2020 Annual Report

Dear Fellow Stockholders,

At this time last year, we were just beginning to grasp the challenges that the COVID-19 pandemic would bring to our

industry and to our lives. In the year since, we have moved to remote work arrangements for most of our employees, halted

nearly all travel, customer visits and in-person events, weathered business interruptions at several of our suppliers, and

experienced a sharp decline in demand followed by a steep recovery that is now straining supply chains across our industry.

As of this writing, much of our workforce continues to work remotely as we prioritize the health of our employees and

comply with local regulations. I look forward to a full return to our offices as soon as we are able to do so safely, but in

the meantime I continue to be impressed with the creativity and dedication of our employees, who have not just kept our

business on track but also delivered the best results in our history in 2020.

Our approach to managing through the past year reflects the long-term, sustainable orientation that has always been a

cornerstone of our success. While some of our industry peers reduced headcount or cut salaries in the early stages of the

pandemic, we continued to invest in our people, giving normal salary raises, maintaining our generous health benefits, and

expanding our workforce by four percent during the year, with the largest increase coming in research and development.

(In fact, we hired a number of highly capable people let go by industry peers in the early stages of the pandemic.) We also

invested in production capacity and infrastructure, spending more than $70 million in capital last year, including nearly

$15 million on the construction of new facilities for our European operations and updates to our San José headquarters.

We plan to invest $12-$15 million more in 2021 to complete our European facilities and to expand our San José solar

array, roughly doubling our generating capacity.

We also built inventory as demand softened in the early stages of the pandemic, rising to 178 days on hand at the end of

the June quarter. Building inventory is something we can afford, knowing that our products have long shelf lives and are

fungible across applications and customers. It brings stability to our foundry relationships, helping to preserve our capacity,

and enables us to satisfy customers when demand recovers, as has happened over the past several months. Shortages of

semiconductor products have been a major news story of late, affecting the supply of appliances, cars, game consoles, TVs

and many other end products. In our case, inventories at our distributors are lower than normal and lead times have

extended for some of our newer products, but we’ve thus far been able to keep most customers’ production lines running

thanks to our timely capacity additions and our decision to build inventory last year amid falling demand.

Our bias toward long-term thinking is most evident in our approach to R&D. About a decade ago we increased our R&D

spending with an eye toward expanding our addressable market and developing more disruptive technologies. We did so

knowing that the fruits of these efforts would take many years to be fully realized, and I am excited about the years ahead

precisely because we are now beginning to see the pay-off from these long-term investments. One example is our gallium-

nitride, or GaN, technology. We were the first company to ship high-voltage GaN products in high volume when we

introduced GaN-based InnoSwitch™ products in 2018, and GaN-based products are now contributing meaningful

revenues, with about $10M in sales in 2020—a number that we expect to double or perhaps triple in 2021. Similarly, we

began development of our BridgeSwitch™ motor-driver ICs many years ago, and will see our first meaningful revenues

in 2021.

A few years ago we also began developing products for the automotive market, where significant revenues are likely still

several years away but where the opportunity is substantial. High-voltage is pervasive in electric vehicles (EVs), not just

in the drivetrain but also charging and, in next-generation vehicles, power supplies that will drive many of the subsystems

in the car from the main battery. In 2020 we qualified versions of our LinkSwitch™ and InnoSwitch products for

automotive use, and we continue to work closely with automakers on gate-driver products for EV drivetrains.

The investments we have made will enable us to continue benefiting from many of the secular trends that helped drive our

strong results in 2020. While revenues for the analog semiconductor industry grew just three percent for the year,

our

revenues grew 16 percent, with growth in all four end-market categories. The consumer category, our largest end market

entering the year, grew about ten percent and finished strong, up nearly 20 percent year-over-year in the fourth quarter.

Appliances were the main source of growth, reflecting robust end-market demand and share gains at a broad range of

customers, as well as rising semiconductor content. Content growth is an important secular trend in appliances driven by

the proliferation of new features such as network connectivity, LED lighting and advanced displays, even as tighter energy-

efficiency standards challenge designers to do more with less power, which in turn drives even greater need for our

products.

According to World Semiconductor Trade Statistics

In the industrial category, demand for our high-power gate-driver products was constrained last year by pandemic-driven

delays in infrastructure projects. However, lower revenues in high power were offset by growth in home-and-building

automation, battery-operated tools, and broad-based industrial applications, resulting in low-single-digit growth for the

overall category. Going forward, we expect our industrial business to benefit from secular trends such as renewable energy,

high-voltage DC transmission, electrification of transportation and tools, smart homes and buildings, and fixed USB

charging receptacles.

The communications category grew more than 30 percent for the year, while the smaller computer category grew even

faster, up nearly 50 percent. Some of this growth, particularly in the computer category, was the result of the work-from-

home and learn-from-home trends, which drove strong demand for PCs, tablets and monitors. Another key factor—one

sure to endure beyond the pandemic—is the rapid adoption of advanced chargers for smartphones, tablets and notebooks.

Power Integrations has demonstrated a commanding lead in terms of technology and product design for advanced chargers,

and that advantage is now translating into rapid growth in market share and revenue.

Not long ago, cellphone chargers were essentially commodities, and cost was the only variable that mattered. Today,

OEMs are thinking strategically about chargers, either as a value-added feature or a revenue-generating accessory, and a

wave of third-party after-market brands has emerged as well. We’ve seen this change coming for quite some time, and

we were ready for it thanks to the R&D investments we’ve made in technologies like GaN and revolutionary products

like InnoSwitch. In fact, while InnoSwitch ICs are used in a broad range of applications, their success in the high-volume

smartphone market has made them the highest-selling power-supply ICs in the world, with well over a billion units

shipped in the six years since their introduction.

The adoption of advanced chargers for smartphones accelerated last year and shows no signs of slowing. Even as 5G

phones demand higher-power chargers due to their larger batteries, many OEMs are pushing power levels even higher to

offer much faster charging as a way to differentiate their products. Meanwhile, we are seeing an unprecedented wave of

innovation in charger design, including an increasing number of chargers capable of powering two or more devices, and a

robust pipeline of designs with our GaN products. That includes our GaN-based InnoSwitch products as well as our MinE-

CAP

™ ICs, which use GaN technology to reduce the size of chargers by enabling smaller input capacitors.

Thanks in large part to our record revenues in 2020, we generated $126 million in cash flow from operations, and further

strengthened our balance sheet, ending the year with $449 million in cash and investments. Reflecting our strong cash flow

and healthy balance sheet, our board of directors has increased our quarterly dividend 37% over the past four quarters,

with the payout increasing to 13 cents per share beginning in the March quarter. We also implemented a stock dividend in

August 2020, which effectively resulted in a two-for-one stock split. Our strong financial position gives us ample flexibility

to continue investing in our future growth while returning cash to stockholders in the years ahead.

Thank you for your continued support of our company—I look forward to reporting on our progress in the year ahead.

Sincerely,

Balu Balakrishnan

President and Chief Executive Officer

March 2021

The statements in this Annual Report relating to future events or results are forward-looking statements that involve many risks and uncertainties. In

some cases, forward-looking statements are indicated by the use of words such as “would,” “could,” “will,” “may,” “expect,” “believe,” “look

forward,” “anticipate,” “outlook,” “if,” “future,” “intend,” “plan,” “estimate,” “potential,” “seek,” “scheduled,” “continue” and similar words

and phrases, including the negatives of these terms, or other variations of these terms. Our actual results could differ materially from those contained

in these forward-looking statements due to a number of factors, including: uncertainty and unexpected impacts of the COVID-19 pandemic; changes in

global macroeconomic conditions; potential changes and shifts in customer demand away from end products that utilize our products; the effects of

trade tensions and competition; the outcome and cost of patent litigation; unforeseen costs and expenses; and unfavorable fluctuations in component

costs resulting from changes in commodity prices and/or the exchange rate between the U.S. dollar and the Japanese yen. In addition, new product

introductions and design wins are subject to the risks and uncertainties that typically accompany development and delivery of complex technologies to

the marketplace, including product development delays and defects and market acceptance of the new products. These and other risk factors that may

cause actual results to differ are discussed in Part I, Item 1A — “Risk Factors” included in the Form 10-K which is part of this Annual Report. Also,

in the Form 10-K included in this Annual Report, common stock authorized as of December 31, 2020 was incorrectly presented as 280 million shares;

the correct number is 140 million shares.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

(Mark One)

☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2020

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF

1934

For the transition period from to

Commission File Number 000-23441

POWER INTEGRATIONS, INC.

(Exact name of registrant as specified in its charter)

Delaware 94-3065014

(

State or other

urisdiction of Incor

oration or or

anization

)

(

I.R.S. Em

er Identification No.

)

5245 Hellyer Avenue

San Jose , California

95138-1002

(Address of principal executive offices)

(Zip code)

(408) 414-9200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock

POWI

The Nasdaq Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934

during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing

requirements for the past 90 days. Yes  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of

Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an

emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth

company” in Rule 12b-2 of the Exchange Act:

Large Accelerated Filer



Accelerated Filer

☐

Non-accelerated Filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any

new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal

control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that

prepared or issued its audit report. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐No 

The aggregate market value of registrant’s voting and non-voting common stock held by non-affiliates of registrant on June 30, 2020, the last business

day of the registrant’s most recently completed second fiscal quarter, was approximately $2.6 billion, based upon the closing sale price of the common

stock as reported on The Nasdaq Global Select Market. Shares of common stock held by each officer and director have been excluded in that such

persons may be deemed to be affiliates. This determination of affiliate status is not a conclusive determination for other purposes.

Outstanding shares of registrant’s common stock, $0.001 par value, as of February 2, 2021: 60,053,859.

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III of this report, to the extent not set forth herein, is incorporated by reference from the Registrant’s

definitive proxy statement relating to the 2021 annual meeting of stockholders, which definitive proxy statement will be filed with the Securities and

Exchange Commission within 120 days after the fiscal year to which this Report relates.

