Allegro MicroSystems (ALGM) Risk Analysis

As a multinational business, we are subject to income and other taxes in both the U.S. and various foreign jurisdictions. Changes to tax laws or regulations in such jurisdictions, or in the interpretation of such laws or regulations, could significantly increase our effective tax rate and reduce our cash flow from operating activities, and otherwise adversely affect our financial condition. For example, in October 2021, a global consortium of countries agreed to establish a new framework for international tax reform, including a new global minimum tax of 15% ("Pillar Two Minimum Tax"). In December 2022, European Union member states voted unanimously to implement rules for the Pillar Two Minimum Tax. Since implementation, many member states have enacted minimum tax legislation and others, including non-EU members, are considering similar law changes. In general, if a jurisdiction has an effective income tax rate ("ETR") below 15%, the Pillar Two Minimum Tax may impute an additional alternative minimum "top-up tax." The Company is subject to the Pillar Two Minimum Tax rules. If Pillar Two proposals are enacted into law in the U.S. or other countries in which we operate, it is possible that such proposals could increase our tax uncertainty and may adversely affect our provision for income taxes in the future. The Financial Accounting Standards Board considers the Pillar Two Minimum Tax an alternative minimum tax; therefore, deferred tax assets and liabilities are not recognized or adjusted for any estimated future effects. In addition, recently enacted U.S. federal tax legislation, such as the One Big Beautiful Bill Act (the "OBBB"), has modified U.S. corporate income tax, including provisions related to the Corporate Alternative Minimum Tax ("CAMT"). Future changes in our financial results, business operations or in the interpretation and implementation of the OBBB could result in a CAMT liability in subsequent periods. Moreover, the U.S. or other jurisdictions may consider novel tax proposals in the future, such as the imposition of value-based fees or taxes on patents or other IP that could increase our operating costs and have a material and adverse impact on our business. Other factors or events, including business combinations and investment transactions, changes in the valuation of our deferred tax assets and liabilities, adjustments to taxes upon finalization of various tax returns or as a result of deficiencies asserted by taxing authorities, increases in expenses not deductible for tax purposes, changes in available tax credits, changes in transfer pricing methodologies, other changes in the apportionment of our income and other activities among tax jurisdictions, and changes in tax rates, could also increase our ETR and/or valuation of our deferred tax assets and liabilities. Our tax filings are subject to review or audit by the U.S. Internal Revenue Service (the "IRS") and state, local and foreign taxing authorities. We exercise significant judgment in determining our worldwide provision for taxes and, in the ordinary course of our business, there may be transactions and calculations where the proper tax treatment is uncertain. We may also be liable for taxes in connection with businesses we acquire. Our determinations are not binding on the IRS or any other taxing authorities, and accordingly the final determination in an audit or other proceeding may be materially different than the treatment reflected in our tax provisions, accruals and returns. An assessment of additional taxes because of an audit could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our success depends upon the continued services of our executive officers, managers and skilled personnel, including our development engineers. From time to time, including over the past year, we have experienced changes in our executive management team and other key personnel, which is disruptive to our business. Generally, our employees, including executive management are not bound by obligations that require them to continue to work for us for any specified period and, therefore, they could terminate their employment with us at any time. Moreover, our employees, including executive management, are generally not subject to non-competition agreements. Given these limitations, we may not be able to continue to attract, retain and motivate the qualified personnel necessary for our business. In addition, we recruit from a limited pool of engineers with expertise in analog mixed-signal semiconductor design, and the competition for such personnel can be intense. As we expand into markets that we have not traditionally served, our future growth and success will depend on hiring key employees with expertise in these industries. Our future performance depends on the continued services and continuing contributions of our executive management to execute our business plan and to identify and pursue new opportunities and product innovations. The loss of one or more of our executive officers or other key personnel or our inability to locate suitable or qualified replacements could be significantly detrimental to our operations or product development efforts and could have a material adverse effect on our business, financial condition and results of operations. We also must attract and retain highly qualified personnel, including certain foreign nationals who are not U.S. citizens or permanent residents, many of whom are highly skilled and constitute an important part of our U.S. workforce, particularly in the areas of engineering and product development. Our ability to hire and retain these employees and their ability to remain and work in the U.S. are impacted by laws, regulations, policies, procedures and enforcement practices of various government agencies. Changes in immigration laws, regulations, policies or procedures may adversely affect our ability to hire or retain such workers, increase our operating expenses and negatively impact our ability to deliver our products and services, any of which would adversely affect our business, financial condition and results of operations.

