AVGO 10-K & 10-Q changes, risk factors and insider trading

Our business, operations and financial results are subject to various risks and uncertainties, including those described below, that could adversely affect our business, financial condition, results of operations, cash flows,flows and the trading price of our common stock. The following material factors, among others, could cause our actual results to differ materially from historical results and those expressed in forward-looking statements made by us or on our behalf in filings with the SEC, press releases, communications with investors and oral statements. Additional risks, trends and uncertainties not presently known to us or that we currently believe are immaterial may also harm our business, financial condition, results of operations, cash flows, our reputation or the trading price of our common stock.

•If we are unableFailure to protect the significant amount of IP we utilizeutilized in our business, our business could be adversely affected.affect our business.

Risks RelatingRelated to Our Taxes

Risks RelatingRelated to Our Indebtedness

Risks RelatingRelated to Owning Our Common Stock

A general slowdownweakening inof the globaleconomy economyglobally or in a particular region or industry, uncertainty and volatility in financial markets, efforts of governments to stimulate or stabilize the economy or to achieve specific policy objectives such as onshoring of semiconductor manufacturing and other unfavorable changes in economic conditions, such as inflation, higher interest rates, tightening of the credit markets, recession or slowing growth, oras well as an increase in trade tensions and related tariffs with U.S. trading partnerspartners, could negatively impact our business, financial conditioncondition, cash flows and liquidity. Adverse global economic conditions have from time to time caused or exacerbated significant slowdowns in the industries and markets in which we operate, which have adversely affected our business and results of operations. Macroeconomic weakness and uncertainty may also make it more difficult for us to accurately forecast operating results, and market volatility stemming from current macroeconomic events may makematerially itimpact moreour difficultcash flow and our ability to raise or refinance debt.debt at favorable rates. An escalation of trade tensions between the U.S. and China has resulted in trade restrictions, increased protectionism and increased tariffs that harm our ability to participate in Chinese markets or compete effectively with Chinese companies. Sustained uncertainty about, or worsening of, current global economic conditions and further escalation of trade tensions between the U.S. and its trading partners,partners especiallymay China,continue and the decoupling of the U.S. and China economies, couldto result in atrade global economic slowdownrestrictions and long-termincreased changesprotectionism on both ends that harm our ability to globalparticipate trade.in Suchsome events may also (i) cause our customers and consumers to reduce, delaymarkets or forgocompete technology spending, (ii) result in customers sourcing products from other suppliers not subject to such restrictions or tariffs, (iii) lead to the insolvency or consolidation of key suppliers and customers, and (iv) intensify pricing pressures. Any or all of these factors could negatively affect demand for our products and our business, financial condition and results of operations.effectively.

Our business is subject to various domestic and international laws and other legal requirements, including anti-competitionantitrust and import/export regulations, such as the U.S. Export Administration Regulations, and applicable executive orders. These laws,

orders.regulations, Theseorders, laws,tariffs, regulationsfederal policies and ordersother governmental actions are complex, maycontinue to evolve and change frequently and with limited notice,notice and generally become more stringent over time. We may be required to incur significant expenseexpenses to comply with,with these legal requirements or respond to remedyany violationsgovernmental of, these regulations.actions. In addition, if our suppliers or customers fail or choose not to comply with these regulations,legal requirements or governmental actions, we may be required to suspend salespurchasing from such suppliers or selling to thesesuch customers, which could damage our reputation and negativelyhave a material adverse impact on our results of operations. The U.S. government may continuecontinues to add companies to its restricted entity list and/or technologies to its list of prohibited exports to specific countries,countries and impose other restrictions or requirements, which have had and may in the future have an adverse effect on our revenuerevenue, supply chain and our ability to manufacture or sell our products. These restrictive governmental actions and any similar measures that may be imposed on U.S. companies by other governments, especially in light of ongoing trade tensions with China,U.S. trading partners, will likely limit or prevent us from doing business with certain of our customers or suppliers and harm our ability to compete effectively or otherwise negatively affect our ability to sell our products. Furthermore, foreign government authorities have proposed and/or may take retaliatory actions, impose conditions for the supply of products or require the license or other transfer of IP, which could have a material adverse effect on our business. Uncertainty due to such evolving policies or actions also may disrupt our supply chain and if we are unable to effectively mitigate any adverse impacts from such measures, this could adversely affect our business, financial condition and results of operations.

Our products and operations are also subject to regulation by U.S. and non-U.S. regulatory agencies, such as the U.S. Federal Trade Commission. We have previously been, and may in the future be, involved or required to participate in regulatory investigations or inquiries,inquiries suchfrom asregulatory authorities in Korea, Japan and the ongoingEuropean investigation by the Korean Fair Trade CommissionUnion into certain of our contracting and business practices, which have previously and may in the future evolve into legal or other administrative proceedings. GrowingThe publictechnology concern over concentration of economic power in corporationsindustry is leadingsubject to increasedintense anti-competitionmedia, legislation, regulation, administrative rule makingpolitical and enforcementregulatory activity.scrutiny, which can increase our exposure to government investigations, regulations, legal actions and penalties. Involvement in regulatory investigations or inquiries can be costly, lengthy, complex and time consuming,time-consuming, diverting the attention and energies of our management and technical personnel. If any pending or future governmental investigations result in an unfavorable resolution, we could be required to cease the manufacture and sale of the subject products or technology, pay fines or disgorge profits or other payments, and/or cease certain conduct and/or modify our contracting or business practices, which could have a material adverse effect on our business, financial condition and results of operations.

•changes in political, regulatory, legal or economic conditions, geopolitical turmoil (including China-Taiwan relations), including terrorism, war or political or military coups, state-sponsored or politically motivated cyber-attacks, or civil disturbancesdisturbances, or political instability (foreign and domestic);

•restrictive or retaliatory governmental actions, such as restrictions on the transfer or repatriation of funds and foreign investments, data privacy regulations, climatesustainability-related change regulations andregulations, trade protection measures, including increasing protectionism,protectionism and economic nationalism, import/export restrictions (including with regards to advanced technologies), import/export duties and quotas, trade sanctionssanctions, and customs duties and tariffs, all of which have increased and may further increase;

•potential inability to localize our software products;

A significant legal risk associated with conducting business internationally is compliance with the various and differing laws and regulations of the many countries in which we do business. Although our policies and procedures prohibit us, our employees and our agents from engaging in unethical business practices,practices and are designed to satisfy regulatory requirements, there can be no assurance that all of ourthese employees,measures distributorswill be effective in preventing violations or other agents will refrain from acting in violationclaims of our related anti-corruption or other policies and procedures.violations. Any such violation or perceived violation could have a material adverse effect on our business.

The following section generally discusses our financial condition and results of operations for our fiscal year ended November 3,2, 20242025 (“fiscal year 20242025”) compared to our fiscal year ended OctoberNovember 29,3, 20232024 (“fiscal year 20232024”). A discussion regarding our financial condition and results of operations for fiscal year 20232024 compared to our fiscal year ended October 30,29, 20222023 can be found in Part II, Item 7 of our Annual Report on Form 10-K for fiscal year 2023,2024, filed with the Securities and Exchange Commission (the “SEC”) on December 14,20, 2023.2024.

We are a global technology leader that designs, develops and supplies a broad range of semiconductor and semiconductor-based solutions and infrastructure software solutions. We developOur semiconductor devicesand withsemiconductor-based solutions include a focusbroad onportfolio of complex digital and mixed signal devices based on silicon wafers with complementary metal oxide semiconductor based devices and analogtransistors, III-V based products.devices, Wenetwork offerinterface thousandscards ofand productsother thatmodules, switches, subsystems and, in some cases, racks. Our solutions are used in a wide array of environments, end products and applications, such as enterprise and data center networking, including artificial intelligence (“AI”) data centers, servers and networking and connectivity,connectivity equipment, as well as storage systems, home connectivity,connectivity devices, set-top boxes, broadband access, telecommunication equipment, smartphoneswireless devices and base stations, data center servers and storage systems, factory automation, power generation and alternative energy systems, and electronic displays. Our infrastructure software solutions help enterprises simplify their information technology environmentsenvironments. so they can increase business velocity and flexibility, and enableOur customers torely plan,on develop, deliver, automate, manage and secure applications across mainframe, distributed, edge, mobile, and private and hybrid cloud platforms. Our portfolio ofour infrastructure and security software is designedsolutions to modernize, optimize, and secure the most complex private andcloud, hybrid cloud environments,and enablingedge environments. This enables scalability, agility, automation, insights, resiliency and securitysecurity, making it easy for customers to run their mission-critical workloads. We also offer mission-critical fibre channel storage area networking (“FC SAN”) products and related software in the form of modules, switches and subsystems incorporating multiple semiconductor products.

