. announcements of technological innovations or new products by us or our
competitors;
. general conditions in the semiconductor and electronic systems industries;
. changes in earnings estimates by analysts; and . price and volume
fluctuations in the overall stock market, which have particularly affected
the market prices of many high technology companies.
In the past, our quarterly operating results have varied significantly and are
likely to fluctuate in the future. A wide variety of factors affect our
operating results. These factors might include the following:
. the timing of new product introductions and announcements by us and by our
competitors;
. customer acceptance of new products introduced by us;
. growth or reduction in the size of the market for interface ICs;
. a decline in the gross margins of our products;
. general conditions in the semiconductor industry;
. changes in our product mix;
. delay or decline in orders received from distributors;
. the availability of manufacturing capacity with our wafer suppliers;
. changes in manufacturing costs;
. fluctuations in manufacturing yields;
. the ability of customers to pay us;
. expenses incurred in obtaining, enforcing, and defending intellectual
property rights; and
. increased research and development expenses associated with new product
introductions or process changes.
All of these factors are difficult to forecast and could seriously harm our
operating results. Our expense levels are based in part on our expectations
regarding future sales and are largely fixed in the short term. Therefore, we
may be unable to reduce our expenses fast enough to compensate for any
unexpected shortfall in sales. Any significant decline in demand relative to our
expectations or any material delay of customer orders could harm our operating
results. In addition, if our operating results in future quarters fall below
public market analysts' and investors' expectations, the market price of our
common stock would likely decrease.
The markets for our products are characterized by rapidly changing technology,
and our financial results could be harmed if we do not successfully develop and
implement new manufacturing technologies or develop, introduce and sell new
products.
The markets for our products are characterized by rapidly changing technology,
frequent new product introductions and declining selling prices over product
life cycles. We currently offer over 400 products. Our future success depends
upon the timely completion and introduction of new products, across all our
product lines, at competitive price and performance levels. The success of new
products depends on a variety of factors, including the following
12
. product performance and functionality;
. customer acceptance;
. competitive pricing;
. successful and timely completion of product development;
. sufficient wafer fabrication capacity; and
. achievement of acceptable manufacturing yields by our wafer suppliers.
We may also experience delays, difficulty in procuring adequate fabrication
capacity for the development and manufacture of new products or other
difficulties in achieving volume production of these products. Even relatively
minor errors may significantly affect the development and manufacture of new
products. If we fail to complete and introduce new products in a timely manner
at competitive price and performance levels, our business would be significantly
harmed.
Intense competition in the semiconductor industry may reduce the demand for our
products or the prices of our products, which could reduce our revenues.
The semiconductor industry is intensely competitive. Our competitors include
Cypress Semiconductor Corporation, Integrated Circuit Systems, Inc., Integrated
Device Technology, Inc., Maxim Integrated Products, Inc., and Texas Instruments,
Inc. Most of those competitors have substantially greater financial, technical,
marketing, distribution and other resources, broader product lines and longer-
standing customer relationships than we do. We also compete with other major or
emerging companies that sell products to certain segments of our markets.
Competitors with greater financial resources or broader product lines may have a
greater ability to sustain price reductions in our primary markets in order to
gain or maintain market share.
We believe that our future success will depend on our ability to continue to
improve and develop our products and processes. Unlike us, many of our
competitors maintain internal manufacturing capacity for the fabrication and
assembly of semiconductor products. This ability may provide them with more
reliable manufacturing capability, shorter development and manufacturing cycles
and time-to-market advantages. In addition, competitors with their own wafer
fabrication facilities that are capable of producing products with the same
design geometries as ours may be able to manufacture and sell competitive
products at lower prices. Any introduction of products by our competitors that
are manufactured with improved process technology could seriously harm our
business. As is typical in the semiconductor industry, our competitors have
developed and marketed products that function similarly or identically to ours.
If our products do not achieve performance, price, size or other advantages over
products offered by our competitors, our products may lose market share.
Competitive pressures could also reduce market acceptance of our products,
reduce our prices and increase our expenses.
We also face competition from the makers of ASICs and other system devices.
These devices may include interface logic functions, which may eliminate the
need or sharply reduce the demand for our products in particular applications.
Product price declines and fluctuations may cause our future financial results
to vary.
