MARVELL TECHNOLOGY,

MRVL
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MARVELL TECHNOLOGY : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

06/09/2021 | 04:24pm


This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), which are subject to the "safe harbor" created by
those sections. These statements involve known and unknown risks, uncertainties
and other factors, which may cause our actual results to differ materially from
those implied by the forward-looking statements. Words such as "anticipates,"
"expects," "intends," "plans," "projects," "believes," "seeks," "estimates,"
"forecasts," "targets," "may," "can," "will," "would" and similar expressions
identify such forward-looking statements.

Forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ materially from those indicated in the
forward-looking statements. Factors that could cause actual results to differ
materially from those predicted include, but are not limited to:

• the impact of the COVID-19 pandemic or other future pandemics, on the global
economy and on our customers, suppliers, employees and business;
•our ability to successfully integrate and to realize anticipated synergies, on
a timely basis or at all, in connection with the Inphi merger;
• our ability to define, design and develop products for the Cloud,
infrastructure and 5G markets and to market and sell these products to our
customers;
• extension of lead time due to supply chain disruption, component shortages
that impact the production of our products and constrained availability from
other electronic suppliers impacting our customers' ability to ship their
products, which in turn may adversely impact our sales to those customers;
• the impact of international conflict, trade relations between the U.S. and
other countries, and continued economic volatility in either domestic or foreign
markets;
• the impact and costs associated with changes in international financial and
regulatory conditions such as the addition of new trade restrictions, tariffs or
embargos;
• our ability and the ability of our customers to successfully compete in the
markets in which we serve;
• our ability and our customers' ability to develop new and enhanced products
and the adoption of those products in the market;
• risks related to our debt obligations;
• our ability to scale our operations in response to changes in demand for
existing or new products and services;
• our reliance on our manufacturing partners for the manufacture, assembly and
testing of our products;
• the risks associated with manufacturing and selling a majority of our products
and our customers' products outside of the United States;
• the effects of transitioning to smaller geometry process technologies;
• the impact of any change in our application of the United States federal
income tax laws and the loss of any beneficial tax treatment that we currently
enjoy;
• our ability to execute on changes in strategy and realize the expected
benefits from restructuring activities;
• our ability to implement our plans, forecasts and other expectations with
respect to our acquisitions and to fully realize the anticipated synergies and
cost savings in the time frame anticipated;
• our ability to limit costs related to defective products;
• our ability to recruit and retain experienced executive management as well as
highly-skilled personnel;
• our ability to mitigate risks related to our information technology systems;
• our ability to protect our intellectual property, particularly outside of the
U.S.;
• our ability to estimate customer demand and future sales accurately;
• our reliance on third-party distributors and manufacturers' representatives to
sell our products;
• our maintenance of an effective system of internal controls;
• the impact of the highly cyclical and intensely competitive nature of the
markets for our products;
• our dependence on a small number of customers;
• severe financial hardship or bankruptcy of one or more of our major customers;
• the effects of any potential future acquisitions, strategic investments,
divestitures, mergers or joint ventures;
• risks associated with acquisition and consolidation activity in the
semiconductor industry;
• decreases in our gross margin and results of operations in the future due to a
number of factors;
• the impact of natural disasters and other catastrophic events; and
• the outcome of pending or future litigation and legal proceedings.

Additional factors which could cause actual results to differ materially include
those set forth in the following discussion, as well as the risks discussed in
Part II, Item 1A, "Risk Factors," and other sections of this Quarterly Report on
Form 10-Q. These forward-looking statements speak only as of the date hereof. We
undertake no obligation to update any forward-looking statements.
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Overview




We are a leading supplier of infrastructure semiconductor solutions, spanning
the data center core to network edge. We are a fabless semiconductor supplier of
high-performance standard and semi-custom products with core strengths in
developing and scaling complex System-on-a-Chip architectures integrating
analog, mixed-signal and digital signal processing functionality. Leveraging
leading intellectual property and deep system-level expertise as well as highly
innovative security firmware, our solutions are empowering the data economy and
enabling the datacenter, carrier, enterprise networking, consumer and automotive
industrial end markets.