For fiscal years 2026, 2025 and 2024, approximately 89.7%, 87.2% and 85.8%, respectively, of our net sales were to customers outside of the United States. In addition, a substantial majority of our products are assembled and tested at facilities outside of the United States. Our principal assembly and test facility is located in the Philippines at AMPI. We also rely on several other wafer fabrication manufacturing partners located throughout Asia. Any conflict or uncertainty in this region, including public health or safety concerns, climate change or natural disasters, could have a material adverse effect on our business, financial condition and results of operations. Further, conducting business outside the United States subjects us to numerous risks and challenges, including: changes in a specific country's or region's political, regulatory or economic conditions;- a pandemic, epidemic or other outbreak of an infectious disease, which may cause us or our distributors, vendors and/or customers to temporarily suspend operations in the affected city or country;- compliance with a wide variety of domestic and foreign laws, regulations and policies (including those of municipalities or provinces where we have operations) and unexpected changes in those laws and regulatory requirements, including uncertainties regarding taxes, social insurance contributions and other payroll taxes and fees to governmental entities, climate-related disclosures, tariffs, quotas, export controls, export licenses and other trade barriers or restrictions;- unanticipated restrictions on our ability to sell to foreign customers where sale of products and provision of services may require export licenses or are prohibited by government action, unfavorable foreign exchange controls and currency exchange rates;- the risk of substantial penalties and litigation related to violations of a wide variety of laws, treaties and regulations, including labor regulations and anti-corruption regulations;- difficulties and costs of staffing and managing international operations across different geographic areas and cultures;- potential political, legal and economic instability, armed conflict, and civil unrest in the countries in which we and our customers, suppliers and contract manufacturers are located, such as macroeconomic weakness related to trade and political disputes between the United States and China, tensions across the Taiwan Strait, the current conflict between Russia and Ukraine and the ongoing conflict involving the United States, Israel, Iran and other nations in the Middle East;- difficulty and costs of maintaining effective data security;- inadequate protection of intellectual property;- transportation and other supply chain delays and disruptions;- nationalization and expropriation;- restrictions on the transfer of funds to and from foreign countries, including withholding taxes and other potentially negative tax consequences;- unfavorable and/or changing foreign tax treaties and policies; and - increased exposure to general market and economic conditions outside of the U.S. These factors, individually or in combination, could impair our ability to effectively operate one or more of our foreign facilities or deliver our products, result in unexpected and material expenses, or cause an unexpected decline in the demand for our products in certain countries or regions. Our failure to manage the risks and challenges associated with our international business and operations could have a material adverse effect on our business.

Our ability to make, transport and sell products in coordination with our suppliers, customers (including OEMs), distributors and third-party manufacturers or other subcontractors is critical to our success. Damage or disruption to either our or our key suppliers or manufacturing partners' supply, manufacturing or distribution capabilities resulting from energy shortages, weather, freight carrier availability, climate change, natural disaster, disease, fire, explosion, cyber-attacks, terrorism, pandemics, epidemics or other outbreaks of infectious disease, war, strikes, civil unrest, repairs or enhancements at facilities manufacturing or distributing our products or other reasons could impair our ability to manufacture, sell, and deliver products on a timely basis or at all. Climate change may also increase the frequency or intensity of certain of these risks, as well as contribute to various chronic changes (such as sea-level rise or changes to meteorological and hydrological patterns) that may result in similar risks. In addition to general economic conditions, impacts of other macroeconomic events, such as valuation concerns related to AI Technologies, continued inflation and labor market concerns, public health crises, geopolitical tensions or conflicts and risks, and uncertainties in global financial markets, could materially adversely impact our operations or those of our suppliers, third party distributors and sub-contractors. Because our products are components that are incorporated into our customers' end products alongside semiconductors, electronic components, subassemblies, raw materials and other inputs supplied by numerous third parties over whom we have no control, our business is also exposed to disruptions affecting those other suppliers and the broader electronics supply chain, even when our own supply, manufacturing and distribution capabilities are unaffected. Many of the end products into which our sensor, power and motor driver ICs are designed, including automobiles, industrial equipment, data center infrastructure, consumer electronics and clean energy systems, cannot be completed, shipped or sold by our customers unless all required components are available in the necessary quantities and on the required schedule. As a result, a shortage, allocation, quality issue, recall, cyber incident, geopolitical disruption, trade restriction, labor action, insolvency or other disruption affecting any other critical component or input, such as memory or logic semiconductors, microcontrollers, power discretes, passive components, connectors, printed circuit boards, substrates, displays, batteries, wire harnesses, rare-earth elements, minerals or magnets subject to export restrictions, or other specialty raw materials, could cause our customers to delay, reduce, reschedule or cancel orders for our products, draw down inventory of our products in lieu of placing new orders, or suspend or curtail production of the end products into which our devices are incorporated. These dynamics may be magnified by our