Navitas Semiconductor (NVTS) Risk Analysis

We recently announced the restructuring of our business under Navitas 2.0 to enhance our focus on AI data centers, energy and grid infrastructure, performance computing and industrial electrification, and de-emphasize mobile and consumer products. We may not successfully execute our strategic transition to these new markets and customer applications, which could adversely affect our business, results of operations, and financial condition. This strategic realignment entails significant operational, technical, and market risks. Our success in these markets depends on factors including our ability to (i) develop and scale semiconductor solutions that meet demanding power, efficiency, and performance requirements of our customers; (ii) compete against established incumbents with substantial R&D and manufacturing resources; (iii) anticipate rapidly evolving customer needs and technological standards in these high-power and high-performance segments; and (iv) secure design wins and long-term supply agreements in new and unfamiliar market segments. This transition may also require additional capital to execute upon our strategy, which may not be available to us when we need it or on terms acceptable to us. If we are unable to secure the capital needed to execute upon our strategic initiatives, our business operations could be materially affected. Products for AI data centers, energy and grid infrastructure, performance computing and industrial electrification generally require larger, more complex die sizes, advanced process nodes, and longer qualification cycles than consumer products, leading to greater up-front R&D investments and longer payback periods. In addition, our existing manufacturing and supply-chain relationships, optimized for high-volume consumer devices, will need to be adjusted for these new products and customers. Any adverse outcomes in product qualification, manufacturing or performance could materially harm our margin and cash flows. Furthermore, as we reduce our focus on the mobile and consumer markets, we may lose existing customer relationships and brand visibility in those sectors. Mobile and consumer revenue may decline faster than we can establish revenue growth in high power markets. The markets for AI data centers, energy and grid infrastructure, performance computing and industrial electrification are also subject to cycles of over-investment, component oversupply, and technological disruption, which can lead to sharp fluctuations in demand and variability in results. If our transition does not yield expected revenue growth or margin improvement, or if emerging competitors capture key design opportunities, our business, financial performance, and long-term growth prospects could be materially and adversely affected.

If we infringe or misappropriate, or are accused of infringing or misappropriating, the intellectual property rights of third parties, we may incur substantial costs or be unable to commercialize new products. The semiconductor industry is characterized by frequent litigation regarding patent and other intellectual property rights, including by both competitors and so-called "non-practicing entities." We have received communications, and we expect to receive additional communications from time to time, that allege or imply that our products or technologies infringe the patent or other intellectual property rights of third parties or that invite us to take a license to certain allegedly infringed patents. Lawsuits or other proceedings resulting from allegations of infringement could subject us to significant liability for damages, invalidate our proprietary rights, force us to make changes to our products, and adversely affect our business. In some cases, the allegation of patent infringement is made against our end-customer who may seek indemnification from us. In the event that any third-party succeeds in asserting a valid claim against us or any of our end customers, we could be forced to do one or more of the following: - Discontinue selling, importing or using certain technologies that contain the allegedly infringing intellectual property, which could cause us to stop manufacturing certain products;- Seek to develop non-infringing technologies, which may not be feasible;- Incur significant legal expenses, including defense costs under indemnification obligations;- Pay substantial monetary damages to the party whose intellectual property rights we may be found to be infringing; and/or - We or our end customers could be required to seek licenses to the infringed technology that may not be available on commercially reasonable terms, if at all. We may not prevail in such matters or be able to license any valid and infringed patents from third parties on commercially reasonable terms. This could result in the loss of our ability to make, import and sell our products or require us to pay costly royalties to third parties in connection with sales of our products. In addition, if a third-party causes us to discontinue the use of any patented technologies, we could be required to design around those technologies. This could be costly and time consuming and could have an adverse effect on our financial results. Any significant impairments of intellectual property rights from any litigation we face could materially and adversely impact our business, financial condition, results of operations and our ability to compete. Even when we believe we do not infringe the intellectual property rights of a third party, we may decide to enter into a settlement agreement with the third party in order to avoid the risks and costs resulting from protracted litigation. Such settlement agreements may require us to make fixed or recurring payments to the third party, which could materially and adversely impact our business, financial condition and results of operations. In addition, we could be subject to claims that our employees, or we, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of third parties. If we are unable to resolve claims that may be brought against us by third parties related to their intellectual property rights on terms acceptable to us, we may be precluded from offering some of our products or using some of our processes. Defending ourselves against third-party claims, including litigation in particular, may be costly and time consuming and may divert management's attention from our business. For example, Wolfspeed has filed a lawsuit in the U.S. District Court for the District of Delaware, alleging that certain of our GaN and SiC products infringe certain of Wolfspeed's GaN and SiC patents. We will defend ourselves vigorously against this lawsuit, but patent litigation is costly and outcomes are uncertain. Wolfspeed is seeking monetary damages and injunctive relief, among other remedies. An adverse result could have a material adverse effect on our business and even if we prevail in the litigation, doing so may be costly and time consuming and may divert management's attention from our business. In addition, on or about July 22, 2026, Renesas Electronics Corporation ("Renesas") filed a lawsuit against us and two of our employees who are former employees of Renesas, including our chief executive officer, alleging misappropriation of trade secrets, breach of contract and other claims. The litigation was filed in the United States District Court for the Northern District of California. We are evaluating this complaint and intend to vigorously defend ourselves against these allegations, but a negative result could have a material adverse impact on our business.