POWER INTEGRATIONS, INC.

TABLE OF CONTENTS

Page

PART I.

ITEM 1. BUSINESS

.......................................................................... 4

ITEM 1A. RISK FACTORS

..................................................................... 13

ITEM 1B. UNRESOLVED STAFF COMMENTS

................................................... 20

ITEM 2. PROPERTIES

........................................................................ 20

ITEM 3. LEGAL PROCEEDINGS

.............................................................. 20

ITEM 4. MINE SAFETY DISCLOSURES

........................................................

PART II.

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS

AND ISSUER PURCHASES OF EQUITY SECURITIES

.................................... 20

ITEM 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . ............................................ 22

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

.......................................................... 23

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

............ 32

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

............................. 34

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND

FINANCIAL DISCLOSURE

...........................................................

ITEM 9A. CONTROLS AND PROCEDURES

...................................................... 64

ITEM 9B. OTHER INFORMATION

.............................................................. 66

PART III.

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

................. 69

ITEM 11. EXECUTIVE COMPENSATION

........................................................ 69

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND

RELATED STOCKHOLDER MATTERS . . . . . ............................................ 69

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR

INDEPENDENCE

....................................................................

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

...................................... 69

PART IV.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

..................................... 70

ITEM 16. FORM 10-K SUMMARY

.............................................................. 76

SIGNATURES

................................................................................. 77

Cautionary Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K includes a number of forward-looking statements that involve many risks and

uncertainties. Forward-looking statements are identified by the use of the words “would,” “could,” “will,” “may,”

“expect,” “believe,” “should,” “anticipate,” “if,” “future,” “intend,” “plan,” “estimate,” “potential,” “target,” “seek” or

“continue” and similar words and phrases, including the negatives of these terms, or other variations of these terms, that

denote future events. These statements reflect our current views with respect to future events and our potential financial

performance and are subject to risks and uncertainties that could cause our actual results and financial position to differ

materially and/or adversely from what is projected or implied in any forward-looking statements included in this

Form 10-K. These factors include, but are not limited to: the novel coronavirus pandemic (COVID-19), which has

disrupted and may again disrupt our operations, including our manufacturing, research and development, and sales and

marketing activities, which in turn could have a material adverse impact on our business and has or could exacerbate the

risks discussed below; if demand for our products declines in our major end markets, our net revenues will decrease; our

products are sold through distributors, which limits our direct interaction with our end customers, therefore reducing our

ability to forecast sales and increasing the complexity of our business; we depend on third-party suppliers to provide us

with wafers for our products, and if they fail to provide us sufficient quantities of wafers, our business may suffer; intense

competition in the high-voltage power supply industry may lead to a decrease in our average selling price and reduced

sales volume of our products; if our products do not penetrate additional markets, our business will not grow as we expect;

we do not have long-term contracts with any of our customers and if they fail to place, or if they cancel or reschedule

orders for our products, our operating results and our business may suffer; if we are unable to adequately protect or enforce

our intellectual property rights, we could lose market share, incur costly litigation expenses, suffer incremental price

erosion or lose valuable assets, any of which could harm our operations and negatively impact our profitability; and the

other risk factors described in Item 1A of Part I -- “Risk Factors” of this Form 10-K. We make these forward looking

statements based upon information available on the date of this Form 10-K, and expressly disclaim any obligation to update

or alter any forward-looking statements, whether as a result of new information or otherwise, except as required by laws.

In evaluating these statements, you should specifically consider the risks described under Item 1A of Part I -- “Risk

Factors,” Item 7 of Part II -“Management’s Discussion and Analysis of Financial Condition and Results of Operations”

and elsewhere in this Annual Report on Form 10-K.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant

subject. These statements are based upon information available to us as of the date of this Annual Report on Form 10-K,

and while we believe such information forms a reasonable basis for such statements, such information may be limited or

incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review

of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not

to unduly rely upon these statements.

PART I.

Item 1. Business.

Overview

We design, develop and market analog and mixed-signal integrated circuits (ICs) and other electronic components

and circuitry used in high-voltage power conversion. Our products are used in power converters that convert electricity

from a high-voltage source to the type of power required for a specified downstream use. In most cases, this conversion

entails, among other functions, converting alternating current (AC) to direct current (DC) or vice versa, reducing or

increasing the voltage, and regulating the output voltage and/or current according to the customer’s specifications.

A large percentage of our products are ICs used in AC-DC power supplies, which convert the high-voltage AC

from a wall outlet to the low-voltage DC required by most electronic devices. Power supplies incorporating our products

are used with all manner of electronic products including mobile phones, computing and networking equipment,

appliances, electronic utility meters, battery-powered tools, industrial controls, and “home-automation,” or “internet of

things” applications such as networked thermostats, power strips and security devices. We also supply high-voltage LED

drivers, which are AC-DC ICs specifically designed for lighting applications that utilize light-emitting diodes, and motor-

driver ICs addressing brushless DC (BLDC) motors used in refrigerators, HVAC systems, ceiling fans and other consumer-

appliance and light commercial applications.

We also offer high-voltage gate drivers—either standalone ICs or circuit boards containing ICs, electrical

isolation components and other circuitry—used to operate high-voltage switches such as insulated-gate bipolar transistors

(IGBTs) and silicon-carbide (SiC) MOSFETs. These combinations of switches and drivers are used for power conversion

in high-power applications (i.e., power levels ranging from a few kilowatts up to gigawatts) such as industrial motors,

solar- and wind-power systems, electric vehicles (EVs) and high-voltage DC transmission systems.

Our products bring a number of important benefits to the power-conversion market compared with less advanced

alternatives, including reduced component count and design complexity, smaller size, higher reliability and reduced time-

to-market. Our products also reduce the energy consumption of power converters during normal use and in “standby”

operation, when the end product is not in use. In addition to the environmental benefits of reduced energy usage, our

energy-saving technologies provide a number of benefits to our customers; these include helping them meet the

increasingly stringent efficiency standards now in effect for many electronic products, and enabling the elimination of

bulky heatsinks used to dissipate the heat produced by wasted electricity.

While the size of our addressable market fluctuates with changes in macroeconomic and industry conditions, the

market has generally exhibited a modest growth rate over time as growth in the unit volume of power converters has been

offset to a large degree by reductions in the average selling price of components in this market. Therefore, the growth of

our business depends largely on increasing our penetration of the markets that we serve and on further expanding our

addressable market. Our growth strategy includes the following elements:

• Increase our penetration of the markets we serve. We currently address AC-DC applications with power

outputs up to approximately 500 watts, gate-driver applications ranging from a few kilowatts up to

gigawatts, and motor-drive applications up to approximately 400 watts. Through our research and

development efforts, we seek to introduce more advanced products for these markets offering higher

levels of integration and performance compared to earlier products. We also continue to expand our sales

and application-engineering staff and our network of distributors, as well as our offerings of technical

documentation and design-support tools and services to help customers use our products. These tools

and services include our PI Expert™ design software, which we offer free of charge, and our

transformer-sample service.

Our market-penetration strategy also includes capitalizing on the importance of energy efficiency and

renewable energy in the power conversion market. For example, our EcoSmart™ technology drastically

reduces the amount of energy consumed by electronic products when they are not in use, helping our

customers comply with regulations that seek to curb this so-called “standby” energy consumption. Also,

our gate-driver products are critical components in energy-efficient DC motor drives, high-voltage DC

transmission systems, solar and wind energy systems and electric transportation applications.

• Increase the size of our addressable market. Prior to 2010 our addressable market consisted of AC-DC

applications with up to about 50 watts of output, a served available market (SAM) opportunity of

approximately $1.5 billion. Since that time we have expanded our SAM to more than $4 billion through

a variety of means. These include the introduction of products that enable us to address higher-power

AC-DC applications (such as our Hiper™ product families), the introduction of LED-driver products,

and our entry into the gate-driver market through the acquisition of CT-Concept Technologie AG in

2012. In 2016 we introduced the SCALE-iDriver

family of ICs, broadening the range of gate-driver

applications we can address, and in 2018 we introduced our BridgeSwitch™ motor-driver ICs,

addressing BLDC motors, as described above. We have recently introduced a series of automotive-

qualified versions of our products, including SCALE-iDriver, InnoSwitch™ and LinkSwitch™ ICs,

targeting the EV market; we expect to introduce additional products targeting EVs in the future, and

expect automotive applications to become a significant portion of our SAM over time.

Also contributing to our SAM expansion has been the emergence of new applications within the power

ranges that our products can address. For example, applications such as “smart” utility meters, battery-

powered lawn equipment and bicycles, and USB power receptacles (often installed alongside traditional

AC wall outlets) can incorporate our products. The increased use of electronic intelligence and

connectivity in consumer appliances has also enhanced our SAM.

Finally, we have enhanced our SAM through the development of new technologies that increase the

value (and therefore the average selling prices) of our products. For example, our InnoSwitch™ ICs

integrate circuitry from the secondary, or low-voltage, side of AC-DC power supplies, whereas earlier

product families integrated circuitry only on the primary, or high-voltage side. In 2019 we began

incorporating proprietary gallium-nitride (GaN) transistors in some our products, enabling a higher level

of energy efficiency than ICs with traditional silicon transistors.

We intend to continue expanding our SAM in the years ahead through all of the means described above.

Industry Background

Virtually every electronic device that plugs into a wall socket requires a power supply to convert the high-voltage

alternating current provided by electric utilities into the low-voltage direct current required by most electronic devices. A

power supply may be located inside a device, such as a consumer appliance or flat-panel TV, or it may be outside the

device as in the case of a mobile-phone charger or an adapter for a cordless phone or cable modem.