In the first quarter of fiscal 2022, our net revenue increased year over year by
20% from $693.6 million net revenue in the first quarter of fiscal 2021 compared
with $832.3 million in the first quarter of fiscal 2022. The increase was
primarily due to increased sales of our networking products by 26% and increased
sales of our storage products by 17%, partially offset by decreased sales of our
other products by 24%.

On April 20, 2021, we completed the acquisition of Inphi Corporation ("Inphi").
Inphi is a global leader in high-speed data movement enabled by optical
interconnects. Their product portfolio includes laser drivers, trans-impedance
amplifiers, PAM (Pulse Amplitude Modulation) and Coherent DSPs (Digital Signal
Processors), differentiated silicon photonics, as well as an optical PHY
portfolio for interconnect inside and between the data center, as well as
interconnect for the carrier market. We and Inphi both have growing positions in
carrier and datacenter, and Inphi's high-speed electro-optics platform is highly
complementary to our storage, networking, compute, and security portfolio.
Inphi's electro-optics portfolio combined with our copper Ethernet PHY franchise
is expected to create an industry-leading high-speed data interconnect platform.
The operating results for the first quarter of fiscal 2022 include the operating
results of Inphi for the period from the date of acquisition to the Company's
first quarter ended May 1, 2021. In conjunction with the acquisition
transaction, Marvell and Inphi became wholly owned subsidiaries of the new
parent company, Marvell Technology, Inc. ("MTI") on April 20, 2021. The parent
company is domiciled in and subject to taxation in the United States.

In response to growth in demand from customers for our products, our operations
team is continuing to ramp production with our global supply chain partners.
However, we are experiencing a number of industry-wide supply constraints
affecting the type of high complexity products we provide for data
infrastructure. These supply challenges are currently limiting our ability to
fully satisfy the increase in demand for some of our networking products.

We continue to monitor the impact of COVID-19 on our business. While many of our
offices around the world remain open to enable critical on-site business
functions in accordance with local government guidelines, the majority of our
employees continue to work from home. We expect COVID-19 to continue to impact
our business and for a further discussion of the uncertainties and business
risks associated with the COVID-19 pandemic, see Part II, Item 1A, "Risk
Factors," including but not limited to the risk detailed under the caption "We
face risks related to COVID-19 pandemic which could significantly disrupt our
manufacturing, research and development, operations, sales and financial
results."

We expect that the U.S. government's export restrictions on certain Chinese
customers will continue to impact our revenue in fiscal year 2022. Moreover,
concerns that U.S. companies may not be reliable suppliers as a result of these
and other actions has caused, and may in the future cause, some of our customers
in China to amass large inventories of our products well in advance of need or
cause some of our customers to replace our products in favor of products from
other suppliers. Customers in China may also choose to develop indigenous
solutions, as replacements for products that are subject to U.S. export
controls. In addition, there may be indirect impacts to our business that we
cannot easily quantify such as the fact that some of our other customers'
products which use our solutions may also be impacted by export restrictions.

Capital Return Program. We remain committed to delivering stockholder value
through our share repurchase and dividend programs. On October 16, 2018, we
announced that our Board of Directors authorized a $700 million addition to the
balance of our existing share repurchase program. Under the program authorized
by our Board of Directors, we may repurchase shares in the open-market or
through privately negotiated transactions. The extent to which we repurchase our
shares and the timing of such repurchases will depend upon market conditions and
other corporate considerations, as determined by our management team. The share
repurchase program was temporarily suspended in late March 2020 to preserve cash
during the COVID-19 pandemic and the program remains suspended as we focus on
reducing our debt and de-levering our balance sheet. As a result, we did not
repurchase any shares during the three months ended May 1, 2021. We will
continue to evaluate business conditions to decide when we can restart the share
repurchase program. As of May 1, 2021, there was $564.5 million remaining
available for future share repurchases of the authorization.

As of May 1, 2021, a total of 308.1 million shares have been repurchased to date
under our share repurchase programs for a total $4.3 billion in cash. We
returned $40.6 million to stockholders in the three months ended May 1, 2021 in
cash dividends.