Our industry is subject to foreign direct investment ("FDI") regulations in many countries, including the United States. Our ability to invest in companies or operations in, and our ability to raise capital from investors affiliated with, those jurisdictions may be subject to review or approval requirements, restrictions, conditions, or prohibitions. Any review and approval of an investment or transaction by an FDI regulator may have disproportionate impacts on transaction certainty, timing, feasibility, and cost, among other effects. FDI regulatory policies and practices are rapidly evolving, and in the event that an FDI regulator reviews one or more proposed or existing investments, there can be no assurance that we will be able to maintain, or proceed with, such investments on terms acceptable to us. We may be unable to complete commercially desirable acquisitions in such jurisdictions or be subject to material costs or restrictions in connection with such acquisitions. While we strive to comply with all applicable laws and regulations, the application of FDI regulations could also in some circumstances result in financial or other penalties or require divestments, any of which could have a material impact on us. In the United States, certain investments that involve the acquisition of, or investment in, a U.S. business by an investor subject to foreign control (a "foreign person") may be subject to review and approval by CFIUS. Whether CFIUS has jurisdiction to review an acquisition or investment transaction depends on, among other factors, the nature and structure of the transaction, including the level of beneficial ownership interest and the nature of any information or governance rights involved, and the nature of the technology possessed by the U.S. business. For example, investments that result in "control" of a U.S. business, which may include governance rights falling well short of majority control, by a foreign person are always subject to CFIUS jurisdiction. CFIUS's jurisdiction also extends to investments that do not result in control of a U.S. business by a foreign person, if they afford foreign investors with information or governance rights in a U.S. business that has a nexus to, among other things, "critical technologies." Transactions involving companies that develop, produce, or test critical technologies may be subject to mandatory filing requirements. In addition, U.S. regulatory initiatives over the past several years have classified certain semiconductor technologies as "critical to national security," including compound semiconductors and wide bandgap semiconductors. Both GaN and SiC are compound semiconductors and wide bandgap semiconductors. As a result, our company's focus on GaN- and SiC-based products, together with our global presence in rapidly growing markets, including China, may subject our company to additional regulatory restrictions or scrutiny, including by CFIUS, in connection with past or future transactions that involve investments in us or by us. Although we believe all of our GaN and SiC products are generally not subject to export controls under the U.S. Export Administration Regulations, CFIUS could choose to review proposed or past investments in us by foreign persons whether or not our business is deemed to involve "critical technologies." In the case of such review, CFIUS could prohibit or impose conditions on the relevant investment. Such conditions might include limitations or obligations on our operations that could result in material costs or disruptions of our current or future operations. The prospect of CFIUS review, or any such prohibitions or conditions, could result in material costs or disruptions in our current or future operations or plans, and could also have a negative impact on our stock price. Furthermore, we have had communications with CFIUS with respect to our products, investors and acquisitions, and may have additional communications in the future with respect to these or other matters. Any future communications with CFIUS or other similar regulatory agency with authority over FDI, if not satisfactorily resolved, may result in material restrictions, conditions, prohibitions or penalties on us or our investors.

In the event our business expands domestically or internationally, our effective tax rates may fluctuate widely in the future. Future effective tax rates could be affected by operating losses in jurisdictions where no tax benefit can be recorded under U.S. GAAP, changes in the composition of earnings in countries with differing tax rates, changes in deferred tax assets and liabilities, or changes in tax laws. Additionally, we may be subject to tax on more than one-hundred percent of our income as a result of such income being subject to tax in multiple state, local or non-U.S. jurisdictions. Factors that could materially affect our future effective tax rates include, but are not limited to: (a) changes in tax laws or the regulatory environment, (b) changes in accounting and tax standards or practices, (c) changes in the composition of operating income by tax jurisdiction and (d) pre-tax operating results of the combined business. Additionally, we may be subject to significant income, withholding and other tax obligations in the United States and Ireland and may become subject to taxes in numerous additional state, local and non-U.S. jurisdictions with respect to income, operations and subsidiaries related to those jurisdictions. Our after-tax profitability and financial results could be subject to volatility or be affected by numerous factors, including: (a) the availability of tax deductions, credits, exemptions, refunds (including refunds of value added taxes) and other benefits to reduce tax liabilities; (b) changes in the valuation of deferred tax assets and liabilities; (c) expected timing and amount of the release of any tax valuation allowances; (d) tax treatment of stock-based compensation; (e) changes in the relative amount of earnings subject to tax in the various jurisdictions in which we operate; (f) the potential expansion into or otherwise becoming subject to tax in additional jurisdictions; (g) changes to the existing intercompany structure (and any costs related thereto) and business operations; (h) the extent of intercompany transactions and the extent to which taxing authorities in the relevant jurisdictions respect such intercompany transactions; and (i) the ability to structure our operations in an efficient and competitive manner. Outcomes from audits or examinations by taxing authorities could have an adverse effect on our after-tax profitability and financial condition. Additionally, the IRS and several foreign tax authorities have increasingly focused attention on intercompany transfer pricing with respect to sales of products and services and the use of intangibles. Tax authorities could disagree with our intercompany charges, cross-jurisdictional transfer pricing or other matters and assess additional taxes. If we do not prevail in any such disagreements, our profitability may be adversely affected.