Until approximately 1970, AC-DC power supplies were generally in the form of line-frequency, or linear,

transformers. These devices, consisting primarily of copper wire wound around an iron core, tend to be bulky and heavy,

and typically waste a substantial amount of electricity. In the 1970s, the availability of high-voltage discrete

semiconductors enabled the development of a new generation of power supplies known as switched-mode power supplies,

or switchers. These switchers generally came to be cost-effective alternatives to linear transformers in applications

requiring more than a few watts of power; in recent years the use of linear transformers has declined even further as a

result of energy-efficiency standards and higher raw-material prices.

Switchers are generally smaller, lighter-weight and more energy-efficient than linear transformers. However,

switchers designed with discrete components are highly complex, containing numerous components and requiring a high

level of analog design expertise. Further, the complexity and high component count of discrete switchers make them

relatively costly, difficult to manufacture and prone to failures. Also, some discrete switchers lack protection and energy-

efficiency features; adding these features may further increase the component count, cost and complexity of the power

supply.

In high-power systems such as industrial motor drives, electric locomotives and renewable-energy systems, power

conversion is typically performed using arrays of high-power silicon transistors known as IGBT modules; these modules

are operated by electronic circuitry known as gate drivers (or IGBT drivers), whose function is to ensure accurate, safe

and reliable operation of the IGBT modules. Much like discrete power supplies, discrete gate drivers tend to be highly

complex, requiring a large number of components and a great deal of design expertise.

Our Highly Integrated Approach

In 1994 we introduced TOPSwitch, the industry’s first cost-effective high-voltage IC for switched-mode AC-DC

power supplies. We have since introduced a range of other product families, expanding the range of power-supply

applications we can serve and enhancing our competitiveness in applications that we already addressed

In 2012 we

expanded our addressable market to include high-voltage gate drivers.

Our ICs and gate drivers drastically reduce the complexity and component count of power converters compared

to typical discrete designs by integrating many of the functions otherwise performed by numerous discrete electronic

components, and by eliminating (or reducing the size and cost of) additional components through innovative system

design. As a result, our products enable power converters to have superior features and functionality at a total cost equal

to or lower than that of many competing alternatives. Our products offer the following key benefits:

• Fewer Components, Reduced Size and Higher Reliability

Our highly integrated ICs and gate drivers enable designs with up to 70% fewer components than comparable

discrete designs. This reduction in component count enhances reliability and efficiency, reduces size, and results in lower

manufacturing costs for our customers. Power supplies that incorporate our ICs are also lighter and more portable than

comparable power supplies built with linear transformers, which are still used in some low-power applications.

• Reduced Time-to-Market, Enhanced Manufacturability

Because our products eliminate much of the complexity associated with the design of power converters, designs

can typically be completed in much less time, resulting in more efficient use of our customers’ design resources and shorter

time-to-market for new designs. The lower component count and reduced complexity enabled by our products also makes

designs more suitable for high-volume manufacturing. We also provide extensive hands-on design support as well as

online design tools, such as our PI Expert design software, that further reduce time-to-market and product development

risks.

• Energy Efficiency

Our patented EcoSmart technology, introduced in 1998, improves the energy efficiency of electronic devices

during normal operation as well as standby and “no-load” conditions. This technology enables manufacturers to cost-

effectively meet the growing demand for energy-efficient products, and to comply with increasingly stringent energy-

efficiency requirements. Also, our GaN transistor technology, introduced in 2019, offers substantially higher levels of

active-mode efficiency compared to traditional silicon-based switches, while our BridgeSwitch motor-driver ICs enable

efficiency of up to 98.5 percent, not only minimizing waste but also eliminating the need for heatsinks in many

applications, which in turn reduces cost and weight.

• Wide Power Range and Scalability

Products in our current IC families can address AC-DC power supplies with output power up to approximately

500 watts as well as some high-voltage DC-DC applications; our high-voltage gate drivers are used in applications with

power levels as high as one gigawatt, while our motor-driver ICs address BLDC applications up to 300 watts. Within each

of our product families, designers can scale up or down in power to address a wide range of designs with minimal design

effort.

Energy Efficiency

Power supplies often draw significantly more electricity than the amount needed by the devices they power. As

a result, billions of dollars’ worth of electricity is wasted each year, and millions of tons of greenhouse gases are

unnecessarily produced by power plants. Energy waste occurs during the normal operation of a device and in standby

mode, when the device is plugged in but idle. For example: computers and printers waste energy while in “sleep” mode;

TVs that are turned off by remote control consume energy while awaiting a remote-control signal to turn them back on; a

mobile-phone charger left plugged into a wall outlet continues to draw electricity even when not connected to the phone

(a condition known as “no-load”); and many common household appliances, such as microwave ovens, dishwashers and

washing machines, also consume power when not in use. In fact, a 2015 study by the National Resources Defense Council

found that devices that are “always-on” but inactive may be causing as much as $19 billion in annual energy waste in the

United States alone.

Lighting is another major source of energy waste. Less than 5% of the energy consumed by traditional

incandescent light bulbs is converted to light, while the remainder is wasted as heat. The Alliance to Save Energy has

estimated that a conversion to efficient lighting technologies such as compact fluorescent bulbs and LEDs could save as

much as $18 billion worth of electricity and 158 million tons of carbon dioxide emissions per year in the United States

alone.

In response to concerns about the environmental impact of carbon emissions, policymakers have taken action to

promote energy efficiency. For example, the ENERGY STAR® program and the European Union Code of Conduct

encourage manufacturers of electronic devices to comply with voluntary energy-efficiency specifications. In 2007 the

California Energy Commission (CEC) implemented mandatory efficiency standards for external power supplies. The CEC

standards were implemented nationwide in the United States in July 2008 as a result of the Energy Independence and

Security Act of 2007 (EISA); these federal standards were tightened in 2016. Similar standards for external power supplies

took effect in the European Union in 2010 as part of the EU’s EcoDesign Directive for Energy-Related Products.

In 2010, the EU EcoDesign Directive implemented standards limiting standby power consumption on a wide

range of electronic products. The limit was reduced by 50 percent beginning in 2013, with many products now limited to

500 milliwatts of standby usage; further tightening of the standards is under consideration. The EISA legislation also

required substantial improvements in the efficiency of lighting technologies beginning in 2012; as of 2014, traditional

100-, 75-, 60- and 40-watt bulbs are no longer permitted to be manufactured or sold in the United States. Plans to eliminate

conventional incandescent bulbs have also been announced or enacted in other geographies such as Canada, Australia and

Europe. In December 2019 the government of China published new efficiency standards for room air conditioners, which

took effect on July 1, 2020.

We believe we offer products that enable manufacturers to meet or exceed these regulations, and all other such

regulations of which we are aware. Our EcoSmart technology, introduced in 1998, dramatically reduces waste in both

operating and standby modes; we estimate that this technology has saved billions of dollars’ worth of standby power

worldwide since 1998. In 2010 we introduced our CapZero and SenZero IC families, which eliminate additional sources

of standby waste in some power supplies; we also offer a range of products designed specifically for LED-lighting

applications.

Products

Below is a brief description of our products:

• AC-DC power conversion products

TOPSwitch, our first commercially successful product family, was introduced in 1994. Since that time we have

introduced a wide range of products (such as our TinySwitch, LinkSwitch and Hiper families) to increase the level of

integration and improve upon the functionality of the original TOPSwitch, and to broaden the range of power levels we

can address. In 2010 we introduced our CapZero and SenZero families, which reduce standby power consumption in

certain applications by eliminating waste caused by so-called bleed resistors and sense resistors. We have also introduced

products designed specifically for LED-lighting applications, known as LYTSwitch ICs, as well as a range of high-

performance, high-voltage diodes known as Qspeed diodes.

In 2014 we introduced our InnoSwitch product family, the first power-supply ICs to combine primary, secondary

and feedback circuits into a single package. These ICs employ a proprietary technology known as FluxLink to enable

precise control without the need for optical components, which tend to add cost and diminish the reliability of power

supplies.

This portfolio of power-conversion products generally addresses power supplies ranging from less than one watt

of output up to approximately 500 watts of output, a market we refer to as the “low-power” market. This market consists

of an extremely broad range of applications including mobile-device chargers, consumer appliances, utility meters, LCD

monitors, main and standby power supplies for desktop computers and TVs, and numerous other consumer and industrial

applications, as well as LED lighting.

• High-voltage gate drivers

We offer a range of high-voltage gate-driver products sold primarily under the SCALE and SCALE-2 product-

family names. These products are fully assembled circuit boards incorporating multiple ICs, electrical isolation

components and other circuitry. We offer both ready-to-operate “plug-and-play” drivers designed specifically for use with

particular IGBT modules, as well as “driver cores,” which provide more basic driver functionality that customers can

customize to their own specifications after purchase. In May 2016 we introduced the SCALE-iDriver family of standalone

ICs, which enables us to address applications ranging from a few kilowatts up to about 100 kilowatts, whereas previously

our sales of high-power products were primarily for applications above 100 kilowatts.

• Motor-driver products

The BridgeSwitch family of products, introduced in 2018, is a family of motor-driver ICs addressing BLDC

motor applications up to approximately 400 watts. Such applications include refrigerator compressors, ceiling fans, air

purifiers as well as pumps, fans and blowers used in consumer appliances such as dishwashers and laundry machines.

Other Product Information

TOPSwitch, TinySwitch, LinkSwitch, DPA-Switch, EcoSmart, Hiper, Qspeed, InnoSwitch, BridgeSwitch,

SCALE, SCALE-II, SCALE-III, SCALE-iDriver, PeakSwitch, CAPZero, SENZero, ChiPhy, FluxLink, CONCEPT and

PI Expert are trademarks of Power Integrations, Inc.

End Markets and Applications

Our net revenues consist primarily of sales of the products described above. When evaluating our net revenues,

we categorize our sales into the following four major end-market groupings: communications, computer, consumer, and

industrial.