We have two reportable segments: semiconductor solutions and infrastructure software. Our semiconductor solutions segment includes all of our semiconductor-based product lines and intellectual property (“IP”) licensing. Our infrastructure software segment includes our private and hybrid cloud, applicationmainframe developmentsoftware, cybersecurity and delivery,enterprise software-definedsoftware edge, application networking and security, mainframe, distributed and cybersecurity solutions,portfolios, and our FC SAN business.

Our strategy is focused on sustained technology leadership and developing category-leading semiconductor and infrastructure software solutions deliveringto deliver a comprehensive suite of innovative infrastructure technology products to the world’s leading business and government customers. We seek to achieve this through extensive internal research and development, as well as strategic acquisitions of businesses and technologies, as well as extensive internal research and development, to ensure our products retain their technology market leadership. This strategy results in a robust business model designed to drive diversified and sustainable operating and financial results.

The demand for our productssolutions has been affected in the past, and is likely to continue to be affected in the future, by various factors, including the following:

•anticipated or actual demand for AI-related products and solutions;

•our distributors’ product inventory and end customerend-user demand;

•the rate at which our present and future customers and end-users adopt our products and technologiessolutions in our target markets, including our AIAI-related related products,solutions, and the rate at which our customers' products that include our technologysolutions are accepted in their markets;

•the shift to cloud-based information technology solutions and services, such as hyperscale computing, which may adversely affect the timing and volume of sales of our productssolutions for use in traditional enterprise data centers; and

On November 22, 2023, we acquired VMware, Inc. (“VMware”) in a cash-and-stock transaction (the “VMware Merger”). The VMware stockholders received approximately $30,788 million in cash and 544 million shares of Broadcom common stock with a fair value of $53,398 million. In addition, we assumed all outstanding VMware restricted stock unit (“RSU”) awards and performance stock unit awards held by continuing employees. The assumed awards were converted into RSU awards for shares of Broadcom common stock. All outstanding RSU awards held by non-employee directors and in-the-money VMware stock options were accelerated and converted into the right to receive cash and shares of Broadcom common stock, in equal parts.

Acquisition of Seagate’s SoCSystem-on-Chip Operations

On April 23, 2024, we acquired certain assets related to the design, development, and manufacture of System-on-Chip (“SoC”) operations of Seagate Technology Holdings plc for $600 million.

A majority of our net revenue is derived from sales of a broad range of semiconductor devicesand semiconductor-based solutions that are incorporated into electronic products, as well as from modules, switches and subsystems.subsystems and, in some cases, racks. Net revenue is also generated from the sale of software solutions that enable our customers to plan, develop, deliver, automate, manage, and secure applications across mainframe, distributed, edge, mobile, and private and hybrid cloud platforms.

Our overall net revenue, as well as the percentage of total net revenue generated by sales in our semiconductor solutions and infrastructure software segments, have varied from quarter to quarter, due largely to fluctuations in end-market demand, including the effects of seasonality,demand which are discussed in detail in Part I, Item 1.1A. BusinessRisk under “Seasonality”Factors of this Annual Report on Form 10-K.

Our software customers generally consist of large enterprises that have computing environments from multiple vendors and are highly complex. Our private cloud infrastructure suite of solutions areis available directly from Broadcom, resellers and distributors, hyperscale cloud providers, value-added OEMs and VMware cloud service provider partners. VMware Cloud Foundation (“VCF”) provides license portability, which enables customers to purchase subscriptions of VCF software and move their VCF environments between on-premises data centers and supported cloud endpoints. We remain focused on strengthening relationships and increasing penetration within our existing core, mainframe, VMware, and Symantec endpoint customers and expanding the adoption of our enterprise software offerings with these customers. We believe our enterprise-wide license model will continue to offer our customers reduced complexity, more flexibility and an easier renewal process that will help drive revenue growth.

Research and development. Research and development expense consists primarily of personnel costs for our engineers engaged in the design and development of our products and technologies, including stock-based compensation expense. These expenses also include project material costs, third-party fees paid to consultants, prototype development expense, allocated facilities costs and other corporate expensesexpenses, and computer services costs related to supporting computer tools used in the engineering and design process.

Restructuring and other charges. Restructuring and other charges consist primarily of non-recurring charges related to compensation costs associated with employee exit programs, IP litigation, alignment of our global manufacturing operations, rationalization of product development program costs, facility and lease abandonments, fixed asset impairment, IPR&D impairment, and other exit costs, including curtailment of service or supply agreements.

Other income (expense),income, net. Other income (expense),income, net includes interest income, gains and losses on investments,investments or sales of businesses, foreign currency remeasurement, and other miscellaneous items.

Provision for (benefit from) income taxes. We benefit from the tax incentives extended to us in various jurisdictions to encourage investment or employment. Our tax incentives from the Singapore Economic Development Board provide that any qualifying income earned in Singapore is subject to tax incentives or reduced rates of Singapore income tax, subject to our compliance with the conditions specified in these incentives and legislative developments. These Singapore tax incentives are scheduled to expire through November 2030. The corporate income tax rate in Singapore that would otherwise apply to us would be 17%. We also have a tax holiday from our qualifying income earned in Malaysia, which is scheduled to expire in 2028.

Each tax incentive and tax holiday is subject to our compliance with various operating and other conditions. If we cannot, or elect not to, comply with any such operating conditions specified, we could, in some instances, be required to refund previously realized material tax benefits, or if such tax incentive or tax holiday is terminated prior to its expiration absent a new incentive applying, we will lose the related tax benefits earlier than scheduled. We may elect to modify our operational structure and tax strategy, which may not be as beneficial to us as the benefits provided under the present tax concession arrangements. Before taking into consideration the effects of the U.S. Tax Cuts and Jobs Act and other indirect tax impacts, the effect of these tax incentives and tax holiday decreased the provision for income taxes by approximately $2,261 million and $2,104 million for fiscal years 2024 and 2023, respectively.

Valuation of goodwill and long-lived assets. We perform an annual impairment review of our goodwill during the fourth fiscal quarter of each fiscal year, and more frequently if we believe indicators of impairment exist. The process of evaluating the potential impairment of goodwill is highly subjective and requires significant judgment. To review for impairment, we first assess qualitative factors to determine whether events or circumstances lead to a determination that it is more likely than not that the fair value of any of our reporting units is less than its carrying amount. Our qualitative assessment of the recoverability of goodwill, whether performed annually or based on specific events or circumstances, considers various macroeconomic, industry-specific and company-specific factors. These factors include: (i) severe adverse industry or economic trends; (ii) significant company-specific actions, including exiting an activity in conjunction with restructuring of operations; (iii) current, historical or projected deterioration of our financial performance; or (iv) a sustained decrease in our market capitalization below our net book value. After assessing the totality of events and circumstances, if we determine that it is not more likely than not that the fair value of any of our reporting units is less than its carrying amount, no further assessment is performed. If we determine that it is more likely than not that the fair value of any of our reporting units is less than its carrying amount, we calculate the fair value of that reporting unit and compare the fair value to the reporting unit’s net book value.

We operate on a 52- or 53-week fiscal year ending on the Sunday closest to October 31. Our fiscal year 2025 was a 52-week fiscal year. Fiscal year 2024 was a 53-week fiscal year.year Fiscaland yearsfiscal year 2023 andwas 2022a each52-week consistedfiscal of 52 weeks.year.

A relatively small number of customers account for a significant portion of our net revenue. Direct sales to one semiconductor solutions customer, which is a distributor, accounted for 28%32% and 21%28% of our net revenue for fiscal years 20242025 and 2023,2024, respectively.

We believe aggregate sales to our top five end customers, through all channels, accounted for approximately 40% and 35% of our net revenue for each of the fiscal years 20242025 and 2023, respectively.2024. We expect to continue to experience significant customer concentration in future periods. The loss of, or significant decrease in demand from, any of our top five end customers could have a material adverse effect on our business, results of operations and financial condition.

From time to time, some of our key semiconductor customers place large orders or delay orders, causing our quarterly net revenue to fluctuate significantly. This is particularly true of our products used in AI and wireless applications as fluctuations may be magnified by the timing of customer deploymentsdeployments, andas well as product launches,launches. andFor seasonalinfrastructure software, the transition to subscription licenses, as well as whether or not a customer has the right to terminate, causes variations in sales. In addition, the macroeconomic environment remains uncertain and may cause our net revenue torecognized fluctuatein significantlyeach and impact our results of operations.period.