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Cash and Cash Equivalents. Our cash and cash equivalents were $522.5 million at
May 1, 2021, which was $226.0 million lower than our balance at our fiscal year
ended January 30, 2021 of $748.5 million.

Sales and Customer Composition. Historically, a relatively small number of
customers have accounted for a significant portion of our net revenue. During
the first quarter of fiscal 2022, there was no net revenue attributable to a
customer, other than one distributor, whose revenues as a percentage of net
revenue was 10% or greater of total net revenues. Net revenue attributable to
significant distributors whose revenue as a percentage of net revenue was 10% or
greater of total net revenue is presented in the following table:

Three Months Ended
May 1, May 2,
2021 2020

Distributor:
Wintech 19 % 11 %



We continuously monitor the creditworthiness of our distributors and believe
their sales to diverse end customers and geographies further serve to mitigate
our exposure to credit risk.

Most of our sales are made to customers located outside of the United States,
primarily in Asia, and majority of our products are manufactured outside the
United States
. Sales shipped to customers with operations in Asia represented
approximately 80% of our net revenue in the three months ended May 1, 2021, and
approximately 79% of net revenue in the three months ended May 2, 2020,
respectively. Because many manufacturers and manufacturing subcontractors of our
customers are located in Asia, we expect that most of our net revenue will
continue to be represented by sales to our customers in that region. For risks
related to our global operations, see Part II, Item 1A, "Risk Factors,"
including but not limited to the risk detailed under the caption "We face
additional risks due to the extent of our global operations since a majority of
our products, and those of our customers, are manufactured and sold outside of
the United States. The occurrence of any or a combination of the additional
risks described below would significantly and negatively impact our business and
results of operations."

Historically, a relatively large portion of our sales have been made on the
basis of purchase orders rather than long-term agreements. Customers can
generally cancel or defer purchase orders on short notice without incurring a
significant penalty. In addition, the development process for our products is
long, which may cause us to experience a delay between the time we incur
expenses and the time revenue is generated from these expenditures. We
anticipate that the rate of new orders may vary significantly from quarter to
quarter. For risks related to our sales cycle, see Part II, Item 1A, "Risk
Factors," including but not limited to the risk detailed under the caption "We
are subject to order and shipment uncertainties. If we are unable to accurately
predict customer demand, we may hold excess or obsolete inventory, which would
reduce our gross margin. Conversely, we may have insufficient inventory, which
would result in lost revenue opportunities and potential loss of market share as
well as damaged customer relationships."



Critical Accounting Policies and Estimates




There have been no material changes during the three months ended May 1, 2021 to
our critical accounting policies and estimates from the information provided in
the "Critical Accounting Policies and Estimates" section of our Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in our Annual Report on Form 10-K for the fiscal year ended January 30,
2021
.

In the current macroeconomic environment affected by COVID-19, our estimates
could require increased judgment and carry a higher degree of variability and
volatility. We continue to monitor and assess our estimates in light of
developments, and as events continue to evolve and additional information
becomes available, our estimates may change materially in future periods.


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Results of Operations

The following table sets forth information derived from our Unaudited Condensed
Consolidated Statements of Operations expressed as a percentage of net revenue:

Three Months Ended
May 1, May 2,
2021 2020
Net revenue 100.0 % 100.0 %
Cost of goods sold 49.8 52.9
Gross profit 50.2 47.1
Operating expenses:
Research and development 34.4 40.3
Selling, general and administrative 24.2 17.6
Restructuring related charges 1.5 3.1
Total operating expenses 60.1 61.0
Operating loss (9.9) (13.9)
Interest income - 0.2
Interest expense (4.2) (2.4)
Other income (loss), net 0.1 0.5
Loss before income taxes (14.0) (15.6)
Provision for income taxes (3.3) 0.7
Net loss (10.7) % (16.3) %




Three months ended May 1, 2021 and May 2, 2020




Net Revenue

Three Months Ended
May 1, May 2, %
2021 2020 Change

(in thousands, except percentage)
Net revenue $ 832,279 $ 693,641 20.0%



Our net revenue for the three months ended May 1, 2021 increased by $138.6
million
compared to net revenue for the three months ended May 2, 2020. This was
primarily due to increased sales of our networking products by 26%, and
increased sales of our storage products by 17%, partially offset by decreased
sales of other products by 24% compared to the three months ended May 2, 2020.
The increased sales of our networking products were primarily due to an increase
in demand for our ethernet, embedded processor and automotive networking
products across all end markets. In addition, Inphi contributed $21.8 million of
net revenue during the three months ended May 1, 2021. The increased sales of
our storage products were primarily due to an increase in demand for our SSD
controllers. The decrease in sales of our other products is because we have
stopped investing in these products and we expect that sales for these products
will continue to decline over time.