Historically, selling prices in the semiconductor industry generally, as well as
for our products, have decreased significantly over the life of each product. We
expect that selling prices for our existing products will continue to decline
over time and that average selling prices for our new products will decline
significantly over the lives of these products. Declines in selling prices for
our products, if not offset by reductions in the costs of producing these
products or by sales of new products with higher gross margins, would reduce our
overall gross margins and could seriously harm our business.
13
The demand for our products depends on the growth of our end users' markets.
Our continued success depends in large part on the continued growth of markets
for the products into which our semiconductor products are incorporated. These
markets include the following:
. computers and computer related peripherals;
. data communications and telecommunications equipment;
. electronic commerce and the Internet; and
. consumer electronics equipment.
Any decline in the demand for products in these markets could seriously harm our
business, financial condition and operating results. These markets have also
historically experienced significant fluctuations in demand. We may also be
seriously harmed by slower growth in the other markets in which we sell our
products.
Downturns in the semiconductor industry, rapidly changing technology and
evolving industry standards can harm our operating results.
The semiconductor industry has historically been cyclical and periodically
subject to significant economic downturns--characterized by diminished product
demand, accelerated erosion of selling prices and overcapacity--as well as
rapidly changing technology and evolving industry standards. In the past, our
operating results have been harmed by excess supply in the semiconductor
industry. For example, we believe our net revenues fell from $41.2 million in
fiscal 1996 to $33.2 million in fiscal 1997 primarily due to a cyclical downturn
in the semiconductor industry. Accordingly, we may in the future experience
substantial period-to-period fluctuations in our business and operating results
due to general semiconductor industry conditions, overall economic conditions or
other factors. Our business is also subject to the risks associated with the
effects of legislation and regulations relating to the import or export of
semiconductor products.
Our contracts with our wafer suppliers do not obligate them to a minimum supply
or set prices. Any inability or unwillingness of our wafer suppliers generally,
and Chartered Semiconductor Manufacturing Ltd. in particular, to meet our
manufacturing requirements would delay our production and product shipments and
harm our business.
In fiscal 2000, 1999 and 1998 we purchased approximately 75%, 85% and 90%,
respectively, of our wafers from Chartered Semiconductor Manufacturing Ltd. In
each fiscal year, only four other suppliers manufactured the remainder of our
wafers. Our reliance on independent wafer suppliers to fabricate our wafers at
their production facilities subjects us to possible risks such as:
. lack of adequate capacity;
. lack of available manufactured products;
. lack of control over delivery schedules; and
. unanticipated changes in wafer prices.
Any inability or unwillingness of our wafer suppliers generally, and Chartered
in particular, to provide adequate quantities of finished wafers to meet our
needs in a timely manner would delay our production and product shipments and
seriously harm our business.
At present, we purchase wafers from our suppliers through the issuance of
purchase orders based on our rolling six-month forecasts. The purchase orders
are subject to acceptance by each wafer supplier. We do not have long-term
supply contracts which obligate our suppliers to a minimum supply or set prices.
We also depend upon our wafer suppliers to participate in process improvement
efforts, such as the transition to finer geometries. If our suppliers are unable
or unwilling to do so, our development and introduction of new products could be
delayed. Furthermore, sudden shortages of raw materials or production capacity
14
constraints can lead wafer suppliers to allocate available capacity to customers
other than us or for the suppliers' internal uses, interrupting our ability to
meet our product delivery obligations. Any significant interruption in our wafer
supply would seriously harm our operating results and our customer relations.
Our reliance on independent wafer suppliers may also lengthen the development
cycle for our products, providing time-to-market advantages to our competitors
that have in-house fabrication capacity.
In the event that our suppliers are unable or unwilling to manufacture our key
products in required volumes, we will have to identify and qualify additional
wafer foundries. The qualification process can take up to six months or longer.
Furthermore, we are unable to predict whether additional wafer foundries will
become available to us or will be in a position to satisfy any of our
requirements on a timely basis.
We depend on single or limited source assembly subcontractors with whom we do
not have written contracts. Any inability or unwillingness of our assembly
subcontractors to meet our assembly requirements would delay our product
shipments and harm our business.
We primarily rely on foreign subcontractors for the assembly and packaging of
our products and, to a lesser extent, for the testing of finished products.