Although we recognize revenue for the majority of our products when title and control transfer in Penang, Malaysia, we disclose net revenue by country based primarily on the geographic shipment or delivery location specified by our distributors, OEMs, contract manufacturers, channel partners, or software customers. In fiscal years 20242025 and 2023,2024, 20%17% and 32%,20%, respectively, of our net revenue came from shipments or deliveries to China (including Hong Kong). However, the end customers for either our products or for the end products into which our products are incorporated, are frequently located in countries other than China (including Hong Kong). As a result, we believe that a substantially smaller percentage of our net revenue is ultimately dependent on sales of either our product or our customers’ product incorporating our product, to end customers located in China (including Hong Kong).

Net revenue from our semiconductor solutions segment increased due to strong product demand for our networking products,solutions, primarily custom AI accelerators and AI networking products, partially offset by lower demand for our broadband and server storage products. Net revenue from our infrastructure software segment increased primarily due to contributionsstrong fromdemand VMware.for our VCF product, including license revenue recognized on contracts where customers do not have the right to terminate and the transition to a subscription license model.

As a percentage of net revenue, gross margin was 63%68% and 69%63% of net revenue for the fiscal years 20242025 and 2023,2024, respectively. The decreaseincrease was primarily due to higher amortizationrevenue impact on margin and higher infrastructure software gross margin percentage, driven by an increase in license revenue and lower infrastructure software labor costs following our integration of acquisition-related intangible assets from the VMware Merger. In addition, gross margin contributions from our infrastructure software segment were partially offset by less favorable margin within the semiconductor solutions segment driven by product mix.business.

Research and development expense increased $4,057$1,667 million, or 77%,18%, in fiscal year 2024,2025, compared to the prior fiscal year. The increase was primarily due to higher compensation, including higher stock-based compensation, as a result of an increase in headcount from the VMware Merger. The increase in stock-based compensation expense was also due to annual employee equity awards granted at higher grant-date fair values.compensation.

Selling, general and administrative expense increaseddecreased $3,367$748 million, or 211%,15%, in fiscal year 2024,2025, compared to the prior fiscal year. The increasedecrease was primarily due to higherlower compensation,compensation includingresulting from a decrease in headcount and lower VMware acquisition-related costs, partially offset by higher stock-based compensation, as a result of an increase in headcount from the VMware Merger. The increase in stock-based compensation expense was also due to annual employee equity awards granted at higher grant-date fair values.compensation.

Amortization of Acquisition-Related Intangible Assets in Operating Expenses

Amortization of acquisition-related intangible assets recognized in operating expenses increaseddecreased $1,850$1,213 million, or 133%,37%, in fiscal year 2024,2025, compared to the prior fiscal year primarily due to higherfull amortization of customer-related intangible assets from theprevious VMwaresoftware Merger.acquisitions other than VMware.

Restructuring and other charges recognized in operating expenses weredecreased $1,533$942 millionmillion, andor $244 million61%, in fiscal yearsyear 20242025, andcompared 2023,to respectively.the Theprior fiscal year 2024 charges primarily includeddue to lower employee termination costs fromassociated costwith reductionthe activitiesintegration related toof the VMware Merger. The fiscal year 2023 charges primarily included non-recurring charges related to IP litigation.business.

During the firstfiscal quarter of fiscal year ended NovemberMay 3,4, 20192025, (“fiscalwe yeargranted 2019”), our Compensation Committee approved a broad-based program of multi-year equity grants oftwo-year time- and market-based RSUsrestricted stock unit awards (the “Multi-YearTwo-Year Equity Awards”), in lieu of our annual employee equity awards historically granted onin Marchthe 15second quarter of each fiscal year. Each Multi-YearTwo-Year Equity Award vests on the same basis as fourtwo annual grants made on March 15 of each year, beginning in fiscal year 2019, with successive four-yearstaggered vesting periods.start We recognize stock-based compensation expense related to the Multi-Year Equity Awards from the grant date through their respective vesting date, ranging from 4 years to 7 years.dates

Unallocated expenses include amortization of acquisition-related intangible assets;assets, stock-based compensation expense;expense, restructuring and other charges;charges, and acquisition-related costs; and other costs thatwhich are not used in evaluating the results of, or in allocating resources to, our segments. Unallocated expenses increaseddecreased 192%4% in fiscal year 2024,2025, compared to the prior fiscal year, primarily due to higherlower amortization of acquisition-related intangible assets, stock-based compensation expense and restructuring and other charges.charges, Theseand increasesacquisition-related werecosts, primarilypartially dueoffset toby the VMware Merger. The increase inhigher stock-based compensation expense was also due to annual employee equity awards granted at higher grant-date fair values.expense.

Interest expense. Interest expense was $3,953$3,210 million and $1,622$3,953 million for fiscal years 20242025 and 2023,2024, respectively. The increasedecrease was primarily duefrom a reduction in outstanding debt balances and debt refinancing activities that drove lower effective interest rates compared to interest on debt incurred for the VMwareprior Merger.fiscal year.

Other income (expense),income, net. Other income (expense),income, net includes interest income, gains and losses on investments, foreign currency remeasurement and other miscellaneous items. Other income, net, was $406$455 million and $512$406 million for fiscal years 20242025 and 2023,2024, respectively. The decreaseincrease was primarily due to a gain on the sale of a business, partially offset by lower interest income as a result of alower interest rates on lower invested balance.balances.

Provision for income taxes. The provision for income taxes was $3,748 million and $1,015 million for fiscal yearsyear 20242024, and 2023, respectively. The increase was primarily due to the impact of a non-recurring intra-group transfer of certain IP rights to the United States as a result of supply chain realignment and the resulting shift in the jurisdictional mix of income.income, partially offset by excess tax benefits from stock-based awards.

Our short-term and long-term liquidity requirements primarily arise from: (i) business acquisitions and investments we may make from time to time, (ii) working capital requirements, (iiiii) research and development and capital expenditure needs, (iviii) cash dividend payments (if and when declared by our Board of Directors), (viv) interest and principal payments related to our $69,847$67,120 million of outstanding indebtedness,indebtedness andwith $3,152 million principal amounts payable within 12 months, (viv) payment of income taxes.taxes, (vi) business acquisitions and investments we may make from time to time, and (vii) discretionary share repurchases. Our ability to fund these requirements will depend, in part, on our future cash flows, which are determined by our future operating performance and, therefore, subject to prevailing global macroeconomic conditions and financial, business and other factors, some of which are beyond our control. We expect capital expenditures to be higher in the fiscal year ending November 2, 20252026 as compared to fiscal year 2024. Our debt and liquidity needs increased in fiscal year 2024 as a result of completing the VMware Merger. We funded the cash portion of the consideration with net proceeds from the issuance of $30,390 million in term loans (the “2023 Term Loans”), as well as cash on hand. We also assumed $8,250 million of VMware’s outstanding senior unsecured notes. During fiscal year 2024, we made repayments of $16,795 million on our 2023 Term Loans.2025.

A general weakening of the economy globally or in a particular region or industry, uncertainty and volatility in financial markets, efforts of governments to stimulate or stabilize the economy or to achieve specific policy objectives such as onshoring of semiconductor manufacturing and other unfavorable changes in economic conditions, such as inflation, higher interest rates, tightening of the credit markets, recession or slowing growth, as well as an increase in geopolitical conflicts, trade tensions and related tariffs with U.S. trading partners, could negatively impact our business, financial condition, cash flows and liquidity. In addition, unfavorable or volatile economic conditions or credit markets could adversely affect the ability of our customers and other AI infrastructure participants to obtain financings necessary for their anticipated capital expenditures which could adversely affect our business, financial condition, cash flows and liquidity. Adverse global economic conditions have from time to time caused or exacerbated significant slowdowns in the industries and markets in which we operate, which have adversely affected our business and results of operations. Macroeconomic weakness and uncertainty may also make it more difficult to accurately forecast operating results, and market volatility stemming from current macroeconomic events may materially impact our cash flow and our ability to raise or refinance debt at favorable rates. An escalation of trade tensions between the U.S. and its trading partners may continue to result in trade restrictions and increased protectionism on both ends that harm our ability to participate in some markets or compete effectively.