We have historically relied on a single third-party manufacturer (wafer foundry) to fabricate our GaN products, and on a separate, single wafer foundry to fabricate our SiC products. We also purchase a number of key materials and components used in the manufacture of our products from single or limited sources. As a result, any disruption in the supply to or from these third parties (including ceasing or suspending operations entirely), may require us to transfer manufacturing processes to a new location or facility and we may not be able to do so in a timely manner. Our success is dependent upon our ability to successfully partner with our suppliers and our ability to produce wafers with competitive performance attributes and prices, including smaller process geometries. As we attract new customers in high power markets, those customers' quality and capacity requirements may force us to work with new or additional suppliers and there is no guarantee that we will successfully transition or onboard such new suppliers without excess delay, cost or disruption. Qualifying alternative manufacturing partners or relocating production involves significant time, cost, and technical risk and may not be feasible in the short term. Similarly, many of our suppliers serve multiple customers and in the event of a supply constraint, those other customers may receive preferential priority or allocation. Capacity constraints, yield issues, financial distress, labor disruptions and force majeure events, equipment failures or other disruptions at any of these suppliers could adversely affect our ability to deliver products on a timely basis. For example, historically, we have relied on TSMC as our sole supplier of GaN wafers, a key component in our product offerings. On July 1, 2025, TSMC announced its intention to cease GaN production in July 2027. We have taken proactive steps to mitigate this risk, including committing to purchase buffer inventory from TSMC, expanding our collaboration with Powerchip Semiconductor Manufacturing Corporation and in November 2025, we announced a long-term strategic partnership with GlobalFoundries to develop and deliver advanced GaN solutions for critical applications in high power markets, including AI datacenters, energy and grid infrastructure, performance computing and industrial electrification. Despite these mitigation steps, there is no assurance that we will be able to successfully source sufficient quality or volume of GaN wafers at a cost or on a timeline that meets our requirements. We may not be able to purchase a sufficient quantity of buffer inventory from TSMC, or we may incur substantial costs in doing so and end with excess inventory that must be scrapped. Any delays or disruptions in qualifying or ramping production with Powerchip or GlobalFoundries, or other alternative suppliers, could negatively impact our ability to fulfill customer orders, lead to increased costs, or cause a loss of revenue and market share. In addition, the transition may require us to modify our designs or manufacturing processes or to undertake extensive re-qualification efforts, any of which could result in increased engineering costs and potential delays in product availability. If our United States-based suppliers are unable to meet our requirements, we may be forced to seek alternative suppliers overseas which could impact the competitiveness of our products for critical domestic industries. We are continuing to evaluate the impact of this transition on our financial statements, and there can be no assurance that our mitigation efforts will fully address the risks associated with TSMC's exit from GaN production. Our failure to secure a stable and diversified supply of GaN wafers could materially adversely affect our business, financial condition, and results of operations. In addition, terms with respect to the volume and timing of wafer production and the pricing of wafers produced by the semiconductor foundries, as well as the terms for other outsourced services, are determined through periodic negotiations with our third-party suppliers, which may result in short-term agreements that do not provide for long-term supply or allocation commitments for end customers, including us. We cannot guarantee that the foundries that supply our wafers or other critical third-party suppliers will offer us competitive pricing terms or other commercial terms important to our business. Because we do not have long-term contracts with some of our suppliers and third-party manufacturers, those suppliers or third-party manufacturers can discontinue supplying components or materials to us at any time without penalty. Converting or transferring such fabrication processes from one of our primary facilities to an alternative or backup facility due to a disruption would likely be expensive and could take substantial time, given our highly complex manufacturing and fabrication processes, which incorporate our proprietary technologies. During such a transition, we may attempt to meet end customer demand through our existing inventories, or may attempt to modify partially finished goods to meet the required fabrication specifications. Given the rapid obsolescence timeline to which our products are typically subject, however, we generally do not maintain significant levels of excess inventory and, as a result, it is unlikely that our existing inventory will be sufficient to meet end customer demand during such a transition. In addition, any attempt to modify partially finished goods to meet the required fabrication specifications may not be successful and will require us to incur unanticipated costs. As a result, we may not be able to meet our end customers' needs during such a transition, which would negatively impact our net sales, potentially damage our end customer relationships and our reputation and may have a material adverse effect on our business, financial condition and results of operations.