Some of these subcontractors are our single source supplier for some of our new
packages. In addition, changes in our or a subcontractor's business could cause
us to become materially dependent on a single subcontractor. We have from time
to time experienced difficulties in the timeliness and quality of product
deliveries from our subcontractors and may experience similar or more severe
difficulties in the future. We generally purchase these single or limited source
components or services pursuant to purchase orders and have no guaranteed
arrangements with these subcontractors. These subcontractors could cease to meet
our requirements for components or services, or there could be a significant
disruption in supplies from them, or degradation in the quality of components or
services supplied by them. Any circumstance that would require us to qualify
alternative supply sources could delay shipments, result in the loss of
customers and limit or reduce our revenues.
We may have difficulty accurately predicting revenues for future periods.
Our expense levels are based in part on anticipated future revenue levels, which
can be difficult to predict. Our business is characterized by short-term orders
and shipment schedules. We do not have long-term purchase agreements with any of
our customers, and customers can typically cancel or reschedule their orders
without significant penalty. We typically plan production and inventory levels
based on forecasts of customer demand generated with input from customers and
sales representatives. Customer demand is highly unpredictable and can fluctuate
substantially. If customer demand falls significantly below anticipated levels,
our gross profit would be reduced.
We compete with others to attract and retain key personnel, and any loss of, or
inability to attract, key personnel would harm us.
To a greater degree than non-technology companies, our future success will
depend on the continued contributions of our executive officers and other key
management and technical personnel. None of these individuals has an employment
agreement with us and each one would be difficult to replace. We do not maintain
any key person life insurance policies on any of these individuals. The loss of
the services of one or more of our executive officers or key personnel or the
inability to continue to attract qualified personnel could delay product
development cycles or otherwise harm our business, financial condition and
results of operations.
Our future success also will depend on our ability to attract and retain
qualified technical, marketing and management personnel, particularly highly
skilled design, process and test engineers, for whom competition is intense. In
particular, the current availability of qualified engineers is limited and
competition among companies for skilled and experienced engineering personnel is
very strong. During strong business cycles, we expect to experience continued
difficulty in filling our needs for qualified engineers and other personnel.
15
Our limited ability to protect our intellectual property and proprietary rights
could harm our competitive position.
Our success depends in part on our ability to obtain patents and licenses and
preserve other intellectual property rights covering our products and
development and testing tools. In the United States, we hold 21 patents covering
certain aspects of our product designs and have at least 14 additional patent
applications pending. Copyrights, mask work protection, trade secrets and
confidential technological know-how are also key to our business. Additional
patents may not be issued to us or our patents or other intellectual property
may not provide meaningful protection. We may be subject to, or initiate,
interference proceedings in the U.S. Patent and Trademark Office. These
proceedings can consume significant financial and management resources. We may
become involved in litigation relating to alleged infringement by us of others'
patents or other intellectual property rights. This type of litigation is
frequently expensive to both the winning party and the losing party and takes up
significant amounts of management's time and attention. In addition, if we lose
such a lawsuit, a court could require us to pay substantial damages and/or
royalties or prohibit us from using essential technologies. For these and other
reasons, this type of litigation could seriously harm our business. Also,
although we may seek to obtain a license under a third party's intellectual
property rights in order to bring an end to certain claims or actions asserted
against us, we may not be able to obtain such a license on reasonable terms or
at all.
Because it is important to our success that we are able to prevent competitors
from copying our innovations, we intend to continue to seek patent, trade secret
and mask work protection for our technologies. The process of seeking patent
protection can be long and expensive, and we cannot be certain that any
currently pending or future applications will actually result in issued patents,
or that, even if patents are issued, they will be of sufficient scope or
strength to provide meaningful protection or any commercial advantage to us.
Furthermore, others may develop technologies that are similar or superior to our
technology or design around the patents we own.
We also rely on trade secret protection for our technology, in part through
confidentiality agreements with our employees, consultants and third parties.
However, these parties may breach these agreements. In addition, the laws of
some territories in which we develop, manufacture or sell our products may not
protect our intellectual property rights to the same extent as do the laws of
the United States.
The process technology used by our independent foundries, including process
technology that we developed with our foundries, can generally be used by them
to produce their own products or to manufacture products for other companies
including our competitors. In addition, we may not have the right to implement
key process technologies used to manufacture some of our products with foundries
other than our present foundries.