Our business is subject to various domestic and international laws and other legal requirements, including antitrust and import/export regulations, such as the U.S. Export Administration Regulations, and executive orders. These laws, regulations, orders, tariffs, federal policies and other governmental actions are complex, continue to evolve and change frequently with limited notice and generally become more stringent over time. We may be required to incur significant expenses to comply with these legal requirements or respond to governmental actions. In addition, if our suppliers or customers fail or choose not to comply with these legal requirements or governmental actions, become subject to export restrictions or are designated a “supply chain risk,” we may be required to suspend purchasing from such suppliers or selling to such customers, which could damage our reputation and have a material adverse impact on our results of operations. The U.S. government continues to add companies to its restricted entity list and/or technologies to its list of prohibited exports to specific countries and impose licensing and other restrictions or requirements, which have had and may in the future have an adverse effect on our revenue, supply chain and our ability to manufacture or sell our products. These restrictive governmental actions and any other measures that may be imposed on U.S. companies by other governments, especially in light of ongoing trade tensions with U.S. trading partners, can limit or prevent us from doing business with certain of our customers or suppliers, which may materially impact our ability to compete effectively or to sell our products and services. Furthermore, government authorities have proposed and may take retaliatory actions, impose conditions for the supply or sale of products or require licenses or approvals, which could have a material adverse effect on our business. Uncertainty due to such evolving policies or actions also may disrupt our supply chain or business, and if we are unable to effectively mitigate any adverse impacts from such measures, this could adversely affect our business, financial condition and results of operations.

Our products and operations are also subject to regulation by U.S. and non-U.S. regulatory agencies, such as the U.S. Federal Trade Commission. We have been, and may in the future be, involved or required to participate in regulatory investigations or inquiries from regulatory authorities in Korea, Japan and the European Union into certain of our contracting and business practices, which have and may in the future evolve into legal or other administrative proceedings. The technology industry is subject to intense media, political and regulatory scrutiny, which can increase our exposure to government investigations, regulations, legal actions and penalties. Involvement in regulatory investigations or inquiries can be costly, lengthy, complex and time-consuming, diverting the attention and energies of our management and technical personnel. If any pending or future governmental investigations result in an unfavorable resolution, we could be required to cease the manufacture and sale of, or modify, the subject products or technology, pay fines or disgorge profits or other payments, and/or cease certain conduct and/or modify our contracting or business practices, which could have a material adverse effect on our business, financial condition and results of operations.

The semiconductor industry is highly cyclical and is subject to rapid price increase or erosion, wide fluctuations in product supply and demand, constant and rapid technological change and evolving technical standards and product applications. The semiconductor industry is undergoing profound change due to the adoption and proliferation of AI and has experienced a significant upturn, which may not be sustainable.sustainable due to a market correction, the perceived existence of an AI spending "bubble" or other factors. The growth of AI is creating pressure on the semiconductor industry to timely design, manufacture and deliver semiconductor products and solutions to meet customer demand for computing power and AI infrastructure. SomeIf our AI customers substantially reduce their business or AI infrastructure plans, substantially cancel, reduce or delay their orders, or are unable to generate a profit required to support their expenditures, it could have a material adverse effect on our business, financial condition, results of operations, cash flow or stock price. In addition, some of these AI customers may have constrained resources or capital and may be unable to pay for their required AI infrastructure and/or seekutilize alternative financing arrangementsarrangements, including through our AI XPV platform, or novel or deferred payment models from their vendors and suppliers, which could result incause additional counterparty credit or customer default risksrisk and may negatively impact our business, financial condition or results of operations. If our AI customers substantially reduce their expansion plans, cancel,

We have historically depended on a small number of end customers, original equipment manufacturers (“OEMs”), their respective contract manufacturers (“CMs”) and certain distributors for a majority of our business and revenue. For the twothree fiscal quarters ended MayAugust 3,2, 2026, sales to distributors accounted for 56% of our net revenue. We believe aggregate sales, through all channels, to our top five end customers accounted for approximately 45%50% of our net revenue for the twothree fiscal quarters ended MayAugust 3,2, 2026. This customer concentration increases the risk of quarterly fluctuations in our operating results and our sensitivity to any material adverse developments experienced by these customers. In addition, some customers may cancel, reduce or delay their orders or decline to purchase from us due to reduced capital expenditure spending, changes in their business strategy, lack of access to sufficient capital, delayed or cancelled AI infrastructure buildouts, downturn in their business, governmental actions such as being designated a “supply chain risk,” purchases from our competitors or their internal development of competing products or customer-owned tooling.

When our semiconductor customers agree to purchase specific quantities of products or source an agreed portion of their product needs from us, such arrangements often include pricing schedules or methodologies that apply regardless of the volume of products purchased, and those customers from time to time may not or do not purchase the amount of product we expect. Moreover, our top customers, including our AI solutions customers, may make and have made greater demands on us with regards to pricing and contractual terms, such as seeking to lease our custom AI accelerators or XPUs or requiring us to purchase and then lease to them full AI racks or systems based on our XPUs instead of purchasing these chips or racks directly, as well as alternative financing arrangements for such leasesleases, including through our AI XPV platform, or other novel or deferred payment models. As a result, we may not generate the amount of revenue or free cash flow or achieve the level of profitability that we or investors expect under such arrangements. In addition, such arrangements havemay impose and mayhave imposeimposed financial obligations, including backstops or guarantees, upon us or increase our exposure to counterparty credit or customer default risks,risk and a decrease in value of the underlying assets, failure to mitigate these risks could negatively impact our business, financial condition or results of operations. The loss of, or any substantial reduction in our sales to, any of our top customers, including our customers for our custom AI accelerators or XPUs or AI racks or systems based on our XPUs, could have a material adverse effect on our business, financial condition, results of operationsoperations, cash flows and cashstock flows.price.

The industries in which we compete are characterized by rapid technological change, new technological developments such as AI and cloud computing, changes in customer requirements, frequent new product introductions and enhancements, short product cycles, including due to AI-generated efficiencies, evolving industry standards, and new delivery methods, and subject to market conditions. To compete successfully in the semiconductor industry, we must continue to develop and respond to technological advancements and requirements, such as lower power consumption, higher bandwidth and large compute clusters, and we have, from time to time, evolved our business strategy and adopted new business models to address the needs and challenges of our customers and market conditions. Failure to successfully develop increasingly advanced technologies, including our custom AI accelerators or XPUs, network switches and other AI-related products, or evolve our business strategy or execute on our new business models such as those that enable our customers to access additional compute capacity or address fluctuating market conditions, including through the purchase and leasing of AI racks or systems, could impair our competitive position.

In order to remain competitive, we have made, and expect to continue to make, significant investments in research and development, evolve our business strategy and adopt new business models. If we fail to timely develop new and enhanced products and technologies, if we focus on technologies that do not become widely adopted, if new competitive technologies that we do not support become widely accepted, if we are unable to successfully evolve our business strategy or execute on our new business models such as those that enable our customers to access additional compute capacity, including through the purchase and leasing of AI racks or systems, or our customers proceed with customer-owned tooling, the demand for our products and solutions such as our custom AI accelerators or XPUs, network switches or other AI-related products may be reduced. To support our new business strategies or models, we may enter into purchasing, leasing or other arrangements with customers or other third-parties that could increase our costs and operational complexity. Slow or unsuccessful investments in our research and development efforts or expansion or modification of our business strategies and models and incurring significant expenses for these actions, would have a negative impact on our business, financial condition, cash flow and margins.

We operate a primarily outsourced manufacturing business model that principally utilizes CMs, such as third-party wafer foundries. Our semiconductor products require wafer manufacturers with state-of-the-art fabrication equipment and techniques,techniques and critical components within our supply chain, such as memory chips, and most of our products are designed to be manufactured in a specific process, typically at one particular fab or foundry, either our own or with a particular CM. Qualifying and establishing reliable production at acceptable yields with a new CM, if at all, is a lengthy and often expensive process.

We depend on our CMs to allocate sufficient manufacturing and packaging capacity and critical components to meet our needs, to produce products of acceptable quality at acceptable yields and prices, and to deliver those products to us on a timely basis. We domay notenter generally haveinto long-term capacity commitments with our CMsCMs, andbut substantially all ofgenerally our manufacturing services are on a purchase order basis with no minimum quantities. Further, from time to time, our CMs may raise their prices, or cease to,to or become unable to,to manufacture a component for us, and have had and may continue to have capacity and memory constraints in times of unprecedented demand. Our CMs may also fail to timely develop or successfully implement new, advanced manufacturing processes, including transitions to smaller geometry process technologies.

During the twothree fiscal quarters ended MayAugust 3,2, 2026, approximately 95% of the wafers manufactured by our CMs were produced by Taiwan Semiconductor Manufacturing Company Limited (“TSMC”). We believe our wafer requirements represent a meaningful portion of TSMC’s total production capacity. However, TSMC also fabricates wafers for other companies, including some of our competitors, and could choose or be required to materially prioritize capacity for other customers or reduce or eliminate deliveries to us on short notice. In addition, TSMC has raised, and may in the future raise, their prices to manufacture our wafers.