The table below provides the approximate mix of our net sales by end market:

Year Ended December 31,

End Market

2020 2019 2018

Communications ................................................. 30 % 26 % 20 %

Compute

....................................................... 7 % 5 % 5 %

Consume

....................................................... 33 % 35 % 38 %

Industrial ....................................................... 30 % 34 % 37 %

Our products are used in a vast range of power-conversion applications in the above-listed end-market categories.

The following chart lists the most prominent applications for our products in each category.

Market Category Primary Applications

Communications . . Mobile-phone chargers, adaptors for routers, cordless phones, broadband modems, voice-over-IP

hones, other network and telecom

Computer . . . . . . . . Desktop PCs and monitors, servers, adapters for tablets and notebook computers, other computer

eripherals

Consumer . . . . . . . Major and small appliances, air conditioners, TV set-top boxes, digital cameras, TVs, video-game

consoles

Industrial . . . . . . . . Industrial controls, LED lighting, utility meters, motor controls, uninterruptible power supplies,

battery-powered tools, networked thermostats, power strips and other “smart home” devices,

industrial motor drives, renewable energy systems, electric locomotives, electric buses and other

electric vehicles, hi

h-volta

e DC transmission s

stems

Sales, Distribution and Marketing

We sell our products to original equipment manufacturers, or OEMs, and merchant power-supply manufacturers

through our direct sales staff and a worldwide network of independent sales representatives and distributors. We have sales

offices in the United States, United Kingdom, Germany, Italy, India, China, Japan, South Korea, the Philippines, Singapore

and Taiwan. Direct sales to OEMs and merchant power supply manufacturers represented approximately 25%, 28% and

25% of our net product revenues in 2020, 2019 and 2018, respectively, while sales to distributors accounted for the

remainder in each of the corresponding years. Most of our distributors are entitled to return privileges based on revenues

and are protected from price reductions affecting their inventories. Our distributors are not subject to minimum purchase

requirements, and sales representatives and distributors can discontinue marketing our products at any time.

Our sales are primarily made pursuant to standard purchase orders. The quantity of products purchased by our

customers as well as shipment schedules are subject to revisions that reflect changes in both the customers’ requirements

and in manufacturing availability. Historically, our business has been characterized by short-lead-time orders and quick

delivery schedules.

Our top ten customers, including distributors that resell to OEMs and merchant power supply manufacturers,

accounted for approximately 62%, 54% and 56% of net revenues in 2020, 2019 and 2018, respectively. In 2020, two

distributors accounted for more than 10% of revenues. In 2019 and 2018, one of these distributors accounted for more than

10% of revenues.

Research and Development

Our research and development efforts are focused on improving our technologies, introducing new products to

expand our addressable markets, reducing the costs of existing products, and improving the cost-effectiveness and

functionality of our customers’ power converters. We have assembled teams of highly skilled engineers to meet our

research and development goals. These engineers have expertise in high-voltage device structure and process technology,

analog and digital IC design, system architecture and packaging.

Intellectual Property and Other Proprietary Rights

We use a combination of patents, trademarks, copyrights, trade secrets and confidentiality procedures to protect

our intellectual-property rights. In 2020 we received 29 U.S. and 54 foreign patents. As of December 31, 2020, we held

450 U.S. patents and 360 foreign patents. Both U.S. and foreign patents have expiration dates ranging from 2021 to 2041.

While our patent portfolio as a whole is important to the success of our business, we are not materially dependent upon

any single patent. We also hold trademarks in the U.S. and various other geographies including Taiwan, Korea, Hong

Kong, China, Europe, Japan, India, and Brazil.

We regard as proprietary some equipment, processes, information and knowledge that we have developed and

used in the design and manufacture of our products. Our trade secrets include a high-volume production process used in

the manufacture of our high-voltage ICs. We attempt to protect our trade secrets and other proprietary information through

non-disclosure agreements, proprietary-information agreements with employees and consultants, and other security

measures.

Manufacturing

We contract with three foundries for the manufacture of the vast majority of our silicon wafers: (1) Lapis

Semiconductor Co., Ltd., or Lapis, (formerly OKI Electric Industry), (2) Seiko Epson Corporation, or Epson, (3) X-FAB

Semiconductor Foundries AG, or X-FAB. These contractors manufacture wafers using our proprietary high-voltage

process technologies at fabrication facilities located in Japan, Germany and the United States.

Our ICs are assembled, packaged and tested by independent subcontractors in China, Malaysia, Thailand and the

Philippines; a small percentage of our ICs are tested at our headquarters facility in California. Our gate-driver boards are

assembled and tested by independent subcontractors in Sri Lanka and Thailand; some of the boards are tested at our facility

in Switzerland.

Our fabless manufacturing model enables us to focus on our engineering and design strengths, minimize capital

expenditures and still have access to high-volume manufacturing capacity. We utilize both proprietary and standard IC

packages for assembly. Some of the materials used in our packages and certain aspects of the assembly process are specific

to our products. We require our assembly manufacturers to use high-voltage molding compounds which are more difficult

to process than industry standard molding compounds. We work closely with our contractors on a continuous basis to

maintain and improve our manufacturing processes.

Our proprietary high-voltage processes do not require leading-edge geometries, which enables us to use our

foundries’ older, lower-cost facilities for wafer manufacturing. However, because of our highly sensitive high-voltage

process, we must interact closely with our foundries to achieve satisfactory yields. Our wafer supply agreements with

Lapis, Epson and X-FAB expire in April 2028, December 2025 and December 2028, respectively. Under the terms of the

Lapis and Epson agreements, each supplier has agreed to reserve a specified amount of production capacity and to sell

wafers to us at fixed prices, which are subject to periodic review jointly by the supplier and us. In addition, Lapis and

Epson require us to supply them with a rolling six-month forecast on a monthly basis. Our agreements with Lapis and

Epson each provide for the purchase of wafers in U.S. dollars, with mutual sharing of the impact of the fluctuations in the

exchange rate between the Japanese yen and the U.S. dollar. Under the terms of the X-FAB agreement, X-FAB has agreed

to reserve a specified amount of production capacity and to sell wafers to us at fixed prices, which are subject to periodic

review jointly by X-FAB and us. The agreement with X-FAB also requires us to supply them with rolling six-month

forecasts on a monthly basis. Our purchases of wafers from X-FAB are denominated in U.S. dollars.

Although some aspects of our relationships with Lapis, Epson and X-FAB are contractual, some important aspects

of these relationships are not written in binding contracts and depend on the suppliers’ continued cooperation. We cannot

assure that we will continue to work successfully with Lapis, Epson or X-FAB in the future, that they will continue to

provide us with sufficient capacity at their foundries to meet our needs, or that any of them will not seek an early

termination of their wafer supply agreement with us. Our operating results could suffer in the event of a supply disruption

with one or more of our foundries if we were unable to quickly qualify alternative manufacturing sources for existing or

new products or if these sources were unable to produce wafers with acceptable manufacturing yields.

We typically receive shipments from our foundries approximately four to six weeks after placing orders, and lead

times for new products can be substantially longer. To provide sufficient time for assembly, testing and finishing, we

typically need to receive wafers four weeks before the desired ship date to our customers. As a result of these factors and

the fact that customers’ orders can be placed with little advance notice, we have only a limited ability to react to fluctuations

in demand for our products. We try to carry a substantial amount of wafer and finished-goods inventory to help offset

these risks and to better serve our markets and meet customer demand.

Competition

Competing alternatives to our high-voltage ICs for the power-supply market include monolithic and hybrid ICs

from companies such as ON Semiconductor, STMicroelectronics, Infineon, and Sanken Electric Company, as well as

PWM-controller chips paired with discrete high-voltage bipolar transistors and MOSFETs; such controller chips are

produced by a large number of vendors, including those listed above as well as such companies as NXP Semiconductors,

Diodes Inc., On-Bright Electronics and Dialog Semiconductor. Self-oscillating switchers, built with discrete components

supplied by numerous vendors, are also commonly used. For some applications, line-frequency transformers are also a

competing alternative to designs utilizing our products. Our gate-driver products compete with alternatives from such

companies as Avago, Infineon and Semikron, as well as driver circuits made up of discrete devices. Our motor-driver ICs

compete with alternatives from such companies as ON Semiconductor, Infineon, STMicroelectronics and Sanken Electric

Company.

Generally, our products enable customers to design power converters with total bill-of-materials costs similar to

those of competing alternatives. As a result, the value of our products is influenced by the prices of discrete components,

which fluctuate in relation to market demand, raw-material prices and other factors, but have generally decreased over

time.

While we vary the pricing of our ICs in response to fluctuations in prices of alternative solutions, we also compete

based on a variety of other factors. Most importantly, the highly integrated nature of our products enables designs that

utilize fewer total components than comparable discrete designs or designs using other integrated or hybrid products. This

enables power converters to be designed more quickly and manufactured more efficiently and reliably than competing

designs. We also compete on the basis of product functionality such as safety features and energy-efficiency features and

on the basis of the technical support we provide to our customers. This support includes hands-on design assistance as

well as a range of design tools and documentation such as software and reference designs. We also believe that our record

of product quality and history of delivering products to our customers on a timely basis serve as additional competitive

advantages.

Warranty

We generally warrant that our products will substantially conform to the published specifications for 12 months

from the date of shipment. Under the terms and conditions of sale, our liability is limited generally to either a credit equal

to the purchase price or replacement of the defective part.

Human Capital

As of December 31, 2020, we employed 725 full-time personnel across 14 countries with 363, or 50% of the

total, residing in North America, while 50% resided offshore comprising 259 in the Asia-Pacific region and 103 across

Europe, Middle East and Africa. As of December 31, 2020, 5% of our worldwide employees were foreign nationals,

defined as individuals requiring employment visas in the countries where they are employed. Women comprise more than

40% of our U.S. non-technical workforce. The ethnic makeup of our U.S. workforce is approximately as follows: 60%

Asian; 29% white; 7% Hispanic or Latino; 4% other.