In the three months ended May 1, 2021, unit shipments were 8% higher and average
selling prices increased 12% compared to the three months ended May 2, 2020, for
an overall increase in net revenue of 20%. This was primarily driven by our
recent portfolio changes, including the acquisition of Avera ASIC business,
which increased our average selling prices.

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Cost of Goods Sold and Gross Profit

Three Months Ended
May 1, May 2, %
2021 2020 Change

(in thousands, except percentage)
Cost of goods sold $ 414,138 $ 366,739 12.9%
% of net revenue 49.8 % 52.9 %
Gross profit $ 418,141 $ 326,902 27.9%
% of net revenue 50.2 % 47.1 %



Cost of goods sold as a percentage of net revenue decreased for the three months
ended May 1, 2021 compared to the three months ended May 2, 2020, which is
primarily due to improved product mix. As a result, gross margin for the three
months ended May 1, 2021 increased 3.1 percentage points compared to the three
months ended May 2, 2020.


Research and Development

Three Months Ended
May 1, May 2, %
2021 2020 Change

(in thousands, except percentage)
Research and development $ 286,100 $ 279,584 2.3%
% of net revenue 34.4 % 40.3 %



Research and development expense increased by $6.5 million in the three months
ended May 1, 2021 compared to the three months ended May 2, 2020. The increase
was primarily due to lower non-recurring engineering credits of $6.4 million
recognized in the current period compared to the three months ended May 2, 2020.


Selling, general and administrative




Three Months Ended
May 1, May 2, %
2021 2020 Change

(in thousands, except percentage)
Selling, general and administrative $ 201,466 $ 122,027 65.1%
% of net revenue 24.2 % 17.6 %



Selling, general and administrative expense increased by $79.4 million in the
three months ended May 1, 2021 compared to the three months ended May 2, 2020.
The increase was primarily due to Inphi transaction expenses of $45.8 million
incurred in Q1 fiscal 2022, as well as $43.8 million stock based compensation
expense related to accelerated vesting of Inphi equity awards at merger close.


Restructuring Related Charges




Three Months Ended
May 1, May 2, %
2021 2020 Change

(in thousands, except percentage)
Restructuring related charges $ 12,886 $ 21,287 (39.5)%
% of net revenue 1.5 % 3.1 %



We recognized $12.9 million of total restructuring related charges in the three
months ended May 1, 2021 as we continue to evaluate our existing operations to
increase operational efficiency, decrease costs and increase profitability. See
"Note 7 - Restructuring" in the Notes to the Unaudited Condensed Consolidated
Financial Statements for further information.
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Interest Income

Three Months Ended
May 1, May 2, %
2021 2020 Change

(in thousands, except percentage)
Interest income $ 222 $ 1,058 (79.0)%
% of net revenue - % 0.2 %



Interest income decreased by $0.8 million in the three months ended May 1, 2021
compared to the three months ended May 2, 2020 due to lower interest rates on
our invested cash.


Interest Expense

Three Months Ended
May 1, May 2, %
2021 2020 Change

(in thousands, except percentage)
Interest expense $ (35,141) $ (16,830) 108.8%
% of net revenue (4.2) % (2.4) %



Interest expense increased by $18.3 million in the three months ended May 1,
2021
compared to the three months ended May 2, 2020. The increase was primarily
due to the write-off of issuance costs related to the bridge loan when the loan
was terminated in Q1 fiscal 2022, as well as interest expense on the 2020 term
loans in addition to the new 2026, 2028 and 2031 senior unsecured notes issued
in Q1 fiscal 2022.