If any of the foregoing circumstances occur, we may be unable to meet our customers’ demand, or to the same extent as our competitors, fail to meet our contractual obligations or forgo revenue opportunities. This could damage our relationships with our customers, result in litigation for alleged failure to meet our obligations, or result in payment of significant damages, and our net revenue could decline, adversely affecting our business, financial condition,condition and results of operationsoperations, andincluding gross margin.

Our manufacturing processes and those of our CMs rely on many materials, including memory chips, silicon, gallium arsenide and indium phosphide (“InP”) wafers, copper lead frames, precious and rare earth metals, mold compound, ceramic packages, various chemicals and gases, and other components. During the twothree fiscal quarters ended MayAugust 3,2, 2026, we purchased more than three-quarters of our manufacturing materials from five materials suppliers, some of which are single source suppliers. The lead time needed to identify and qualify a new supplier is typically lengthy and there is often no readily available alternative source. We do not generally have long-term contracts with our materials suppliers and substantially all of our purchases are on a purchase order basis. Suppliers have previously, and may in the future, extend lead times, limit supplies, place productsmaterials on allocation, increase prices, or prioritize supplies for other customers, including with respect to memory chips, any of which couldhave disruptpreviously disrupted supply or increaseincreased demand in the industryindustry. andIf negativelywe impactare ourunable resultsto timely obtain sufficient quantities of operationsmaterials, andor ourwe abilityare unable to pass on increases in the cost of materials, we may be unable to fully meet our customers’ demand.demand and our results of operations, including gross margin, may be negatively impacted. Additionally, the supply of these materials has been, from time to time, impacted by increased trade tensions between the U.S. and its trading partners, particularly China, and the uncertainty due to evolving trade restrictions. Any such supply constraints could result in loss of revenue opportunities and adversely impact our business, financial condition and results of operations.

The timing of design wins is unpredictable and implementing production for a particular design win or multiple design wins at the same time, such as for our custom AI accelerators or XPUs, network switches and other AI-related products, may strain our resources and those of our CMs. Some of our customers who have selected us may also have constrained resources or capital but require immediate availability of our custom XPUs. We have dedicated, and expect to continue dedicating, significant additional resources to evolve our business strategy or execute on our new business models such as those that enable our customers to access additional compute capacity with alternative financing arrangementsarrangements, including through our AI XPV platform, or novel or deferred payment models, which could result in additional costs, expenses, counterparty credit orrisk, customer default risks,and reduced gross margin and cash flows.

We make significant decisions, including determining the levels of business that we will seek and accept, production schedules, levels of reliance on CMs and outsourcing, internal fabrication utilization and other resource requirements, and evolving our business strategy or adopting new business models such as those that enable our customers to access additional compute capacity, including through the purchase and leasing of AI racks or systems based on our XPUs, based on customer requirements or estimates thereof, which may not be accurate and could resultrapidly in reallocation of resources.change. Many factors could impact our estimates of customers’ demands, including changes in product development cycles, competing technologies and product releases, new or unexpected end-user products or applications, such as demand for AI-related products and solutions, and changes in business, regulatory, market and economic conditions. Our customers may also underestimate or be unable to obtain or develop the data center infrastructure or related power or water capacity needed to address end-user demand, which may impact our ability to timely satisfy their requirements. In addition, where our products are part of larger infrastructure projects like data centers, any supply constraints or availability issues with respect to any one component may impact our revenue or our results of operations. The Creating Helpful Incentives to Produce Semiconductors for America Act could also result in an increase in supply leading to excess inventory and a decrease in average selling prices. If we are unable to timely respond to changes in customer demand or execute on new business strategies or models, this could damage our customer relationships, harm our reputation, prevent us from taking advantage of opportunities and adversely impact our business, financial condition and results of operations.

Our gross margin is dependent on a number of factors, including our product mix, spending priorities, supply constraints and adoption of a new business model, price erosion, level of capacity utilization and commodity prices.model.

Our gross margin is highly dependent on our product mix, as well as the timing and amount of our revenue from our semiconductor solutions, software licensing and other products or solutions. In addition, increased competition and the existence of product alternatives, more complex engineering requirements, lower demand, shifts in spending priorities, constrained resources or capital of our customers, supply constraints, increased costs, unfavorable changes in economic or market conditions, industry oversupply or undersupply, or reductions in our technological lead compared to our competitors, and other factors have in the past and may in the future lead to further price erosion, lower revenue and lower gross margin. The gross margin for our semiconductor solutions has typically been lower than our infrastructure software solutions. The sale of our custom AI accelerators or XPUs, network switches and other AI-related products, including the sale or leasing of AI racks or systems based on our XPUs, will likely increase our operating margin but compress or lower future gross margin, which would adversely impact our stock price.

Our business depends on a wide variety of complex IT systems and services, including cloud-based and other critical corporate services relating to, among other things, product research and development, financial reporting, product orders and fulfillment, HR, benefit plan administration, IT network management, and electronic communication and collaboration services. These systems and services are both internally managed and outsourced, and in many cases we rely upon third-party data centers. Any failure of these internal or third-party systems and services to operate effectively could disrupt our operations and could have a material adverse effect on our business, financial condition and results of operations. Our operations are dependent upon our ability to protect our IT infrastructure against damage from business continuity events that could have a significant disruptive effect. Although these systems are designed to protect and secure our customers’, suppliers’ and employees’ confidential information, as well as our own proprietary information, we are, out of necessity, dependent on our vendors and third-party data centers to adequately address cybersecurity threats to their own systems and infrastructure, and timely deploy necessary mitigations. In addition, software products we use and technologies produced by us have occasionally had in the past and may have in the future, vulnerabilities that, if left unmitigated, could reduce the overall level of security of the systems on which the software is installed.

As a critical vendor in the digital supply chain for both governmental entities and critical infrastructure operators, we and our products may be targeted by those seeking to threaten the confidentiality, integrity and availability of systems supporting essential public services.services, which could have a material adverse effect on our business, profitability and financial condition. Geopolitical instability has increased and may continue to increase the likelihood that we will experience direct or collateral consequences from cyber conflicts between nation-states or other politically motivated actors targeting critical technology infrastructure.

Accidental or willful security breaches or other unauthorized access to our information systems or the systems of our service providers and business partners, or the existence of computer viruses or malware (such as ransomware) in our or their data or software have in the past exposed, and could in the future expose, us to a risk of information loss, business disruption, and misappropriation of proprietary and confidential information, including information relating to our products or customers and the personal information of our employees or third parties. Such an eventincident or delay in our mitigation or remediation of such incident could result in, among other things, unfavorable publicity, damage to our reputation, loss of our trade secrets and other competitive information, litigation by affected parties and possible financial obligations for liabilities and damages related to the theft or misuse of such information, significant remediation costs, disruption of key business operations and significant diversion of our resources, as well as fines and other sanctions resulting from any regulatory non-compliance, any of which could have a material adverse effect on our business, profitability and financial condition. While we may be entitled to damages if our vendors fail to perform under their agreements with us, any award may be insufficient to cover the actual costs incurred by us and, as a result of a vendor’s failure to perform, we may be unable to collect any damages.

Despite our internal controls and investment in security measures, we have, from time to time, been subject to disruptive cyber-attacks and unauthorized network intrusions and malware on our own IT networks or those of our service providers or business partners. Although no such cybersecurity incidents have been material to us, we continue to devote resources to protect our systems and data from unauthorized access or misuse, and we may be required to expend greater resources in the future. Businesses we acquire have previously increased, and may continue to increase, the scope and complexity of our IT networks, and this has, from time to time, increased our risk exposure to cyber-attacks when there are difficulties integrating diverse legacy systems that support operations for the acquired businesses.

U.S. and non-U.S. regulators, as well as customers and service providers, have also increased their focus on cybersecurity vulnerabilities and risks. Compliance with laws, regulations, and contractual provisions concerning privacy, cybersecurity, secure technology development, data governance, data protection, confidentiality and IP could result in significant expense, and any failure to comply could result in proceedings against us by regulatory authorities or other third parties and may also increase our overall compliance burden. See also “Failure of our software portfolio to manage and secure IT infrastructures and environments could have a material adverse effect on our business.”