We may not provide adequate allowances for exchanges, returns and concessions.
We recognize revenue from the sale of products when shipped, less an allowance
based on future authorized and historical patterns of returns, price protection,
exchanges and other concessions. We believe our methodology and approach are
appropriate. However, if the actual amounts we incur exceed the allowances, it
could decrease our revenue and corresponding gross profit.
The complexity of our products makes us highly susceptible to manufacturing
problems, which could increase our costs and delay our product shipments.
The manufacture and assembly of our over 400 products are highly complex and
sensitive to a wide variety of factors, including:
. the level of contaminants in the manufacturing environment;
. impurities in the materials used; and
. the performance of manufacturing personnel and production equipment.
16
In a typical semiconductor manufacturing process, silicon wafers produced by a
foundry are cut into individual die. These die are assembled into individual
packages and tested for performance. Our wafer fabrication suppliers have from
time to time experienced lower than anticipated yields of suitable die. In the
event of such decreased yields, we would incur additional costs to sort wafers,
an increase in average cost per usable die and an increase in the time to market
for our products. These conditions could reduce our net revenues and gross
margin and harm our customer relations.
We do not manufacture any of our products. Therefore, we are referred to in the
semiconductor industry as a "fabless" producer. Consequently, we depend upon
third party manufacturers to produce semiconductors that meet our
specifications. We currently have third party manufacturers that can produce
semiconductors that meet our needs. However, as the industry continues to
progress to smaller manufacturing and design geometries, the complexities of
producing semiconductors will increase. Decreasing geometries may introduce new
problems and delays that may affect product development and deliveries. Due to
the nature of the industry and our status as a "fabless" semiconductor company,
we could encounter fabrication-related problems that may affect the availability
of our products, delay our shipments or increase our costs.
A large portion of our revenues is derived from sales to a few customers, who
may cease purchasing from us at any time.
A relatively small number of customers have accounted for a significant portion
of our net revenues in each of the past several fiscal years. We expect this
trend to continue for the foreseeable future. Techmosa, an international
distributor that in turn ships to many end users, accounted for approximately11%
of net revenues during fiscal 2000. Sales to our top five customers accounted
for approximately 37% of net revenues in fiscal 2000. Of our end-user
customers, Cisco Systems accounted for approximately 14% of our gross revenues
and sales to our top five end-user customers accounted for approximately 35% of
gross revenues in fiscal 2000.
We do not have long-term sales agreements with any of our customers. Our
customers are not subject to minimum purchase requirements, may reduce or delay
orders periodically due to excess inventory and may discontinue selling our
products at any time. Our distributors typically offer competing products in
addition to ours. In fiscal 2000, sales to domestic and international
distributors represented approximately 56% of net revenues. The loss of one or
more significant customers, or the decision by a significant distributor to
carry the product lines of our competitors, could decrease our revenues.
Almost all of our wafer suppliers and assembly subcontractors are located in
southeast Asia, which exposes us to the problems associated with international
operations.
Almost all of our wafer suppliers and assembly subcontractors are located in
southeast Asia, which exposes us to risks associated with international business
operations, including the following:
. disruptions or delays in shipments;
. changes in economic conditions in the countries where these subcontractors
are located;
. currency fluctuations;
. changes in political conditions;
. potentially reduced protection for intellectual property;
. foreign governmental regulations;
. import and export controls; and
. changes in tax laws, tariffs and freight rates.
In particular, there is a potential risk of conflict and further instability in
the relationship between Taiwan and the People's Republic of China. Conflict or
instability could disrupt the operations of one of our principal wafer suppliers
and several of our assembly subcontractors located in Taiwan.
17
Because we sell our products to customers outside of the United States, we face
foreign business, political and economic risks that could seriously harm us.
In fiscal 2000, approximately 29% of our net revenues derived from sales in Asia
excluding Japan, approximately 9% from sales in Europe and approximately 8% from
sales in Japan. We expect that export sales will continue to represent a
significant portion of net revenues. We intend to expand our sales efforts
outside the United States. This expansion will require significant management
attention and financial resources and further subject us to international
operating risks. These risks include:
. tariffs and other barriers and restrictions;
. unexpected changes in regulatory requirements;
. the burdens of complying with a variety of foreign laws; and
. delays resulting from difficulty in obtaining export licenses for technology.