Other Income, Net

Three Months Ended
May 1, May 2, %
2021 2020 Change

(in thousands, except percentage)
Other income, net $ 1,223 $ 3,754 (67.4)%
% of net revenue 0.1 % 0.5 %



Other income (loss), net, changed by $2.5 million in the three months ended
May 1, 2021 compared to the three months ended May 2, 2020. The higher income in
the three months ended May 2, 2020 was primarily due to income related to the
divestiture of the Wi-Fi connectivity business in fiscal 2020.

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Provision (benefit) for Income Taxes

Three Months Ended
May 1, May 2, %
2021 2020 Change

(in thousands, except percentage)
Provision (benefit) for income taxes $ (27,765) $


5,019 (653.2)%






Our income tax benefit for the three months ended May 1, 2021 was $27.8 million
compared to a tax expense of $5.0 million for the three months ended May 2,
2020
. Our income tax benefit for the three months ended May 1, 2021 differs from
the tax expense recorded in the same period in the prior year primarily due to
the tax impact of amortization of fair value adjustments related to the merger
with Inphi combined with the tax effect of stock based compensation deductions
versus the prior period. The effective tax rate for the three months ended
May 1, 2021 and May 2, 2020 differs from the U.S. statutory Federal rate of 21%
primarily due to the rate differential on foreign earnings.

Our provision for income taxes may be affected by changes in the geographic mix
of earnings with different applicable tax rates, changes in the realizability of
deferred tax assets and liabilities, discrete items, accruals related to
contingent tax liabilities and period-to-period changes in such accruals, the
results of income tax audits, the expiration of statutes of limitations, the
implementation of tax planning strategies, tax rulings, court decisions,
settlements with tax authorities and changes in tax laws and regulations. It is
also possible that significant negative evidence may become available that
causes us to conclude that a valuation allowance is needed on certain of our
deferred tax assets, which would adversely affect our income tax provision in
the period of such change in judgment. We also continuously evaluate realignment
of our legal structure in response to guidelines and requirements in various
international tax jurisdictions where we conduct business. Additionally, please
see the information in "Item 1A: Risk Factors" under the caption "Changes in
existing taxation benefits, rules or practices may adversely affect our
financial results."



Liquidity and Capital Resources




Our principal source of liquidity as of May 1, 2021 consisted of approximately
$522.5 million of cash and cash equivalents, of which approximately $350.3
million
was held by subsidiaries outside of the United States. We manage our
worldwide cash requirements by, among other things, reviewing available funds
held by our foreign subsidiaries and the cost effectiveness by which those funds
can be accessed in the United States. See "Note 12 - Income Taxes" in the Notes
to the Unaudited Condensed Consolidated Financial Statements for further
information.

In April 2021, we assumed $15.7 million in principal of Inphi's 0.75%
convertible senior notes due 2021 and $506 million in principal of Inphi's 0.75%
convertible senior notes due 2025 from Inphi. We also acquired capped call
assets in relation to the convertible debt. See "Note 5 - Debt" in the Notes to
the Unaudited Condensed Consolidated Financial Statements for additional
information.

In December 2020, to fund the Inphi acquisition, we executed a debt agreement to
obtain a $875 million 3-year term loan and a $875 million 5-year term loan. We
also executed a debt agreement to obtain a $750 million revolving credit
facility ("2020 Revolving Credit Facility"). In April 2021, we completed an
offering and issued (i) $500 million of senior notes with a 5 year term due in
2026, (ii) $750 million of senior notes with a 7 year term due in 2028, and
(iii) $750 million of senior notes with a 10 year term due in 2031. In addition,
in May 2021, in conjunction with the U.S. domiciliation, we exchanged certain of
our existing senior notes due in 2023 ("MTG 2023 Notes") and 2028 ("MTG 2028
Notes") that were previously issued by the former Bermuda-based parent with like
notes that are now issued by the new parent domiciled in Delaware. See "Note 5 -
Debt" in the Notes to the Unaudited Condensed Consolidated Financial Statements
for additional information.