customers' just-in-time manufacturing practices, lean inventory strategies, dual-sourcing requirements and contractual commitments to their own customers. We typically have limited visibility into our customers' full bills of materials and into the supply chains of other component suppliers, which limits our ability to anticipate, plan for or mitigate the impact of such third-party disruptions. The effects of these disruptions on our business may lag the underlying event by one or more quarters as inventory is consumed and orders are rescheduled and may persist for an extended period after the underlying event resolves. For example, export restrictions on rare-earth magnets imposed by China in 2025 caused certain automotive manufacturers to pause or reduce vehicle production, and similar disruptions affecting the supply of critical inputs to our customers' end products could reduce demand for our products even where our own deliveries continue uninterrupted. In particular, the escalation of armed conflict involving the United States, Israel and Iran beginning in early 2026 has heightened risks to our business. Disruption of key Middle East maritime shipping corridors, including the Strait of Hormuz, has increased freight costs and transit times and could delay or interrupt the supply of raw materials, components and packaging materials sourced from or routed through the affected region, including for our fabs, other suppliers and third-party suppliers of components incorporated into the same end products as our devices. Related surges in global energy prices have also affected energy costs in countries where we maintain significant manufacturing operations, including the Philippines, which has declared a state of energy emergency. Increased energy costs or supply constraints at our facilities could reduce production capacity or cause delays. The conflict may prompt expanded sanctions and export control measures that could restrict our ability to transact with counterparties or expose us to regulatory risk. Because our operations are downstream in the global supply chain, the effects of these disruptions, and any further escalation, may lag the underlying events and persist beyond any resolution or de-escalation of the conflict itself. Other companies in our industry may be affected differently by natural disasters, climate change or other disruptions depending on the location and concentration of their suppliers, operations and customers. In addition, many of our competitors are larger companies with more substantial financial and other resources and, as a result, may be better able to plan for, withstand or otherwise mitigate the effects of any such disruption. While we may take steps to plan for or address the occurrence of any such event, we cannot guarantee that we will be successful. Our failure to take adequate steps to reduce the likelihood or mitigate the potential impact of such events, or to effectively manage such events if they occur, particularly when a wafer or packaging component is sourced from a limited number of locations or suppliers, could adversely affect our business, financial condition, results of operations and cash flows and/or require additional resources to restore our supply chain.

We seek to protect our proprietary technology and inventions, particularly those relating to the design of our products, through the use of patents. As of March 27, 2026, we owned approximately 1,860 active patents, including 1,005 U.S. patents (with expiration dates between 2026 and 2044), with approximately 440 pending patent applications, including 250 U.S. patent applications. Maintenance of patent portfolios, particularly outside of the U.S., is expensive, and the process of seeking patent protection is lengthy and costly. While we intend to maintain our patents supporting our products and to continue to prosecute our currently pending patent applications and file future patent applications when appropriate, the value of these actions may not exceed their expense. Existing patents and those that may be issued from any pending or future applications may be subject to challenges, invalidation or circumvention, and the rights granted under our patents may not provide us with meaningful protection or any commercial advantage. In addition, the protection afforded under the patent laws of one country may not be the same as that in other countries. This means, for example, that our right to exclusively commercialize a product in those countries where we have patent rights for that product can vary on a country-by-country basis. We also may not have the same scope of patent protection in every country where we do business. Additionally, it is difficult and costly to monitor the use of our IP. It may be the case that our IP is already being infringed, and infringement may occur in the future without our knowledge. The difficulty and failure to identify any violations of our IP rights could materially and adversely affect our business, financial condition and result of operations and hurt our competitive advantage. Our use of AI Technologies in product development and software coding presents additional IP risks, including uncertainty regarding the protectability of AI-generated inventions and code, potential infringement claims arising from AI-generated outputs substantially similar to third-party or open-source materials, and possible third-party provider rights in code generated using their tools. See "Risk Factors-We are exposed to risks related to the use of AI Technologies by us and others." We also seek to protect our proprietary technology and inventions, particularly those relating to our manufacturing processes, as trade secrets. Under the trade secret laws of both the United States and applicable non-U.S. countries, protection of our proprietary information as trade secrets requires us to take steps to prevent unauthorized disclosure to third parties or misappropriation by third parties. While we require our officers, employees, consultants, distributors, and existing and prospective customers to sign confidentiality agreements and take security measures to protect unauthorized disclosure and misappropriation of our trade secrets, we cannot assure or predict that these measures will be sufficient. The semiconductor industry is generally subject to high employee turnover, so the risk of trade secret misappropriation may be amplified. If any of our trade secrets are subject to unauthorized disclosure or are otherwise misappropriated by third parties, our competitive position may be materially and adversely affected.