Innovation is the lifeblood of our company, and we depend on our people to sustain our competitive advantage.

We offer attractive compensation with generous comprehensive benefits for employees and dependents (including

domestic partners), including health, dental and vision insurance, matching 401(k) contributions, employee stock plans,

paid time off and family leave, life insurance, flu vaccinations, charitable gift matching, a health-and-wellness program

designed to promote physical well-being, and an employee assistance program and other mental health services.

Approximately 97% of eligible U.S. employees participate in our 401(k) plan. These benefits, combined with our culture

of innovation and sustainable growth, contribute to low employee turnover and an average tenure of nearly 10 years.

It is our policy to ensure equal employment opportunity for all applicants and employees without regard to

prohibited considerations of race, color, religion, sex (including pregnancy, gender identity and sexual orientation),

national origin, age, disability or genetic information, marital status or any other classification protected by applicable

local, state or federal laws. Our employees are encouraged to engage with company leadership and raise concerns and

questions in-person, via e-mail (anonymously if desired), or at our quarterly employee communications meeting with the

CEO and senior management team. All employees receive training in the prevention of sexual harassment and abusive

conduct in the workplace.

We value our employees, giving them the tools and training to grow as individuals, and the freedom to take risks

in the service of innovation. We offer tuition reimbursement for job-related education and provide live and online classes

covering topics such as communication, leadership and management, software, and time management. Subject to

restrictions due to the current COVID-19 pandemic, we also offer catered lunch-time workshops on a range of personal-

development topics such as financial planning, nutrition and stress management.

Additional information regarding our commitment to our people can be found on our website at

https://www.power.com/company/sustainability-citizenship/.

Investor Information

We make available, free of charge, copies of our annual report on Form 10-K, quarterly reports on Form 10-Q,

current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the

Exchange Act as soon as reasonably practicable after filing this material electronically or otherwise furnishing it to the

SEC. Investors may obtain free electronic copies or request paper copies of these reports via the “For Investors” section

of our website, www.power.com. Our website address is provided solely for informational purposes. We do not intend, by

this reference, that our website should be deemed to be part of this Annual Report. The reports we file with the SEC are

also available at www.sec.gov.

Our corporate governance guidelines, the charters of our board committees, and our code of business conduct and

ethics, including ethics provisions that apply to our principal executive officer, principal financial officer, controller and

senior financial officers, are also available via the investor website listed above. These items are also available in print to

any stockholder who requests them by calling (408) 414-9200. We intend to satisfy the disclosure requirements of

Form 8-K regarding an amendment to, or a waiver from, a provision of our code of business conduct and ethics that applies

to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons

performing similar functions by posting such information on our investor website listed above.

Power Integrations, Inc. was incorporated in California on March 25, 1988, and reincorporated in Delaware in

December 1997.

Information About Our Executive Officers

As of February 1, 2021, our executive officers, who are appointed by and serve at the discretion of the board of

directors, were as follows:

Name Position With Power Integrations Age

Balu Balakrishnan ........................... President, Chief Executive Officer and Directo

Douglas Bailey ............................. Vice President, Marketing 54

Radu Barsan ................................ Vice President, Technolo

Sunil Gupta ................................ Vice President, Operations 48

David “Mike” Matthews ...................... Vice President, Product Developmen

Sandeep Nayya

............................. Vice President, Finance and Chief Financial Office

Ben Sutherlan

............................. Vice President, Worldwide Sales 49

Clifford Walke

............................. Vice President, Corporate Developmen

Balu Balakrishnan has served as president and chief executive officer and as a director of Power Integrations

since January 2002. He served as president and chief operating officer from April 2001 to January 2002. From

January 2000 to April 2001, he was vice president of engineering and strategic marketing. From September 1997 to

January 2000, he was vice president of engineering and new business development. From September 1994 to

September 1997, Mr. Balakrishnan served as vice president of engineering and marketing. Prior to joining Power

Integrations in 1989, Mr. Balakrishnan was employed by National Semiconductor Corporation.

Douglas Bailey has served as our vice president of marketing since November 2004. From March 2001 to

April 2004, he served as vice president of marketing at ChipX, a structured-ASIC company. His earlier experience includes

serving as business management and marketing consultant for Sapiential Prime, Inc., director of sales and business unit

manager for 8x8, Inc., and serving in application engineering management for IIT, Inc. and design engineering roles with

LSI Logic, Inmos, Ltd. and Marconi.

Radu Barsan has served as our vice president of technology since January 2013, leading our foundry engineering,

technology development and quality organizations. Prior to joining Power Integrations, Dr. Barsan served as chairman and

CEO at Redfern Integrated Optics, Inc., a supplier of single-frequency narrow-linewidth lasers, modules, and subsystems,

from 2001 to 2013. Previously, he served in a succession of engineering-management and technology-development roles

at Phaethon Communications, Inc., a photonics technology company, Cirrus Logic, Inc., a high-precision analog and

digital signal processing company, Advanced Micro Devices, a semiconductor design company, Cypress

Semiconductor, Inc., a semiconductor company and Microelectronica, a semiconductor company. Dr. Barsan has 40 years

of commercial experience in semiconductor and photonic components development, engineering and operations.

Sunil Gupta has served as our vice president of operations since August 2020. Prior to joining Power Integrations,

Mr. Gupta was vice president of operations at Renesas Electronics Corporation, a provider of electronics solutions, from

July 2017 until August 2020, in which position he was responsible for global operations for Intersil and IDT products as

well as the integration into the operations of Renesas. Prior to joining Renesas he was Senior Vice President, Global

Operations at Intersil Corporation, a developer of power management and precision analog integrated circuits, from June

2016 to July 2017, in which position he led the global operations and technology teams, and was Vice President, Quality

and Technology Development at Intersil was from September 2013 to June 2016, in which position he led the quality,

reliability, yield, process technology and package technology teams. Mr. Gupta joined Intersil in 2012 as its Vice

President, Quality and Reliability. Prior to joining Intersil, Mr. Gupta was the Director of Worldwide Customer Quality

Engineering at Qualcomm, and prior to Qualcomm Mr. Gupta spent 16 years at National Semiconductor in wafer fab

operations and quality.

Mike Matthews has served as our vice president of product development since August 2012. Mr. Matthews joined

Power Integrations in 1992, managing our European application-engineering group and then our European sales

organization as managing director of Power Integrations (Europe). He has led our product-definition team since 2000,

serving as director of strategic marketing prior to assuming his current role. Prior to joining Power Integrations,

Mr. Matthews worked at several electric motor-drive companies and then at Siliconix, a semiconductor company, as a

motor-control applications specialist.

Sandeep Nayyar has served as our vice president and chief financial officer since June 2010. From 2002 to 2009

Mr. Nayyar served as vice president of finance at Applied Biosystems, Inc., a developer and manufacturer of life-sciences

products, where he was a member of the executive team with world-wide responsibilities for finance. From 1990 to 2001,

Mr. Nayyar served in a succession of financial roles including vice president of finance at Quantum Corporation, a

computer storage company. Mr. Nayyar also worked for five years in the public-accounting field at Ernst & Young LLP.

Mr. Nayyar is a Certified Public Accountant, Chartered Accountant and has a Bachelor of Commerce from the University

of Delhi, India. Since 2014, Mr. Nayyar has served as a director and audit-committee chairman of Smart Global Holdings,

Inc., a manufacturer of specialty memory solutions; in 2021 he was named lead independent director.

Ben Sutherland has served as our vice president, worldwide sales since July 2011. Mr. Sutherland joined our

company in May 2000 as a member of our sales organization in Europe. From May 2000 to July 2011, Mr. Sutherland

served in various sales positions responsible primarily for our international sales, and more recently for domestic sales.

From 1997 to 2000, Mr. Sutherland served in various product marketing and sales roles at Vishay Intertechnology, Inc., a

manufacturer and supplier of discrete semiconductors and passive electronic components.

Clifford Walker has served as our vice president, corporate development since June 1995. From September 1994

to June 1995, Mr. Walker served as vice president of Reach Software Corporation, a software company. From

December 1993 to September 1994, Mr. Walker served as president of Morgan Walker International, a consulting

company.

Item 1A. Risk Factors.

The following are important factors that could cause actual results or events to differ materially from those

contained in any forward-looking statements made by us or on our behalf. The risks and uncertainties described below

are not the only ones we face. Additional risks and uncertainties not presently known to us or that we deem immaterial

also may impair our business operations. If any of the following risks or such other risks actually occurs, our business

could be harmed.

Risks Related to Ownership of Our Common Stock

Our operating results are volatile and difficult to predict. If we fail to meet the expectations of public market

analysts or investors, the market price of our common stock may decrease significantly. Our net revenues and operating

results have varied significantly in the past, are difficult to forecast, are subject to numerous factors both within and outside

of our control, and may fluctuate significantly in the future. As a result, our operating results could fall below the

expectations of public market analysts or investors. If that occurs, the price of our stock may decline.