In June 2018, we executed debt agreements to obtain a $900 million term loan and
$1.0 billion of senior unsecured notes in order to fund the Cavium acquisition.
In addition, we executed a debt agreement in June 2018 to obtain a $500 million
revolving credit facility ("2018 Revolving Credit Facility"). In December 2020,
the 2018 Revolving Credit Facility under the 2018 Credit Agreement was
terminated and replaced by the 2020 Revolving Credit Facility. The senior
unsecured notes were exchanged as described in the above paragraph. The 2018
Term Loan borrowings was repaid in full in the first quarter ended May 1, 2021.
See "Note 5 - Debt" in the Notes to the Unaudited Condensed Consolidated
Financial Statements for additional information.

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We believe that our existing cash, cash equivalents, together with cash
generated from operations, and funds from our 2020 Revolving Credit Facility
will be sufficient to cover our working capital needs, capital expenditures,
investment requirements and any declared dividends, repurchase of our common
stock and commitments for at least the next twelve months. Our capital
requirements will depend on many factors, including our rate of sales growth,
market acceptance of our products, costs of securing access to adequate
manufacturing capacity, the timing and extent of research and development
projects and increases in operating expenses, all of which are subject to
uncertainty.

To the extent that our existing cash and cash equivalents, together with cash
generated by operations, and funds available under our 2020 Revolving Credit
Facility are insufficient to fund our future activities, we may need to raise
additional funds through public or private debt or equity financing. We may also
acquire additional businesses, purchase assets or enter into other strategic
arrangements in the future, which could also require us to seek debt or equity
financing. Additional equity financing or convertible debt financing may be
dilutive to our current stockholders. If we elect to raise additional funds, we
may not be able to obtain such funds on a timely basis or on acceptable terms,
if at all. In addition, the equity or debt securities that we issue may have
rights, preferences or privileges senior to our common shares.

Future payment of a regular quarterly cash dividend on our common shares and our
planned repurchases of common stock will be subject to, among other things, the
best interests of us and our stockholders, our results of operations, cash
balances and future cash requirements, financial condition, developments in
ongoing litigation, statutory requirements under Delaware law, market conditions
and other factors that our board of directors may deem relevant. Our dividend
payments and repurchases of common stock may change from time to time, and we
cannot provide assurance that we will continue to declare dividends or
repurchase shares at all or in any particular amounts. Our share repurchase
program was temporarily suspended in late March 2020 to preserve cash during the
COVID-19 pandemic and the program remains suspended as we focus on reducing our
debt and de-levering our balance sheet. We will continue to evaluate business
conditions to decide when we can restart the share repurchase program.


Cash Flows from Operating Activities




Net cash flow used in operating activities for the three months ended May 1,
2021
was $13.7 million. We had a net loss of $88.2 million adjusted for the
following non-cash items: amortization of acquired intangible assets of $128.6
million
, share-based compensation expense of $92.7 million, depreciation and
amortization of $51.8 million, deferred income tax benefit of $22.6 million,
amortization of inventory fair value adjustment associated with the Inphi
acquisition of $13.7 million and $31.3 million net loss from other non-cash
items. Cash outflow from working capital of $221.1 million for the three months
ended May 1, 2021 was primarily driven by a decrease in accrued employee
compensation, decrease in accounts payable, a decrease in accrued liabilities
and other non-current liabilities as well as an increase in accounts receivable.
The decrease in accrued employee compensation is due to our annual bonus payment
in the current period. The decrease in accounts payable and accrued liabilities
and other non-current liabilities is primarily due to payment of banker success
fees. The increase in accounts receivable is due to revenue linearity and lower
sales reserves.

Net cash flow provided by operating activities for the three months ended May 2,
2020
was $175.6 million. We had a net loss of $113.0 million adjusted for the
following non-cash items: amortization of acquired intangible assets of $112.9
million
, share-based compensation expense of $59.7 million, depreciation and
amortization of $50.5 million, amortization of inventory fair value adjustment
associated with the Aquantia and Avera acquisition of $17.3 million, deferred
income tax expense of $2.4 million, and $11.5 million net loss from other
non-cash items. Cash outflow from working capital of $34.5 million for the three
months ended May 2, 2020 was primarily driven by a decrease in inventory and
accounts receivable, partially offset by a decrease in accrued employee
compensation. The decrease in inventory is due to improved supply chain
management. The decrease in accounts receivable is due to stable collections.
The decrease in accrued employee compensation is due to our annual bonus payment
in the current period.