We are also subject to general geopolitical risks in connection with our
international operations, such as political and economic instability and changes
in diplomatic and trade relationships. In addition, because our international
sales are denominated in U.S. dollars, increases in the value of the U.S. dollar
could increase the price in local currencies of our products in foreign markets
and make our products relatively more expensive than competitors' products that
are denominated in local currencies. Regulatory, geopolitical and other factors
could seriously harm our business or require us to modify our current business
practices.
Our potential future acquisitions may not be successful because we have not made
acquisitions in the past.
We have depended on internal growth in the past and have not made any
acquisitions. As part of our business strategy, we expect to seek acquisition
prospects that would complement our existing product offerings, improve market
coverage or enhance our technological capabilities. We have no current
agreements or negotiations underway with respect to any acquisitions, and we may
not be able to locate suitable acquisition opportunities. Future acquisitions
could result in the following:
. potentially dilutive issuances of equity securities;
. large one-time write-offs;
. the incurrence of debt and contingent liabilities or amortization expenses
related to goodwill and other intangible assets;
. difficulties in the assimilation of operations, personnel, technologies,
products and the information systems of the acquired companies;
. diversion of management's attention from other business concerns; and
. risks of entering geographic and business markets in which we have no or
limited prior experience and potential loss of key employees of acquired
organizations.
We are not certain that we will be able to successfully integrate any
businesses, products, technologies or personnel that may be acquired in the
future. Our failure to do so could seriously harm our business.
Our operations and financial results could be severely harmed by natural
disasters.
Our headquarters and some of our major suppliers' manufacturing facilities are
located near major earthquake faults. One of the foundries we use is located in
Taiwan, which suffered a severe earthquake during fiscal 2000. We did not
experience significant disruption to our operations as a result of that
earthquake. However, if a major earthquake or other natural disaster were to
affect our suppliers, our sources of supply could be interrupted, which would
seriously harm our business.
18
ITEM 2. PROPERTIES
We lease approximately 53,400 square feet of space in San Jose, California in
which our headquarters, technology and product development and testing
facilities are located. The facility is leased through July 2004, with renewal
options. We also have sales offices located in San Jose, California; Dallas,
Texas; Marlborough, Massachusetts; and Cary, North Carolina as well as in
Taiwan, Japan, Singapore and the United Kingdom. We believe our current
facilities are adequate to support our needs through the end of fiscal 2001.
ITEM 3. LEGAL PROCEEDINGS
The semiconductor industry is characterized by frequent litigation regarding
patent and other intellectual property rights, and there can be no assurance
that we will not be subject to infringement claims by other parties. In May
1995, Quality Semiconductor, Inc. ("QSI"), a competitor, brought a lawsuit
against us, claiming infringement of one of its patents by certain features in
certain of our bus switch products and seeking injunctive relief and unspecified
monetary damages. We settled this claim in fiscal 1999 without material adverse
effect on our financial position or results of operations. However, any
litigation, whether or not determined in our favor, can result in significant
expense to us and can divert the efforts of our technical and management
personnel from productive tasks. In the event of an adverse ruling in any
litigation involving intellectual property, we might be required to discontinue
the use of certain processes, cease the manufacture, use and sale of infringing
products, expend significant resources to develop non-infringing technology or
obtain licenses to the infringed technology, and may suffer significant monetary
damages, which could include treble damages. In the event we attempt to license
any allegedly infringed technology, there can be no assurance that such a
license would be available on reasonable terms or at all. In the event of a
successful claim against us and our failure to develop or license a substitute
technology on commercially reasonable terms, our business and results of
operations would be materially and adversely affected. There can be no assurance
that any potential infringement claims by other parties (or claims for indemnity
from customers resulting from any infringement claims) will not materially and
adversely affect our business, financial condition and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
19
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated by reference to page 22 of
the Company's 2000 Annual Report to Shareholders. During fiscal year 2000, the