Some of the factors that could affect our operating results include the following:

• we face risks related to the Novel Coronavirus pandemic (COVID-19), which has disrupted and may

again disrupt our operations, including our manufacturing, research and development, and sales and

marketing activities, which could have a material adverse impact on our business, financial condition,

operating results and cash flows;

• the volume and timing of delivery of orders placed by us with our wafer foundries and assembly

subcontractors, and their ability to procure materials;

• the volume and timing of orders received from customers;

• our products are sold through distributors, which limits our direct interaction with our end customers,

which reduces our ability to forecast sales and increases the complexity of our business;

• reliance on international sales activities for a substantial portion of our net revenues;

• competitive pressures on selling prices;

• the ability of our products to penetrate additional markets;

• our ability to develop and bring to market new products and technologies on a timely basis;

• the lengthy timing of our sales cycle;

• the demand for our products declining in the major end markets we serve, which may occur due to

competitive factors, supply-chain fluctuations or changes in macroeconomic conditions;

• our ability to attract and retain qualified personnel;

• interruptions in our information technology systems;

• earthquakes, terrorists acts, pandemic or other disasters;

• fluctuations in exchange rates, particularly the exchange rate between the U.S. dollar and the Japanese

yen, the Euro and the Swiss franc;

• the inability to adequately protect or enforce our intellectual property rights;

• expenses we are required to incur (or choose to incur) in connection with our intellectual property

litigations;

• undetected defects and failures in meeting the exact specifications required by our products;

• risks associated with acquisitions and strategic investments;

• our ability to successfully integrate, or realize the expected benefits from, our acquisitions; and

• changes in tax rules and regulations, changes in interpretation of tax rules and regulations, or

unfavorable assessments from tax audits may increase the amount of taxes we are required to pay;

• changes in environmental laws and regulations, including with respect to energy consumption and

climate change;

• continued impact of changes in securities laws and regulations, including potential risks resulting from

our evaluation of our internal controls over financial reporting; and

• uncertainties arising out of economic consequences of current and potential military actions or terrorist

activities and associated political instability.

Risks Related to the Operation and Growth of Our Business

We face risks related to the Novel Coronavirus pandemic (COVID-19), which has disrupted and may again

disrupt our operations, including our manufacturing, research and development, and sales and marketing activities, which

could have a material adverse impact on our business, financial condition, operating results and cash flows. Our business

as well as the business of our suppliers, customers and distributors have been and may continue to be adversely impacted

by the world-wide response to COVID-19 such as public health measures, travel restrictions, business shutdowns, border

closures, delivery and freight delays and other disruptions. These disruptions may adversely affect not only our sales and

marketing activities, product development, manufacturing and product shipments which could negatively impact our

ability to meet customer commitments but also our customers’ ability to manufacture their products, which could reduce

their demand for our products. The effects of the pandemic have resulted in a significant economic downturn in local and

global economies, as well as a significant downturn in financial markets, and the continuing pandemic could result in

further significant economic downturns which may result in reduced end-customer demand and materially impact our

revenues. All of these effects could have a material adverse effect on our customer relationships, operating results, cash

flows, financial condition and have a negative impact on our stock price.

We depend on third-party suppliers to provide us with wafers for our products and if they fail to provide us

sufficient quantities of wafers, our business may suffer. Our primary supply arrangements for the production of wafers are

with Epson, Lapis, and X-FAB. Our contracts with these suppliers expire on varying dates, with the earliest to expire in

December 2025. Although some aspects of our relationships with Lapis, X-FAB and Epson are contractual, many

important aspects of these relationships depend on their continued cooperation. We cannot assure that we will continue to

work successfully with Epson, Lapis and X-FAB in the future, and that the wafer foundries’ capacity will meet our needs.

Additionally, one or more of these wafer foundries could seek an early termination of our wafer supply agreements. Any

serious disruption in the supply of wafers from Epson, Lapis and X-FAB could harm our business. We estimate that it

would take 12 to 24 months from the time we identified an alternate manufacturing source to produce wafers with

acceptable manufacturing yields in sufficient quantities to meet our needs.

Although we provide our foundries with rolling forecasts of our production requirements, their ability to provide

wafers to us is ultimately limited by the available capacity of the wafer foundry. Any reduction in wafer foundry capacity

available to us could require us to pay amounts in excess of contracted or anticipated amounts for wafer deliveries or

require us to make other concessions to meet our customers’ requirements, or may limit our ability to meet demand for

our products. Further, to the extent demand for our products exceeds wafer foundry capacity, this could inhibit us from

expanding our business and harm relationships with our customers. Any of these concessions or limitations could harm

our business.

If our third-party suppliers and independent subcontractors do not produce our wafers and assemble our finished

products at acceptable yields, our net revenues may decline. We depend on independent foundries to produce wafers, and

independent subcontractors to assemble and test finished products, at acceptable yields and to deliver them to us in a timely

manner. The failure of the foundries to supply us wafers at acceptable yields could prevent us from selling our products to

our customers and would likely cause a decline in our net revenues and gross margin. In addition, our IC assembly process

requires our manufacturers to use a high-voltage molding compound that has been available from only a few suppliers.

These compounds and their specified processing conditions require a more exacting level of process control than normally

required for standard IC packages. Unavailability of assembly materials or problems with the assembly process can

materially and adversely affect yields, timely delivery and cost to manufacture. We may not be able to maintain acceptable

yields in the future.

In addition, if prices for commodities used in our products increase significantly, raw material costs would

increase for our suppliers which could result in an increase in the prices our suppliers charge us. To the extent we are not

able to pass these costs on to our customers; this would have an adverse effect on our gross margins.

We do not have long-term contracts with any of our customers and if they fail to place, or if they cancel or

reschedule orders for our products, our operating results and our business may suffer. Our business is characterized by

short-term customer orders and shipment schedules, and the ordering patterns of some of our large customers have been

unpredictable in the past and will likely remain unpredictable in the future. Not only does the volume of units ordered by

particular customers vary substantially from period to period, but also purchase orders received from particular customers

often vary substantially from early oral estimates provided by those customers for planning purposes. In addition, customer

orders can be canceled or rescheduled without significant penalty to the customer. In the past, we have experienced

customer cancellations of substantial orders for reasons beyond our control, and significant cancellations could occur again

at any time. Also, a relatively small number of distributors, OEMs and merchant power supply manufacturers account for

a significant portion of our revenues. Specifically, our top ten customers, including distributors, accounted for 62%, 54%

and 56% of our net revenues in each of the years ended December 31, 2020, 2019 and 2018, respectively. However, a

significant portion of these revenues are attributable to sales of our products through distributors of electronic components.

These distributors sell our products to a broad, diverse range of end users, including OEMs and merchant power supply

manufacturers, which mitigates the risk of customer concentration to a large degree.

Our products are sold through distributors, which limits our direct interaction with our end customers, therefore

reducing our ability to forecast sales and increasing the complexity of our business. Sales to distributors accounted for

approximately 75%, 72% and 75% of net revenues in the years ended December 31, 2020, 2019 and 2018, respectively.

Selling through distributors reduces our ability to forecast sales and increases the complexity of our business, requiring us

to:

• manage a more complex supply chain;

• monitor the level of inventory of our products at each distributor, and

• monitor the financial condition and credit-worthiness of our distributors, many of which are located

outside of the United States and are not publicly traded.

Since we have limited ability to forecast inventory levels at our end customers, it is possible that there may be

significant build-up of inventories in the distributor channel, with the OEM or the OEM’s contract manufacturer. Such a

buildup could result in a slowdown in orders, requests for returns from customers, or requests to move out planned

shipments. This could adversely impact our revenues and profits. Any failure to manage these complexities could disrupt

or reduce sales of our products and unfavorably impact our financial results.

Our international sales activities account for a substantial portion of our net revenues, which subjects us to

substantial risks. Sales to customers outside of the United States of America account for, and have accounted for a large

portion of our net revenues, including approximately 98%, 97% and 96% of our net revenues for the year ended

December 31, 2020, 2019 and 2018. If our international sales declined and we were unable to increase domestic sales, our

revenues would decline and our operating results would be harmed. International sales involve a number of risks to us,

including:

• tariffs, protectionist measures and other trade barriers and restrictions;

• potential insolvency of international distributors and representatives;

• reduced protection for intellectual property rights in some countries;

• the impact of recessionary environments in economies outside the United States;

• the burdens of complying with a variety of foreign and applicable U.S. Federal and state laws; and

• foreign-currency exchange risk.

Our failure to adequately address these risks could reduce our international sales and materially and adversely

affect our operating results. Furthermore, because substantially all of our foreign sales are denominated in U.S. dollars,

increases in the value of the dollar cause the price of our products in foreign markets to rise, making our products more

expensive relative to competing products priced in local currencies.

Intense competition in the high-voltage power supply industry may lead to a decrease in our average selling price

and reduced sales volume of our products. The high-voltage power supply industry is intensely competitive and

characterized by significant price sensitivity. Our products face competition from alternative technologies, such as linear

transformers, discrete switcher power supplies, and other integrated and hybrid solutions. If the price of competing

solutions decreases significantly, the cost effectiveness of our products will be adversely affected. If power requirements

for applications in which our products are currently utilized go outside the cost-effective range of our products, some of

these alternative technologies can be used more cost effectively. In addition, as our patents expire, our competitors could

legally begin using the technology covered by the expired patents in their products, potentially increasing the performance

of their products and/or decreasing the cost of their products, which may enable our competitors to compete more

effectively. Our current patents may or may not inhibit our competitors from getting any benefit from an expired patent.

Our U.S. patents have expiration dates ranging from 2020 to 2039. We cannot assure that our products will continue to

compete favorably or that we will be successful in the face of increasing competition from new products and enhancements

introduced by existing competitors or new companies entering this market. We believe our failure to compete successfully

in the high-voltage power supply business, including our ability to introduce new products with higher average selling

prices, would materially harm our operating results.

If our products do not penetrate additional markets, our business will not grow as we expect. We believe that our

future success depends in part upon our ability to penetrate additional markets for our products. We cannot assure that we

will be able to overcome the marketing or technological challenges necessary to penetrate additional markets. To the extent

that a competitor penetrates additional markets before we do, or takes market share from us in our existing markets, our

net revenues and financial condition could be materially adversely affected.

If our efforts to enhance existing products and introduce new products are not successful, we may not be able to

generate demand for our products. Our success depends in significant part upon our ability to develop new ICs for high-

voltage power conversion for existing and new markets, to introduce these products in a timely manner and to have these

products selected for design into products of leading manufacturers. New product introduction schedules are subject to the

risks and uncertainties that typically accompany development and delivery of complex technologies to the market place,

including product development delays and defects. If we fail to develop and sell new products in a timely manner, then

our net revenues could decline.