We must maintain appropriate capacity and product yields at our own manufacturing facilities to meet anticipated customer demand. From time to time, this requires us to invest in new, expanded or improved facilities, which may not be sufficient or in time, to meet customer demand and we may have to put customers on product allocation, forgo sales or lose customers as a result. Conversely, if we overestimate customer demand, we would experience excess capacity and fixed costs atfor these facilities will not be fully absorbed, which could adversely affect our results of operations. Similarly, reduced product yields, due to design or manufacturing issues or otherwise, may involve significant time and cost to remedy and cause delays in our ability to supply productproducts to our customers, all of which could cause us to forgo sales, incur liabilities or lose customers, and harm our results of operations.

We sell our products through a direct sales force and a select network of distributors and other channel partners globally. Sales to distributors accounted for 56% of our net revenue in the twothree fiscal quarters ended MayAugust 3,2, 2026 and are subject to a number of risks, including:

AI and other forms of generative automation have increased the pace of discovery of vulnerabilities as well as the effectiveness and frequency of cyber threat activity. Although we continually seek to timely mitigate and remediate vulnerabilities and improve our countermeasures to prevent cyber incidents, certain cyber threats or vulnerabilities have in the past been and may in the future be undetected or unmitigated in time to prevent harm to us or our customers. Additionally, efforts by malicious cyber actors or others could cause interruptions, delays or cessation of our software delivery, or modification of our software, which could cause us to lose existing or potential customers.

Many of our software solutions and services are based on data center virtualization and related hybrid-cloud technologies used to manage distributed computing architectures, which form the foundation for private and hybrid cloud computing. Enabling businesses to modernize applications and efficiently implement their private and hybrid cloud services presents new and difficult technological, operational and compliance challenges. If businesses build new or shift existing compute workloads off-premises to public cloud providers, this could limit the market for deployments of our data center virtualization portfolio. Current and future customers may not accept our subscription licensing model or perceive benefits associated with adopting our enterprise-grade private and hybrid cloud platform or our simplified product portfolios, including new version releases.

Many of our existing software customers have multi-year enterprise software license agreements, some of which involve substantial aggregate fee amounts. These customers often do not have a contractual obligation to purchase additional solutions and may have the right to terminate.solutions. The failure or inability to renew customer agreements of similar scope, on terms that are commercially attractive to us, could materially adversely affect our business, financial condition, operating results and cash flow. In addition, the relative volume of our customer agreements signedgenerally withdo thenot rightpermit totermination terminatefor convenience and accounting for such contracts can cause material variations in revenue recognized in each period and our operating results to fluctuate from time to time.

Many of our software solutions and services incorporate open source software, the use of which may subject us to certain conditions, including the obligation to offer proprietary source code in such software for no cost or to make the proprietary source code of such software publicly available. Open source licenses are generally “as-is” and do not provide warranties, support or assurance of title or controls on origin, which may expose us to potential liability if the software fails to work or has security vulnerabilities.

Although we monitor our use of open source software to avoid subjecting our software to unintended conditions and security vulnerabilities, we may receive third-party claims regarding our compliance with the conditions of such open source licenses and we may be required to take steps to remedy an alleged infringement or noncompliance, including modifying or releasing our productsource code or paying damages.

Our contracts signed with the U.S. federal, state and local government and non-U.S. government agencies are generally subject to annual fiscal funding approval and may be renegotiated or terminated at the discretion of the government. Termination, renegotiation or the lack of funding approval for a contract could adversely affect our sales, revenue and reputation. If personnel critical to our performance of these contracts are unable to obtain or maintain the security clearance level required under such contracts, we may be unable to perform these contracts or compete for other projects of this nature, which could adversely affect our results of operations. Additionally, our government contracts and our arrangements with channel partners who may sell directly to government customers are generally subject to requirements that may generally not be present in commercial contracts and/or may be complex, as well as audits and investigations. Failure to meet contractual requirements could result in various civil and criminal actions and penalties, and administrative sanctions, including termination of contracts, refund of a portion of fees received, forfeiture of profits, suspension of payments, fines and suspensions or debarment from doing business with the government, which could materially adversely affect our business, financial condition, operating results and cash flow.

The industries in which we operate are highly competitive and characterized by rapid technological changes, evolving industry standards, changes in customer requirements, often aggressive pricing practices and, in some cases, new delivery methods. Competition in these industries continues to increase as existing competitors improve or expand their product offerings, as new competitors, including our customers, enter our markets or as AI continues to advance and be integrated into the markets in which we compete. To remain competitive, we seek to evolve our business strategy or adopt new business models from time to time, such as those that enable our customers to access additional compute capacity, that may require significant financial resources, which could have a material adverse effect on our results of operations. Moreover, we may offer and have offered alternative financing arrangementsarrangements, including through our AI XPV platform, or other novel or deferred payment models for the leasing of AI racks or systems based on our XPUs to effectively compete, which could have a material adverse effect on our revenue, free cash flow and gross margin and expose us to counterparty credit or customer default risks.risk.

The actions of our competitors, in the areas of pricing and product bundling in particular, could have a substantial adverse impact on us. Further, competitors may leverage their superior market position, as well as IP or other proprietary information, including interface, interoperability or technical information, in new and emerging technologies and platforms that may inhibit our ability to compete effectively. If we are unable to compete successfully, we may lose market share for our products or incur significant reduction in our gross margins, either of which could have a material adverse effect on our business and results of operations.

The industries in which we operate are characterized by companies holding large numbers of patents, copyrights, trademarks and trade secrets and vigorously pursuing, protecting and enforcing IP rights, including actions by patent-holding companies that do not make or sell products. From time to time, third parties assert against us and our customers and distributors their IP rights to technologies that are important to our business. We may be required to indemnify our customers or purchasers for third-party IP infringement claims, including defense costs to defend those claims, and payment of damages in the case ofon adverse rulings.rulings, However,while our CMs and suppliers may or mayare not bealways requiredobligated to indemnify us shouldin we or our customers be subject to such third-party claims.turn. Claims of this sort could also harm our relationships with our customers and might deter future customers from doing business with us. If any pending or future proceedings result in an adverse outcome, we could be required to:

We also generate revenue from licensing royalty payments and from technology claim settlements relating to certain of our IP. Licensing of our IP rights, particularly exclusive licenses, may limit our ability to assert those IP rights against third parties, including the licensee of those rights. In addition, from time to time, we acquire companies with IP that is subject to licensing obligations to other third parties. These licensing obligations have extended, and may in the future extend, to our own IP, limiting our ability to assert our IP rights.

We collect, use and store (collectively referred to as “process” in this paragraph) certain personal information in connection with the operation of our business. This creates various levels of privacy risks across different parts of our business, depending on the type of personal information, the jurisdiction in question and the purpose of their processing. The personal information we process is subject to an increasing number of federal, state, local, and foreign laws and regulations regarding privacy and data security, as well as contractual commitments. Privacy legislation and other data protection regulations, enforcement and policy activity in this area are expanding rapidly in many jurisdictions and creating a complex regulatory compliance environment. Sectoral legislation, certification requirements and technical standards applying to certain categories of our customers, such as those in the financial services or public sector, have exacerbated this trend. The cost of complying with and implementing these privacy-related and data governance measures could increase depending on any additional burdensome security, business processes, or business record or data localization requirements. Additionally, concerns about government interference and digital sovereignty, as well as expanding privacy, cybersecurity and data governance legislation, particularly in cloud computing and AI, could adversely affect our customers, our products and services and our own data management practices. The theft, loss or misuse of personal data collected, used, stored or transferred by us to run our business could result in significantly increased business and security costs or costs related to defending legal claims. Any inadvertent failure or perceived failure by us to comply with privacy, data governance or cybersecurity obligations may result in governmental enforcement actions, litigation, substantial fines and damages, and could cause our customers to lose trust in us, which could have an adverse effect on our reputation and business.

Significant judgment is required in determining our worldwide income taxes, and our calculations of income taxes payable currently and on a deferred basis are based on our interpretations of applicable tax laws. Although we believe our tax estimates are reasonable, there is no assurance that the final determination of our income tax liability will not be materially different than what is reflected in our income tax provisions and accruals. In addition, we are subject to, and are under, tax audits in various jurisdictions. Although we believe our tax positions are reasonable, the final determination of tax audits could be materially different from our income tax provisions and accruals, which could have a material adverse effect on our results of operations and cash flows in the period or periods for which that determination is made.

From time to time, we require significant expenditures to support our growth and respond to business challenges, and as a result we have additional cash requirements to support the payment of interest on our outstanding indebtedness. As of MayAugust 3,2, 2026, the aggregate indebtedness was $66,720$61,079 million. Our substantial indebtedness and the instruments governing our indebtedness could have important consequences including:

Furthermore, we have entered into and may enter into financing arrangements where we provide a backstop or a guarantee to support our strategic initiatives or other corporate purposes, which could increase our fixed obligations, expose us to additional counterparty credit risk and a decrease in value of the underlying assets, have a negative impact on our financial condition and reduce our financial and business flexibility.