Company did not sell any unregistered securities.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference to page 2 of
the Company's 2000 Annual Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is incorporated by reference to pages 3 to
6 of the Company's 2000 Annual Report to Shareholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is incorporated by reference to the
information appearing under the caption "Market Risk Disclosure" under the
heading "Management's Discussion and Analysis of Financial Condition and Results
of Operations" appearing on page 6 of the Company's 2000 Annual Report to
Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item are incorporated by reference to
pages 7 to 21 of the Company's 2000 Annual Report to Shareholders. The
unaudited quarterly results of operations are incorporated by reference to page
21 of the Company's 2000 Annual Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Company and their respective ages as
of June 30, 2000 are as follows:
Name Age Position(s)
---- --- -----------
Alex Chi-Ming Hui 43 Chief Executive Officer, President and
Chairman of the Board of Directors
Chi-Hung (John) Hui, Ph.D.(1) 45 Vice President, Technology and Director
Patrick B. Brennan 62 Vice President, Finance and Administration
Tat C. Choi, Ph.D. 45 Vice President, Design Engineering
Mark Downing 40 Vice President, Marketing
Daniel W. Wark 44 Vice President, Operations
Hau L. Lee, Ph.D. (1) 47 Director
Millard (Mel) Phelps (1) 72 Director
Tay Thiam Song (2) 45 Director
Jeffery Young (2) 51 Director
______________
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
Alex Chi-Ming Hui has been Chief Executive Officer, President and a member of
the Board of Directors of the Company since its inception in June 1990, and was
elected Chairman of the Board of Directors of the Company in July 1999. From
August 1982 to May 1990, Mr. Hui was employed by LSI Logic Corporation, most
recently as its Director of Advanced Development. From August 1980 to July 1982,
Mr. Hui was a member of the technical staff of Hewlett-Packard Company. Mr. Hui
holds a B.S.E.E. from the Massachusetts Institute of Technology and an M.S.E.E.
from the University of California at Los Angeles.
Chi-Hung (John) Hui, Ph.D., has been Vice President, Technology and a member of
the Board of Directors of the Company since its inception in June 1990. From
August 1987 to June 1990, Dr. Hui was employed by Integrated Device Technology,
most recently as Manager of its Research and Development Department. From August
1984 to August 1987, Dr. Hui was a member of the technical staff of Hewlett-
Packard Company. Dr. Hui holds a B.S.E.E. from Cornell University and an
M.S.E.E. and a Ph.D. in Electrical Engineering from the University of California
at Berkeley.
Patrick B. Brennan has been Vice President, Finance and Administration of the
Company since March 1993. From February 1991 to March 1993, Mr. Brennan was
employed by Datacord, Inc., a subsidiary of Newell Research, Inc., as its Vice
President, Finance, and from July 1985 to February 1991, he was employed as the
Vice President, Finance of SEEQ Technology, Inc. From January 1980 to June 1985,
he was employed by National Semiconductor Corporation, most recently as Vice
President and Treasurer. Mr. Brennan holds a B.S. in Business Administration
from Arizona State University.
Tat C. Choi, Ph.D., joined the Company in April 1998 as Vice President, Design
Engineering. From September 1996 to March 1998, Dr. Choi was employed by
Anacor, Inc., an engineering design service consulting firm that he founded.
Prior to working at Anacor, Inc. Dr. Choi was employed by Chrontel, Inc. most
recently as its Vice President, Engineering from September 1989 to August 1996.
Dr. Choi was employed by Advanced Micro Devices from February 1983 to August
1989 as a Senior Member of
21
Technical Staff. Dr. Choi holds a B.S. and M.S. in Electrical Engineering from
the University of Minnesota and a Ph.D. in EECS from the University of
California at Berkeley.
Mark Downing has been the Vice President, Marketing of the Company since October
1997. From March 1988 to October 1997, Mr. Downing was employed by National
Semiconductor Corporation most recently as the Marketing Director for Power
Management Products. Mr. Downing also held other senior marketing management
positions at National Semiconductor Corporation in the Amplifier Products,
Automotive Products and Analog Products divisions. Prior to National
Semiconductor Corporation Mr. Downing was employed by Ferranti Electronics Ltd.
from September 1983 to February 1988 most recently as a Senior Product Marketing
Engineer. Mr. Downing holds a B.S. in Physics from Aston University of
Birmingham, England and an MBA from Open University of Milton Keynes, England.
Daniel W. Wark joined the Company in April 1996 as its Director of Operations
and became its Vice President, Operations in July 1997. From May 1983 to
December 1995, Mr. Wark was employed by Linear Technology Corporation
("Linear"), most recently as Director of Corporate Services. Other positions
that Mr. Wark held at Linear included Managing Director of its Singapore
Operations and Production Control Manager. Prior to his employment with Linear,
Mr. Wark was employed by National Semiconductor Corporation and Avantek, Inc.