In addition, we cannot be sure that we will be able to adjust to changing market demands as quickly and cost-

effectively as necessary to compete successfully. Furthermore, we cannot assure that we will be able to introduce new

products in a timely and cost-effective manner or in sufficient quantities to meet customer demand or that these products

will achieve market acceptance. Our failure, or our customers’ failure, to develop and introduce new products successfully

and in a timely manner would harm our business. In addition, customers may defer or return orders for existing products

in response to the introduction of new products. When a potential liability exists we will maintain reserves for customer

returns, however we cannot assure that these reserves will be adequate.

Because the sales cycle for our products can be lengthy, we may incur substantial expenses before we generate

significant revenues, if any. Our products are generally incorporated into a customer’s products at the design stage.

However, customer decisions to use our products, commonly referred to as design wins, can often require us to expend

significant research and development and sales and marketing resources without any assurance of success. These

significant research and development and sales and marketing resources often precede volume sales, if any, by a year or

more. The value of any design win will largely depend upon the commercial success of the customer’s product. We cannot

assure that we will continue to achieve design wins or that any design win will result in future revenues. If a customer

decides at the design stage not to incorporate our products into its product, we may not have another opportunity for a

design win with respect to that product for many months or years.

If demand for our products declines in our major end markets, our net revenues will decrease. A limited number

of applications of our products, such as cellphone chargers and consumer appliances, make up a significant percentage of

our net revenues. We expect that a significant level of our net revenues and operating results will continue to be dependent

upon these applications in the near term. The demand for these products has been highly cyclical and has been impacted

by economic downturns in the past. Any economic slowdown in the end markets that we serve could cause a slowdown in

demand for our ICs. When our customers are not successful in maintaining high levels of demand for their products, their

demand for our ICs decreases, which adversely affects our operating results. Any significant downturn in demand in these

markets would cause our net revenues to decline and could cause the price of our stock to fall.

We must attract and retain qualified personnel to be successful and competition for qualified personnel is intense

in our market. Our success depends to a significant extent upon the continued service of our executive officers and other

key management and technical personnel, and on our ability to continue to attract, retain and motivate qualified personnel,

such as experienced analog design engineers and systems applications engineers. The competition for these employees is

intense, particularly in Silicon Valley. The loss of the services of one or more of our engineers, executive officers or other

key personnel could harm our business. In addition, if one or more of these individuals leaves our employ, and we are

unable to quickly and efficiently replace those individuals with qualified personnel who can smoothly transition into their

new roles, our business may suffer. We do not have long-term employment contracts with, and we do not have in place

key person life insurance policies on, any of our employees.

Interruptions in our information technology systems could adversely affect our business. We rely on the efficient

and uninterrupted operation of complex information technology systems and networks to operate our business. Any

significant system or network disruption, including but not limited to new system implementations, computer viruses,

security breaches, or energy blackouts could have a material adverse impact on our operations, sales and operating results.

We have implemented measures to manage our risks related to such disruptions, but such disruptions could still occur and

negatively impact our operations and financial results. In addition, we may incur additional costs to remedy any damages

caused by these disruptions or security breaches.

In the event of an earthquake, terrorist act, another pandemic or other disaster, our operations may be interrupted

and our business would be harmed. Our principal executive offices and operating facilities are situated near San Francisco,

California, and most of our major suppliers, which are wafer foundries and assembly houses, are located in areas that have

been subject to severe earthquakes, such as Japan. Many of our suppliers are also susceptible to other disasters such as

tropical storms, typhoons or tsunamis. In the event of a disaster, such as the earthquake and tsunami in Japan, we or one

or more of our major suppliers may be temporarily unable to continue operations and may suffer significant property

damage. Any interruption in our ability or that of our major suppliers to continue operations could delay the development

and shipment of our products and have a substantial negative impact on our financial results.

Risks Related to Financial Performance or General Economic Conditions

Fluctuations in exchange rates, particularly the exchange rate between the U.S. dollar and the Japanese yen,

Swiss franc and euro, may impact our gross margin and net income. Our exchange rate risk related to the Japanese yen

includes two of our major suppliers, Epson and Lapis, with which we have wafer supply agreements based in U.S. dollars;

however, these agreements also allow for mutual sharing of the impact of the exchange rate fluctuation between Japanese

yen and the U.S. dollar. Each year, our management and these suppliers review and negotiate pricing; the negotiated

pricing is denominated in U.S. dollars but is subject to contractual exchange rate provisions. The fluctuation in the

exchange rate is shared equally between Power Integrations and each of these suppliers. We maintain cash denominated

in Swiss francs and euros to fund the operations of our Swiss subsidiary. The functional currency of our Swiss subsidiary

is the U.S. dollar; gains and losses arising from the re-measurement of non-functional currency balances are recorded in

other income in our consolidated statements of income, and material unfavorable exchange-rate fluctuations with the Swiss

franc could negatively impact our net income.

If we are unable to adequately protect or enforce our intellectual property rights, we could lose market share,

incur costly litigation expenses, suffer incremental price erosion or lose valuable assets, any of which could harm our

operations and negatively impact our profitability. Our success depends upon our ability to continue our technological

innovation and protect our intellectual property, including patents, trade secrets, copyrights and know-how. We are

currently engaged in litigation to enforce our intellectual property rights, and associated expenses have been, and are

expected to remain, material and have adversely affected our operating results. We cannot assure that the steps we have

taken to protect our intellectual property will be adequate to prevent misappropriation, or that others will not develop

competitive technologies or products. From time to time, we have received, and we may receive in the future,

communications alleging possible infringement of patents or other intellectual property rights of others. Costly litigation

may be necessary to enforce our intellectual property rights or to defend us against claimed infringement. The failure to

obtain necessary licenses and other rights, and/or litigation arising out of infringement claims could cause us to lose market

share and harm our business.

As our patents expire, we will lose intellectual property protection previously afforded by those patents.

Additionally, the laws of some foreign countries in which our technology is or may in the future be licensed may not

protect our intellectual property rights to the same extent as the laws of the United States, thus limiting the protections

applicable to our technology.

If we do not prevail in our litigation, we will have expended significant financial resources, potentially without

any benefit, and may also suffer the loss of rights to use some technologies. We are currently involved in a number of

patent litigation matters and the outcome of the litigation is uncertain. See Note 13, Legal Proceedings and Contingencies,

in our Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. For example, we are

being sued in an ongoing case for patent infringement. Should we ultimately be determined to be infringing another party’s

patents, or if an injunction is issued against us while litigation is pending on those claims, such result could have an adverse

impact on our ability to sell products found to be infringing, either directly or indirectly. In the event of an adverse outcome,

we may be required to pay substantial damages, stop our manufacture, use, sale, or importation of infringing products, or

obtain licenses to the intellectual property we are found to have infringed. We have also incurred, and expect to continue

to incur, significant legal costs in conducting these lawsuits, including the appeal of the case we won, and our involvement

in this litigation and any future intellectual property litigation could adversely affect sales and divert the efforts and

attention of our technical and management personnel, whether or not such litigation is resolved in our favor. Thus, even if

we are successful in these lawsuits, the benefits of this success may fail to outweigh the significant legal costs we will

have incurred.

Our products must meet exacting specifications, and undetected defects and failures may occur which may cause

customers to return or stop buying our products and/or impose significant costs to us. Our customers generally establish

demanding specifications for quality, performance and reliability, and our products must meet these specifications. ICs as

complex as those we sell often encounter development delays and may contain undetected defects or failures when first

introduced or after commencement of commercial shipments. We have from time to time in the past experienced product

quality, performance or reliability problems. If defects and failures occur in our products, we could experience lost revenue,

increased costs, including product warranty or liability claims and costs associated with customer support and product

recalls, delays in or cancellations or rescheduling of orders or shipments and product returns or discounts. While we

specifically exclude consequential damages in our standard terms and conditions, certain of our contracts may not exclude

such liabilities. Our liability insurance which covers certain damages arising out of product defects may not cover all

claims or be of a sufficient amount to fully protect against such claims. Costs or payments in connection with such claims

could harm our operating results.

We are exposed to risks associated with acquisitions and strategic investments. We have made, and in the future

intend to make, acquisitions of, and investments in, companies, technologies or products in existing, related or new

markets. Acquisitions involve numerous risks, including but not limited to:

• inability to realize anticipated benefits, which may occur due to any of the reasons described below, or

for other unanticipated reasons

• the risk of litigation or disputes with customers, suppliers, partners or stockholders of an acquisition

target arising from a proposed or completed transaction;

• impairment of acquired intangible assets and goodwill as a result of changing business conditions,

technological advancements or worse-than-expected performance, which would adversely affect our

financial results; and

• unknown, underestimated and/or undisclosed commitments, liabilities or issues not discovered in our

due diligence of such transactions.

We also in the future may have strategic relationships with other companies, which may decline in value and/or

not meet desired objectives. The success of these strategic relationships depends on various factors over which we may

have limited or no control and requires ongoing and effective cooperation with strategic partners. Moreover, these

relationships are often illiquid, such that it may be difficult or impossible for us to monetize such relationships.

Our inability to successfully integrate, or realize the expected benefits from, our acquisitions could adversely

affect our results. We have made, and in the future intend to make, acquisitions of other businesses and with these

acquisitions there is a risk that integration difficulties may cause us not to realize expected benefits. The success of the

acquisitions could depend, in part, on our ability to realize the anticipated benefits and cost savings (if any) from combining

the businesses of the acquired companies and our business, which may take longer to realize than expected.