We receive debt ratings from the major credit rating agencies in the U.S., and any downgrade in our credit rating or the ratings of our indebtedness, including due to backstops or guarantees and other financing arrangements, or adverse conditions in the debt capital markets, could materially adversely affect our business, financial condition and results of operations.operations and restrict our ability to obtain financing at favorable rates. In addition, the current market volatility may adversely impact our ability to manage our debt, including through borrowing at favorable interest rates or due to reduced cash flows.

•announcements of, or expectations of, additional debt or equity financing transactions or other financing arrangements;

Highlights during the fiscal quarter ended MayAugust 3,2, 2026 include the following:

•We repurchased $600$5,641 million of commonour stock.senior notes.

There were no significant changes in our critical accounting estimates during the twothree fiscal quarters ended MayAugust 3,2, 2026 compared to those previously disclosed in “Critical Accounting Estimates” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the 2025 Annual Report on Form 10-K.

We are subject to risks and exposures from evolving macroeconomic conditions, including uncertainty and volatility in financial markets, geopolitical events, supply constraints, efforts of governments to stimulate or stabilize the economy and other unfavorable changes in economic conditions, as well as an increase in trade tensions and related tariffs with U.S. trading partners. While difficult to isolate and quantify, these risks and exposures may cause our net revenue to fluctuate significantly and disrupt supply chain operations, and we continuously monitor the broader impacts of these circumstances on our business, our supply chain and our results of operations.

Fiscal Quarter and TwoThree Fiscal Quarters Ended MayAugust 3,2, 2026 Compared to Fiscal Quarter and TwoThree Fiscal Quarters Ended MayAugust 4,3, 2025

We included upfront license revenue of $1,964$3,465 million and $3,719$7,184 million within products revenue for the fiscal quarter and twothree fiscal quarters ended MayAugust 3,2, 2026, respectively. We included the related costs, which were immaterial, in cost of products sold. To conform to the current period presentation, we reclassified $1,803$1,916 million and $3,775$5,691 million of upfront license revenue from subscriptions and services revenue to products revenue for the fiscal quarter and twothree fiscal quarters ended MayAugust 4,3, 2025, respectively. We also reclassified the related costs for the upfront license revenue, which were immaterial for the periods presented. See Note 2. “Revenue from Contracts with Customers” in Part I, Item 1. of this Form 10-Q for additional information.

A relatively small number of customers account for a significant portion of our net revenue. Direct sales to one semiconductor solutions customer, which is a distributor, accounted for 42%50% and 46% of our net revenue for each of the fiscal quarter and twothree fiscal quarters ended MayAugust 3,2, 2026, respectively, and 29%32% and 30% of our net revenue for each of the fiscal quarter and twothree fiscal quarters ended MayAugust 4,3, 2025.2025, respectively.

We believe aggregate sales to our top five end customers, through all channels, accounted for approximately 45%55% and 50% of our net revenue for each of the fiscal quarter and twothree fiscal quarters ended MayAugust 3,2, 20262026, respectively, and approximately 40% of our net revenue for each of the fiscal quarter and twothree fiscal quarters ended MayAugust 4,3, 2025. We expect to continue to experience significant customer concentration in future periods. The loss of, or significant decrease in demand from, any of our top five end customers could have a material adverse effect on our business, results of operations and financial condition.

From time to time, some of our key semiconductor customers place large orders or delay orders, causing our quarterly net revenue to fluctuate significantly. This is particularly true of our products used in AI and wireless applications as fluctuations may be magnified by the timing of customer deployments, as well as product launches. For infrastructure software, the timing and extent of renewals and relative volume of customer contracts signed withwithout the right to terminate causes variations in revenue recognized in each period.

Net revenue from our semiconductor solutions segment increased in the fiscal quarter and twothree fiscal quarters ended MayAugust 3,2, 2026 compared to the prior year fiscal periods due to strong demand for our networking solutions, primarily custom AI accelerators and AI networking products.

Net revenue from our infrastructure software segment increased in the fiscal quarter and twothree fiscal quarters ended MayAugust 3,2, 2026 compared to the prior year fiscal periods primarily due to strong demand for our VMware Cloud Foundation (“VCF”) product.product, including additional license revenue recognized on contracts where customers do not have the right to terminate. As of the fiscal quarter ended August 2, 2026, we no longer have termination for convenience provisions for the majority of new software contracts.

Gross margin was $15,415$20,456 million for the fiscal quarter ended MayAugust 3,2, 2026 compared to $10,197$10,703 million for the fiscal quarter ended MayAugust 4,3, 2025 and $28,572$49,028 million for the twothree fiscal quarters ended MayAugust 3,2, 2026 compared to $20,342$31,045 million for the twothree fiscal quarters ended MayAugust 4,3, 2025. The increases were primarily due to strong product demand for our AI-related semiconductor solutions.

As a percentage of net revenue, gross margin was 69% for each of the fiscal quarter and twothree fiscal quarters ended MayAugust 3,2, 2026, and 67% and 68% for each of the fiscal quarter and twothree fiscal quarters ended MayAugust 4,3, 2025.2025, respectively. The increases were primarily due to the gross margin benefit from our net revenue growth, partially offset by a higher mix of semiconductor solutions net revenue, which has a lower gross margin than infrastructure software.

Research and development expense increaseddecreased $302$155 million, or 11%, and $1,014 million or 21%,5%, for the fiscal quarter and two fiscal quarters ended MayAugust 3,2, 2026, respectively,2026 compared to the prior year fiscal periods. The increases were primarilyperiod due to higherlower compensation, including stock-based compensation.compensation, resulting from a decrease in headcount, offset by higher engineering project costs.

Selling, general and administrative expense decreased $28$76 million, or 3%,7%, and increased$34 $42 millionmillion, or 2%1%, for the fiscal quarter and twothree fiscal quarters ended MayAugust 3,2, 2026, respectively, compared to the prior year fiscal periods.periods, Theseprimarily modestdue changesto principallylower resultcompensation resulting from twoa factors.decrease Inin the current fiscal year periods, higher stock-based compensation was substantially offset by lower acquisition-related costs compared to the prior year fiscal periods.headcount.

During the second quarter of fiscal year 2025, we granted two-year time- and market-based restricted stock unit awards (the “Two-Year Equity Awards”), in lieu of our annual employee equity awards historically granted in the second quarter of each fiscal year. Each of the Two-Year Equity Awards vests on the same basis as two annual grants with staggered vesting start dates of March 15, 2025 and March 15, 2026 and successive four-year vesting periods. We recognize stock-based compensation expense related to these awards from the grant date through their respective vesting date, ranging from four to five years.

Total stock-based compensation expense was $2,092$2,019 million and $1,771$2,322 million for the fiscal quarters ended MayAugust 3,2, 2026 and MayAugust 4,3, 2025, respectively,respectively. The decrease was primarily due to the impact of certain fully vested equity awards and $4,268headcount reduction. Total stock-based compensation expense was $6,287 million and $3,051$5,373 million for the twothree fiscal quarters ended MayAugust 3,2, 2026 and August 3, 2025, respectively. The increase was due to the full impact in the current year fiscal period of the Two-Year Equity Awards granted during the second quarter of fiscal year 2025.

The following table sets forth the total unrecognized compensation cost related to unvested stock-based awards outstanding and expected to vest as of MayAugust 3,2, 2026. The remaining weighted-average service period was 3.02.9 years.

Operating income from our semiconductor solutions segment increased for the fiscal quarter and twothree fiscal quarters ended MayAugust 3,2, 2026 compared to the prior year fiscal periods due to strong demand for our networking solutions, primarily custom AI accelerators and AI networking products.

Higher operating income from our infrastructure software segment in the fiscal quarter and twothree fiscal quarters ended MayAugust 3,2, 2026 compared to the prior year fiscal periods was primarily due to strong demand for our VCF product.product, including additional license revenue recognized on contracts where customers do not have the right to terminate. As of the fiscal quarter ended August 2, 2026, we no longer have termination for convenience provisions for the majority of new software contracts.

Unallocated expenses include stock-based compensation expense, amortization of acquisition-related intangible assets, restructuring and other charges, acquisition-related costs, and other costs, which are not used in evaluating the results of, or in allocating resources to, our segments. Unallocated expenses decreased 9% and increased 4% and 12% for the fiscal quarter and twothree fiscal quarters ended MayAugust 3,2, 2026, respectively, compared to the prior year fiscal periods due to higher stock-based compensation expense.