Mr. Wark holds a B.S. in Business Administration from San Jose State University
and an APICS certification.
Hau L. Lee, Ph.D, has been a member of the Board of Directors since July 1999.
From February 1997 through the present Dr. Lee has been Kleiner Perkins,
Mayfield, Sequoia Capital Professor in the Department of Industrial Engineering
and Engineering Management and from September 1998 through the present has been
Professor of Operations, Information and Technology Management at the Graduate
School of Business at Stanford University. From September 1992 through the
present he has been Professor of Industrial Engineering and Engineering
Management at Stanford University. He is the founding and current director of
the Stanford Global Supply Chain Management Forum, and has consulted extensively
for companies such as Hewlett Packard, Sun Microsystems, IBM, Xilinx
Corporation, Motorola, and Andersen Consulting. Dr. Lee is a graduate of the
University of Hong Kong and earned his M.S. in Operational Research from the
London School of Economics and his M.S. and Ph.D. degrees in Operations Research
from the Wharton School at the University of Pennsylvania.
Millard (Mel) Phelps has been a member of the Board of Directors since July
1999. Mr. Phelps is a retired advisory director of Hambrecht and Quist (H&Q), a
position he held from September 1994 to July 1997. Prior to joining H&Q in 1984
as a Principal in the firm and Senior Semiconductor Analyst, Mr. Phelps spent
23-years in the semiconductor industry in various management and corporate
officer positions. Mr. Phelps is currently serving as a Director of Trident
Microsystems and is also a director of four privately held companies. Mr. Phelps
holds a BSEE degree with honors from Case Reserve University.
Tay Thiam Song has been a member of the Board of Directors since June 1992. Mr.
Tay resides in Singapore, and, since 1985, has been serving as the Executive
Director of various companies in Singapore and Malaysia, including Daiman Group
(a Malaysian public company) and Chye Seng Tannery (Pte) Ltd. Mr. Tay holds a
B.A. in Accounting from the North East London Polytechnic University.
Jeffrey Young has been a member of the Board of Directors since August 1995.
Since 1988, Mr. Young has been a resident of Singapore and from 1990 to the
present has served as the Executive Director of Daiman Roof Tiles Sdn. Bhd., a
subsidiary of the Daiman Group, and from 1989 to the present as a Director of
Great Wall Brick Work Sdn. Bhd., and from 1993 to the present as a Director of
Daiman Singapore (Pte) Ltd., and has been a Director of Daiman Investments
(Australia) Pty. Ltd. from 1993 to the present. Mr. Young holds a B.S. from the
Electronic College of Canton, People's Republic of China.
All directors of the Company serve until the next annual meeting of the
shareholders of the Company and until their successors have been duly elected
and qualified. Each officer serves at the discretion of the Board of Directors.
Mr. Hui and Dr. Hui are brothers, and Mr. Young and Mr. Tay are brothers-in-law.
22
There are no other family relationships among any of the directors, officers or
key employees of the Company.
Information regarding delinquent filers pursuant to Item 405 of Regulation S-K
will be included in the section captioned "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Proxy Statement and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
section captioned "Executive Compensation" contained in the Company's Definitive
Proxy Statement related to the Annual Meeting of Shareholders to be held
December 14, 2000, to be filed by the Company with the Securities and Exchange
Commission (the "Proxy Statement").
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
section captioned "Security Ownership of Certain Beneficial Owners and
Management" contained in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
section captioned "Certain Transactions" contained in the Proxy Statement.
23
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements
The following financial statements of Pericom Semiconductor
Corporation are incorporated by reference to pages 7 to 21 of the
Company's 2000 Annual Report to Shareholders:
Independent Auditors' Report
Balance Sheets - June 30, 2000 and 1999
Statements of Income - Years Ended June 30, 2000, 1999 and 1998
Statements of Shareholders' Equity and Comprehensive Income - Years
Ended June 30, 2000, 1999 and 1998
Statements of Cash Flows - Years Ended June 30, 2000, 1999 and 1998
Notes to Financial Statements
(2) Financial Statement Schedules
The following financial statement schedule of the Registrant is filed
as part of this report.