Risks Related to Laws and Regulations

Changes in tax rules and regulations, changes in interpretation of tax rules and regulations, or unfavorable

assessments from tax audits may increase the amount of taxes we are required to pay. Our operations are subject to income

and transaction taxes in the United States and in multiple foreign jurisdictions and to review or audit by the U.S. Internal

Revenue Service (IRS) and state, local and foreign tax authorities. In addition, the United States, countries in Asia and

other countries where we do business have recently enacted or are considering changes in relevant tax, accounting and

other laws, regulations and interpretations, including changes to tax laws applicable to multinational companies. These

potential changes could adversely affect our effective tax rates or result in other costs to us.

Recently enacted U.S. tax legislation has significantly changed the taxation of U.S.-based multinational

corporations, by, among other things, reducing the U.S. corporate income tax rate, adopting elements of a territorial tax

system, assessing a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred,

and the creation of new taxes on certain foreign-sourced earnings. The legislation as initially enacted was unclear in some

respects and has required interpretations and implementing regulations by the Internal Revenue Service, as well as state

tax authorities, and the legislation has been subject to amendments and technical corrections. Further amendments and

technical corrections may occur, any of which could lessen or increase certain adverse impacts of the legislation. A

significant portion of our earnings are earned by our subsidiaries outside the U.S. Changes to the taxation of certain foreign

earnings resulting from the newly enacted U.S. tax legislation, along with the state tax impact of these changes and

potential future cash distributions, may have an adverse effect on our effective tax rate. Furthermore, changes to the

taxation of undistributed foreign earnings could change our future intentions regarding reinvestment of such earnings. The

foregoing items could have a material effect on our business, cash flow, results of operations or financial conditions.

Changes in environmental laws and regulations may increase our costs related to obsolete products in our

existing inventory. Changing environmental regulations and the timetable to implement them continue to impact our

customers’ demand for our products. As a result, there could be an increase in our inventory obsolescence costs for

products manufactured prior to our customers’ adoption of new regulations. Currently we have limited visibility into our

customers’ strategies to implement these changing environmental regulations into their business. The inability to

accurately determine our customers’ strategies could increase our inventory costs related to obsolescence.

General Risk Factors

Securities laws and regulations, including potential risk resulting from our evaluation of internal controls over

financial reporting, will continue to impact our results. Complying with the requirements of the federal securities laws

and Nasdaq’s conditions for continued listing have imposed significant legal and financial compliance costs, and are

expected to continue to impose significant costs and management burden on us. These rules and regulations also may make

it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced

coverage or incur substantially higher costs to obtain coverage. These rules and regulations could also make it more

difficult for us to attract and retain qualified executive officers and members of our board of directors, particularly qualified

members to serve on our audit committee. Further, the rules and regulations under the Dodd-Frank Wall Street Reform

and Consumer Protection Act, which became effective in 2011, may impose significant costs and management burden on

us.

Additionally, because these laws, regulations and standards are expected to be subject to varying interpretations,

their application in practice may evolve over time as new guidance becomes available. This evolution may result in

continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our

disclosure and governance practices.

Uncertainties arising out of economic consequences of current and potential military actions or terrorist

activities and associated political instability could adversely affect our business. Like other U.S. companies, our business

and operating results are subject to uncertainties arising out of economic consequences of current and potential military

actions or terrorist activities and associated political instability, and the impact of heightened security concerns on domestic

and international travel and commerce. These uncertainties could also lead to delays or cancellations of customer orders,

a general decrease in corporate spending or our inability to effectively market and sell our products. Any of these results

could substantially harm our business and results of operations, causing a decrease in our revenues.

Item 1B. Unresolved Staff Comments.

Not applicable.

Item 2. Properties.

We own our principal executive, administrative, manufacturing and technical offices which are located in San

Jose, California. We also own an R&D facility in New Jersey, a design center in Germany and a test facility in Switzerland.

We lease administrative office space in Singapore and Switzerland, R&D facilities in Canada, United Kingdom and

Malaysia, in addition to sales offices in various countries around the world to accommodate our sales force. We believe

that our current facilities are sufficient for our company; however, if headcount increases above capacity we may need to

lease additional space.

Item 3. Legal Proceedings.

Information with respect to this item may be found in Note 13, Legal Proceedings and Contingencies, in our

Notes to Consolidated Financial Statements included later in this Annual Report on Form 10-K, which information is

incorporated here by reference.

Item 4. Mine Safety Disclosures.

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity

Securities.

Our common stock trades on the Nasdaq Global Select Market under the symbol “POWI”.

As of February 2, 2021, there were approximately 43 stockholders of record. Because brokers and other

institutions hold many of our shares on behalf of stockholders, we are unable to estimate the total number of stockholders

represented by these record holders.

Issuer Purchases of Equity Securities

Over the years our board of directors has authorized the use of funds to repurchase shares of our common stock,

including $80.0 million in October 2018, with repurchases to be executed according to pre-defined price/volume

guidelines. We did not repurchase any shares of our common stock in the fourth quarter of 2020. As of December 31,

2020, we had $41.3 million available for future stock repurchases in our repurchase program, which has no expiration

date. Authorization of future stock-repurchase programs is at the discretion of the board of directors and will depend on

our financial condition, results of operations, capital requirements and business conditions as well as other factors.

Performance Graph (

)

The following graph shows the cumulative total return on an investment of $100 in cash on December 31, 2015,

through December 31, 2020, in our common stock, the Nasdaq Composite Index and the Nasdaq Electronic Components

Index and assuming that all dividends were reinvested. The stockholder return shown on the graph below is not necessarily

indicative of future performance, and we do not make or endorse any predictions as to future stockholder returns.

Company/Index 12/31/15 12/31/16 12/31/17 12/31/18 12/31/19 12/31/20

Power Inte

rations, Inc. .................... 100.00 140.87 153.94 128.81 210.80 351.57

asdaq Composite......................... 100.00 108.87 141.13 137.12 187.44 271.64

asdaq Electronic Components .............. 100.00 121.48 146.21 119.92 178.71 252.83

(1) This Section is not “soliciting material,” is not deemed “filed” with the SEC and is not to be incorporated by reference

in any filing of Power Integrations under the Securities Act of 1933, as amended, or the Securities Exchange Act of

1934, whether made before or after the date hereof and irrespective of any general incorporation language in any such

filing.

$50

$100

$150

$200

$250

$300

$350

$400

12/15 12/16 12/17 12/18 12/19 12/20

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

Among Power Integrations, Inc., the NASDAQ Composite Index

and the NASDAQ Electronic Components Index

Power Integrations, Inc. NASDAQ Composite NASDAQ Electronic Components

*$100 invested on 12/31/15 in stock or index, including reinvestment of dividends.

Fiscal year ending December 31.

Item 6. Selected Financial Data.

The following selected consolidated financial data should be read in conjunction with “Management’s Discussion

and Analysis of Financial Condition and Results of Operations’’ and the consolidated financial statements and the notes

thereto included elsewhere in this Annual Report on Form 10-K to fully understand factors that may affect the

comparability of the information presented below.

Consolidated Statement of Income Data

Year Ended December 31,

(in thousands, except per share amounts) 2020 2019(2) 2018 2017(3)(4) 2016(3)

et revenues .................................... $ 488,318 $ 420,669 $ 415,955 $ 431,755 $ 389,668

Income from operations ........................... 70,487 217,022 55,648 57,637 48,874

Provision (benefit) for income taxes ................. 4,075 28,946 (10,220) 32,690 1,054

et income ...................................... $ 71,176 $ 193,468 $ 69,984 $ 27,609 $ 48,898

Earnin

s per share:

(1)

Basic ........................................ $ 1.19 $ 3.31 $ 1.19 $ 0.47 $ 0.85

Dilute

....................................... $ 1.17 $ 3.25 $ 1.16 $ 0.45 $ 0.83

Shares used in per share calculation:

(1)

Basic ........................................ 59,657 58,534 58,912 59,348 57,850

Dilute

....................................... 60,845 59,632 60,294 61,090 59,238

Dividends per share

(1)

.................................

$ 0.42 $ 0.35 $ 0.32 $ 0.28 $ 0.26

Consolidated Balance Sheet Data Year Ended December 31,

(in thousands) 2020 2019(2) 2018 2017(3)(4) 2016(3)

Cash and cash equivalents ............................. $ 258,874 $ 178,690 $ 134,137 $ 93,655 $ 62,134

Short-term marketable securities ........................ 190,318 232,398 94,451 189,236 188,323

Cash, cash equivalents and short-term marketable securities . 449,192 411,088 228,588 282,891 250,457

Working capital ..................................... 538,706 490,863 284,066 313,483 274,318

Total assets ........................................ 903,339 803,896 588,697 621,074 554,410

Long-term liabilities ................................. 30,402 28,874 13,259 22,341 7,380

Stockholders’ equity ................................. $ 810,411 $ 724,546 $ 527,072 $ 547,682 $ 503,084

(1) In July 2020, our board of directors approved a two-for-one stock split in the form of a stock dividend, payable

on August 18, 2020, to stockholders of record as of the close of business on August 14, 2020. Our stockholders

received one additional share of common stock for each share of common stock held on August 14, 2020. The share

and per share information for all periods presented in this Form 10-K have been adjusted for the effect of the stock

split (Refer to Note 10, Earnings Per Share, in this Form 10-K for details).

(2) In October 2019, we entered into a favorable litigation settlement with ON Semiconductor Corporation which resulted

in a $169.0 million net gain.

(3) In 2017, we adopted Accounting Standards Update 2014-09, Revenue from Contracts with Customers, which amended

the accounting standards for revenue recognition. The standards were applied on a retrospective basis to 2016.

(4) In December 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts

and Jobs Act.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of our operations should be read in

conjunction with the consolidated financial statements and the notes to those statements included elsewhere in this Annual

Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. See

“Cautionary Note Regarding Forward-Looking Statements” at the beginning of this Form 10-K. Our actual results could

differ materially from those contained in these forward-looking statements due to a number of factors, including those

discussed in Part I, Item 1A “Risk Factors” and elsewhere in this report.

Business Overview