We rely on computer systems, hardware, software, technology infrastructure and online sites and networks for both internal and external operations (collectively, "IT Systems") that are critical to our business. We own and manage some of these IT systems but also rely on third parties for a range of IT Systems and other products and services. In conducting our business, we routinely collect and store sensitive data, including proprietary technology and information and personal information related to our business and our customers, suppliers and business partners, as well as proprietary technology and information owned by our customers (collectively, "Confidential Information"). The secure processing, maintenance and transmission of Confidential Information is critical to our operations and business strategy. We face numerous, evolving cybersecurity risks that threaten the confidentiality, integrity and availability of our IT Systems and Confidential Information. We and our third-party service providers are exposed to a range of cyberattack vectors, including computer viruses, malware (including ransomware), illegal hacking, criminal fraud or impersonation, acts of vandalism or terrorism, employee or contractor error or malfeasance, social engineering or phishing, or software-related errors, bugs or other vulnerabilities. We and certain of our service providers have experienced and will continue to experience cyberattacks and other incidents to varying degrees. While to date no incidents have materially impacted our operations or results, there is no guarantee that material incidents will not occur in the future. Security measures that we, our third-party service providers and our customers have implemented cannot detect or prevent all cybersecurity attacks, disruptions or security breaches. Our scanning tools regularly identify vulnerabilities in our and third-party software used in our IT environment, but we cannot comprehensively apply patches or mitigate all vulnerabilities before a threat actor exploits them. There can also be no assurance that our cybersecurity risk management program, including our policies, controls or procedures, will be fully implemented, complied with or effective in protecting our IT Systems and Confidential Information. Threat actors are increasingly sophisticated and using techniques and tools that circumvent controls, evade detection and remove forensic evidence, including the use of AI and machine learning to launch more automated, convincing, targeted and coordinated attacks, which means that effectively anticipating, containing and recovering from attacks and incidents in a timely manner is and will continue to be challenging, and may require us to incur material costs. Any attack, breach or misuse of Confidential Information, whether experienced by us or a third-party service provider or in our supply chain, could materially harm our reputation by deterring existing or prospective customers from using our products and applications, increasing our operating expenses in order to contain and remediate the incident, exposing us to unbudgeted or uninsured liability, disrupting our operations, diverting management focus away from other priorities, increasing our regulatory and litigation (including class action) exposure, and/or resulting in the imposition of material penalties and fines under state, federal and foreign laws. Any such incidents could irreparably damage our reputation and business, which could have a material adverse effect on our results of operations. While we maintain various insurance policies, we cannot be certain that any or all cybersecurity or privacy-related losses or costs will be covered in whole or in part by our policies. Risks associated with our and our employees' use of AI Technologies are further described under ‘Risk Factors-We are exposed to risks related to the use of AI Technologies by us and others.'

We are increasingly incorporating AI tools and capabilities into our business operations, including our chip design lifecycle, manufacturing operations, and administrative functions, which subjects us to significant competitive, legal, regulatory, and other risks. Our competitors may be more successful in their development of AI Technologies, including by developing superior products or improving their operations. Our use of AI Technologies may also expose us to risks related to the loss of confidential information or IP rights, IP infringement or misappropriation, data privacy, cybersecurity, and the unauthorized use of Company data. In particular, if the models underlying the AI Technologies we use are poorly designed, trained on inadequate, biased or improperly licensed data, deployed without sufficient governance, or affected by defects or cybersecurity threats, the performance of our products and services and our reputation could suffer, and we could incur liability under applicable law or contract. We use third-party AI Technologies in our operations, and our ability to continue to use such technologies at the scale we need may depend on access to specific third-party software and infrastructure. If any such third-party AI Technologies become incompatible with the other technologies we use in our business or unavailable for use (including due to service disruptions or outages beyond our control), or if the providers of such models unfavorably change their terms or terminate their relationship with us, our operations could be materially adversely affected. Additionally, the jurisdictions in which we operate have adopted and may adopt laws and regulations related to AI, which could cause us to incur greater compliance costs, limit our use of AI Technologies, or subject us to legal liabilities. See "Risk Factors-Risks Related to Regulatory Compliance."