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
(3) Exhibits
3.2 Restated Articles of Incorporation of the Registrant (1)
3.3 Amended and Restated Bylaws of the Registrant (2)
10.1 Registrant's 1990 Stock Option Plan, including Forms of
Agreements thereunder (1)
10.2 Registrant's 1995 Stock Option Plan, including Forms of
Agreements thereunder (1)
10.3 Registrant's 1997 Employee Stock Purchase Plan, including Forms
of Agreements thereunder (1)
10.4 Lease, dated November 29, 1993, by and between Orchard Investment
Company Number 510 as Landlord and Registrant as Tenant, as
amended (1)
10.5 Third Amendment to Lease, dated April 23, 1999, by and between
CarrAmerica Realty Corporation as Landlord and Registrant as
Tenant (2)
10.6 Fourth Amendment to Lease, dated January 21, 2000, by and between
CarrAmerica Realty Corporation as Landlord and Registrant as
Tenant
10.7 Fifth Amendment to Lease, dated May 1, 2000, by and between
CarrAmerica Realty Corporation as Landlord and Registrant as
Tenant
10.10 Second Amended Investors Rights Agreement, dated July 21, 1993,
by and among the Registrant and the holders of Series A, Series
B, and Series C Preferred Stock (1)
10.11 Form of Indemnification Agreement (1)
10.12 Pericom Technology Agreement, dated March 17, 1995 by and between
the Registrant and Pericom Technology, Inc. (1)
13.1 2000 Annual Report to Shareholders
23.1 Consent of Independent Auditors
27.1 Financial Data Schedule for the Year Ended June 30, 2000
24
(1) Incorporated herein by reference to the Company's Registration
Statement on Form S-1 ("Registration Statement"), File No. 333-
35327, in which the exhibit bears the same number.
(2) Incorporated herein by reference to the Company's fiscal 1999
Annual Report on Form 10-K ("Form 10-K"), File No. 000-27026, in
which the exhibit bears the same name.
(b) Reports on Form 8-K:
The Company filed no reports on Form 8-K during the fourth quarter
ended July 1, 2000.
(c) Exhibits:
See list of exhibits under (a)(3) above.
(d) Financial Statement Schedules:
See list of schedules under (a)(2) above.
25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PERICOM SEMICONDUCTOR CORPORATION
By: /s/ ALEX C. HUI
--------------------------------------
Alex C. Hui
Chief Executive Office, President and
Chairman of the Board of Directors
Date: September 29, 2000
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ ALEX C. HUI Chief Executive Officer, President and September 29, 2000
- ---------------------------------
Alex C. Hui Chairman of the Board of Directors
(Principal Executive Officer)
/s/ PATRICK B. BRENNAN Vice President, Finance & Administration September 29, 2000
- ---------------------------------
Patrick B. Brennan (Principal Financial Officer and Accounting
Officer)
/s/ JOHN CHI-HUNG HUI Vice President, Technology and Director September 29, 2000
- ---------------------------------
John Chi-Hung Hui
/s/ JEFFREY YOUNG Director September 29, 2000
- ---------------------------------
Jeffrey Young
/s/ TAY THIAM SONG Director September 29, 2000
- ---------------------------------
Tay Thiam Song
/s/ MILLARD PHELPS Director September 29, 2000
- ---------------------------------
Millard Phelps
/s/ HAU L. LEE. Director September 29, 2000
- ---------------------------------
Hau L. Lee
26
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
We have audited the financial statements of Pericom Semiconductor Corporation as
of June 30, 2000 and 1999 and for each of the three years in the period ended
June 30, 2000 and have issued our report thereon dated July 25, 2000; such
financial statements and report are incorporated by reference in this 2000
Annual Report on Form 10-K. Our audits also included the financial statement
schedule of Pericom Semiconductor Corporation, listed in Item 14(a)(2). Such
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our
opinion, such financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
DELOITTE & TOUCHE LLP
San Jose, California
July 25, 2000
27
Schedule II
PERICOM SEMICONDUCTOR CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
Balance at Charged to Balance at
Beginning Costs and End of
Of Period Expenses Deductions Period
--------- -------- ---------- ------
Accounts receivable
allowances June 30,
2000 $2,570 $ 773 --- $3,343
1999 1,559 1,011 --- 2,570
1998 1,198 401 40 1,559
28