Cash Flows from Investing Activities




For the three months ended May 1, 2021, net cash used in investing activities of
$3.6 billion was primarily driven by net cash paid to acquire Inphi of $3.6
billion
, purchases of property and equipment of $21.4 million, and purchases of
technology licenses of $3.4 million.

For the three months ended May 2, 2020, net cash used in investing activities of
$38.4 million was primarily driven by purchases of property and equipment of
$35.3 million and purchases of technology licenses of $3.7 million.

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Cash Flows from Financing Activities

For the three months ended May 1, 2021, net cash provided by financing
activities of $3.4 billion was primarily attributable to proceeds from issuance
of debt of $3.7 billion, proceeds from capped calls of $111.2 million partially
offset by $200.0 million repayment of debt principal, $73.2 million tax
withholding payments on behalf of employees for net share settlements, $71.1
million
of repurchase and settlement of convertible notes, $44.1 million
payments on technology license obligations and $40.6 million for payment of our
quarterly dividends.

For the three months ended May 2, 2020, net cash used in financing activities of
$117.3 million was primarily attributable to $39.8 million for payment of our
quarterly dividends, $31.5 million tax withholding payments on behalf of
employees for net share settlements, $25.2 million for repurchases of our common
stock, and $23.8 million payments for technology license obligations. These
outflows were partially offset by proceeds of $5.5 million from employee stock
plans.



Contractual Obligations and Commitments




Under our manufacturing relationships with our foundry partners, cancellation of
outstanding purchase orders is allowed but requires repayment of all expenses
incurred through the date of cancellation. At May 1, 2021, the Company had
approximately $819.5 million in outstanding purchase orders with foundries.

The following table summarizes our contractual obligations as of May 1, 2021 and
the effect that such obligations are expected to have on our liquidity and cash
flow in future periods (in thousands):

Payment Obligations by Fiscal Year
Reminder of 2022 2023 2024 2025 2026 Thereafter Total
Contractual obligations:
Principal payments on debt $ 1,867 $ -


$ 1,375,000 $ - $ 1,067,548 $ 2,500,000 $ 4,944,415
Interest obligations on debt


90,301 119,698 107,500 86,147 81,635 219,929 705,210
Facilities operating leases (1) 32,967 37,546 32,090 23,624 20,204 55,463 201,894
Purchase commitments to foundries 819,549 - - - - - 819,549
Capital purchase obligations 37, - - - - - 37,
Technology license obligations
(2) 85,977 78,253 49,729 309 309 - 214,577
Other contractual commitments 6,625 8,691 858 208 350 5,518 22,250
Total contractual cash
obligations $ 1,074,733 $ 244,188 $ 1,565,177 $ 110,288 $ 1,170,046 $ 2,780,910 $ 6,945,342



(1)Amounts exclude contractual sublease proceeds of $22.2 million to be received
through fiscal 2028.
(2)Amounts represent anticipated future cash payments, including anticipated
interest payments not recorded in the consolidated balance sheet.
In addition to the above commitments and contingencies, as of May 1, 2021, we
have $25.1 million of unrecognized tax benefits as liabilities. We also have a
liability for potential interest and penalties of $3.8 million as of May 1,
2021
. It is reasonably possible that the amount of unrecognized tax benefits
could increase or decrease significantly due to changes in tax law in various
jurisdictions, new tax audits and changes in the U.S. dollar as compared to
foreign currencies within the next 12 months. Excluding these factors, uncertain
tax positions may decrease by as much as $2.5 million from the lapse of statutes
of limitation in various jurisdictions during the next 12 months. Government tax
authorities from several non-U.S. jurisdictions are also examining our tax
returns. We believe that we have adequately provided for any reasonably
foreseeable outcomes related to these tax audits and that any settlement will
not have a material effect on our results at this time.


Indemnification Obligations



See "Note 10 - Commitments and Contingencies" in the Notes to the Unaudited
Condensed Consolidated Financial Statements set forth in Part I, Item 1 of this
Quarterly Report on Form 10-Q.



37



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