Interest expense. Interest expense was $776$778 million and $769$807 million for the fiscal quarters ended MayAugust 3,2, 2026 and MayAugust 4,3, 2025, respectively, and $2,355 million and $2,449 million for the three fiscal quarters ended August 2, 2026 and August 3, 2025, respectively. The increasedecreases was due to a loss on debt extinguishment. Interest expense was $1,577 million and $1,642 million for the two fiscal quarters ended May 3, 2026 and May 4, 2025, respectively. The decrease waswere primarily due to an overalla reduction in outstanding debt balances and debt refinancing activities.

Other income, net. Other income, net includes interest income, gains and losses on investments, foreign currency remeasurement and other miscellaneous items. Other income, net, was $118$98 million and $551$205 million for the fiscal quarterquarters ended August 2, 2026 and twoAugust 3, 2025, respectively. For the fiscal quarter ended August 3, 2025, we had a gain on the sale of a business. Other income, net, was $649 million and $333 million for the three fiscal quarters ended MayAugust 2, 2026 and August 3, 2026,2025, respectively,respectively. and $25 million and $128 million forFor the fiscal quarter and twothree fiscal quarters ended MayAugust 4, 2025, respectively. Interest income increased compared to the prior year fiscal periods as a result of higher invested balances. In addition, for the two fiscal quarters ended May 3,2, 2026, otherwe income, net includedhad a $315 million gain from the reversal of excise tax charges on our acquisition of VMware, Inc. (“VMware”), as the final Inflation Reduction Act of 2022 regulations exempted purchases of common stock on acquisitions from excise tax.

Provision for income taxes. The provision for income taxes was $820$2,187 million and $1,666$3,853 million for the fiscal quarter and twothree fiscal quarters ended MayAugust 3,2, 2026, respectively, compared to $120$1,145 million and $107$1,252 million for the fiscal quarter and twothree fiscal quarters ended MayAugust 4,3, 2025, respectively. The increase in the provision for income taxes in both the fiscal quarter and twothree fiscal quarters ended MayAugust 3,2, 2026, as compared to the prior year fiscal periods, was primarily due to higher income before income taxes.

Our primary sources of liquidity as of MayAugust 3,2, 2026 consisted of: (i) $19,628$23,975 million in cash and cash equivalents, (ii) cash we expect to generate from operations and (iii) available capacity under our $7.5 billion unsecured revolving credit facility. In addition, we may also generate cash from the sale of assets, and debt or equity financings from time to time.

Our short-term and long-term liquidity requirements primarily arise from: (i) working capital requirements, (ii) research and development and capital expenditure needs, (iii) cash dividend payments (if and when declared by our Board of Directors), (iv) interest and principal payments related to our $66,720$61,079 million of outstanding indebtedness with $2,252 million principal amounts payable within 12 months, (v) payment of income taxes, (vi) discretionary stock repurchases, and (vii) business acquisitions and investments we may make from time to time.time, and (viii) potential financing arrangements. Our ability to fund these requirements will depend, in part, on our future cash flows, which are determined by our future operating performance and, therefore, subject to prevailing global macroeconomic conditions and financial, business and other factors, some of which are beyond our control.

We believe that our cash and cash equivalents on hand, cash flows from operations and our revolving credit facility will provide sufficient liquidity to operate our business and fund our current obligations for at least the next 12 months. For additional information regarding our cash requirement from indebtedness, contractual commitments and backstops, see Note 6. “Borrowings,Borrowings” and Note 10. “Commitments and Contingencies” and Note 11. “Subsequent Events” in Part I, Item 1 of this Form 10-Q, as well as our disclosure in Part II, Item 5 of this Form 10-Q.

From time to time, we engage in discussions with third parties regarding potential acquisitions of, or investments in, businesses, technologies and product lines. Any such transaction, or evaluation of potential transactions, could require significant use of our cash and cash equivalents, or requirewe usmay elect to increaseissue ouradditional borrowingsdebt or equity securities to fund such transactions. If we do not have sufficient cash to fund our operations or finance growth opportunities, including acquisitions, expansions of new business strategies and models, or unanticipated capital expenditures, our business and financial condition could suffer. In addition, we have provided a backstop and may agreecontinue to financialenter obligations,into includingsimilar backstops,financing orarrangements, increasewhich increases our exposure to counterparty credit or customer default risks to support our strategic initiatives or other corporate purposes. In such circumstances, we may seek to obtain new debt or equity financing. However, we cannot assure you that such additional financing will be available on terms acceptable to us or at all. Our ability to service our outstanding indebtedness and any other indebtedness we may incur will depend on our ability to generate cash in the future. We may also elect to issue additional debt or equity securities for reasons other than those specified above. From time to time, we manage our indebtedness through financings, redemptions, repayments, exchanges, tender offers and other transactions. Such transactions will depend on prevailing market conditions, our liquidity requirements, the terms of indentures, contractual restrictions and other factors.risk.

Working capital increased to $23,351$31,335 million at MayAugust 3,2, 2026 from $13,059 million at November 2, 2025. The increase was primarily attributable to the following:

•Cash and cash equivalents increased to $19,628$23,975 million at MayAugust 3,2, 2026 from $16,178 million at November 2, 2025, primarily due to $18,753$32,950 million in net cash provided by operating activities, offset in part by $9,281 million of dividend payments, $8,450 million of stock repurchases and $6,178$6,054 million of dividendnet debt payments.

•OtherTrade currentaccounts assetsreceivable, net increased to $7,427$13,707 million at MayAugust 3,2, 2026 from $5,980$7,145 million at November 2, 2025 primarily fromdue to higher softwaresemiconductor contract assetsrevenue and prepaidthe taxes.timing of collections.

•OtherAccounts current liabilitiespayable increased to $13,139$4,000 million at MayAugust 3,2, 2026 from $11,673$1,560 million at November 2, 2025 primarily fromdue higherto contractthe liabilities.timing of inventory purchases and payments.

In April 2025, our Board of Directors authorized a stock repurchase program to repurchase up to $10 billion of our common stock through December 31, 2025, which was subsequently extended through December 31, 2026 and increased to $11 billion. In March 2026, our Board of Directors authorized a stock repurchase program to repurchase up to $10 billion of our common stock from time to time through December 31, 2026. During the twothree fiscal quarters ended MayAugust 3,2, 2026 and MayAugust 4,3, 2025, we repurchased and retired 25 million and 16 million shares for $8,450 million and $2,450 million, respectively. As of MayAugust 3,2, 2026, $10.1 billion of the authorized amount remained available for repurchase.

During the twothree fiscal quarters ended MayAugust 4,3, 2025, we paid $3,802$3,860 million in employee withholding taxes due upon the vesting of net settled equity awards and withheld 17 million shares from employees in connection with such net share settlements. In the current year fiscal period, we settled withholding taxes upon the vesting of employee equity awards using proceeds from the sale of a portion of the vested shares.

Cash flows from operating activities consist of net income adjusted for certain non-cash and other items and changes in assets and liabilities. The $6,085$13,116 million increase in cash provided by operations during the twothree fiscal quarters ended MayAugust 3,2, 2026 compared to the prior year fiscal period was primarily due to $6,191$15,139 million higher net income and $1,310$782 million higher non-cash adjustments primarily from higher stock-based compensation, offset in part by $1,416$2,805 million from changes in operating assets and liabilities.

Cash flows from investing activities primarily consist of capital expenditures andexpenditures, proceeds and payments related to investments.investments and divestitures. The $1,223 million increase in cash flowsused fromin investing activities during the twothree fiscal quarters ended MayAugust 3,2, 2026 were relatively flat compared to the prior year fiscal period aswas due to higher capital expenditures in the current year fiscal period was substantially offset byand an increase in net proceedspurchases fromof investmentsshort-term comparedinvestments. to theThe prior year fiscal period.period also included proceeds from a sale of a business.

Cash flows from financing activities primarily consist of proceeds and payments related to our borrowings, dividend payments, authorized stock repurchases, and employee withholding tax payments related to net settled equity awards. The $2,743$5,466 million increase in cash used in financing activities during the twothree fiscal quarters ended MayAugust 3,2, 2026 compared to the prior year fiscal period was primarily due to a $6,000 million increase in stock repurchases,repurchases and a $2,397 million increase in debt payments, net of issuances, offset in part by $3,802$3,860 million of employee withholding tax payments related to net settled equity awards in the prior year fiscal period.