Synaptics (SYNA) Risk Analysis

We face uncertainty in the development and growth of new and emerging markets, such as Core IoT. These markets may develop slower than anticipated or rely on competing technologies that do not include our product solutions. The success of our solutions in these markets depends on several factors, including: the pace of adoption of wireless and other enabling technologies; the emergence and standardization of protocols for device interoperability; the performance, size, power consumption, and cost-effectiveness of our solutions relative to alternatives; and OEM and end-user preferences. Many of these products are still emerging, and demand for them may vary significantly from one period to another. We may face well-established competitors with strong customer relationships, brand recognition, and more extensive resources. If these markets fail to develop as expected, or if our technologies are not widely adopted, our ability to grow revenue, maintain profitability, and increase market share could be significantly impaired. A sustained failure to gain traction in these markets may also require us to restructure certain product or market investments. In addition, unfavorable developments with respect to global laws and regulations-including those affecting artificial intelligence and data governance-could slow or limit adoption of products in these markets, impede our strategic plans, or require changes to our offerings. We also face increased competition as a result of China actively promoting its domestic semiconductor industry through policy changes and investment. These actions, as well as China-U.S. trade barriers, may restrict our participation in the China market or may prevent us from competing effectively with Chinese companies or companies from other countries that China favors over the United States. Competition could decrease our prices, reduce our sales, adversely affect our gross margins and/or decrease our market share.

We rely on a combination of patents, trade secrets, trademarks, copyrights, and confidentiality agreements to protect our proprietary technologies. However, we cannot be certain that our technologies and products do not and will not infringe issued patents or other third-party proprietary rights. Patents may be challenged, invalidated, or circumvented. Trade secrets may be compromised if confidentiality measures fail or are not consistently applied, and trademark rights may be challenged or unenforceable in certain jurisdictions. Our protection efforts face limitations, particularly in foreign markets such as China, where IP enforcement is less predictable. In the past, we have not always required all employees, consultants, suppliers, or partners to enter into formal written agreement for the protection of our technology including confidentiality or invention assignment agreements, and some may seek to assert rights in our technologies or use them without authorization. The risk of inadvertent disclosure is further heightened by employee use of generative or third-party AI tools. Any claims, with or without merit, could result in significant litigation costs and diversion of resources, including the attention of management, and could require us to enter into royalty or licensing agreements, which may include terms that may not be commercially reasonable, which could have a material adverse effect on our business. In addition, we license certain technology used in and for our products from third parties, including open source components. Open source software is generally made available "as is" and may impose obligations that require us to disclose our own source code or make our products freely available. Although we monitor our use of such software, inadvertent noncompliance could expose us to claims, require product modifications, or restrict product distribution. Also, there can be no assurances that such third-party technology will remain available to us on commercially acceptable terms. We cannot be certain that our products do not infringe third-party intellectual property rights. If third parties assert claims of infringement, we could be subject to significant litigation expenses, damage awards, or injunctions. We may be forced to obtain licenses on unfavorable terms, redesign products, or cease selling certain offerings. In some cases, licenses may not be available at all. We may also have to pay substantial damages to third parties or indemnify customers or licensees for damages they suffer if the products they purchase from us or the technology they license from us violates any third-party intellectual property rights. Any adverse outcome in a licensing dispute or infringement action could materially impact our ability to manufacture, market, or support our products. Additionally, defending or enforcing our rights, whether successful or not, can result in substantial legal expenses, operational disruption, and diversion of management attention, which would have an adverse effect on our operating results.

We are subject to U.S. federal, state and foreign income taxes in the various jurisdictions in which we do business, including U.S. taxes on certain foreign subsidiary earnings. Changes in tax laws or regulations, domestically or internationally, could adversely affect our effective tax rate, deferred tax assets, or overall financial condition. In particular, the Organization for Economic Co-operation and Development's ("OECD") Pillar Two framework introduces a 15% global minimum tax that jurisdictions such as the United Kingdom, Hong Kong, Switzerland, and Japan have begun implementing. We currently do not anticipate a material impact to our fiscal 2026 tax rate or cash flows, but we will continue to monitor legislative developments and recognize any Pillar Two-related amounts as period costs. In addition, effective July 4, 2025, the enactment date for U.S. GAAP purposes, the One Big Beautiful Bill Act ("OBBBA") introduced sweeping tax changes, including permanent extensions of certain provisions originally enacted under the Tax Cuts and Jobs Act of 2017. A previously proposed retaliatory tax on foreign companies (Section 899) was removed following a G7 agreement. We continue to assess the accounting and operational impacts of OBBBA, particularly under ASC 740, and its implications for our future financial reporting and tax planning. We are also subject to periodic examinations by tax authorities, and the calculation of our tax liabilities requires significant judgment. Adjustments may arise from audit resolutions, amended filings, changes in tax interpretations, or expiration of statutes of limitation. Outcomes inconsistent with our expectations could materially impact our consolidated financial position, results of operations, or cash flows. Our effective tax rate may vary significantly from period to period due to factors such as: shifts in the mix and geographic location of earnings and assets; changes in entity structure or business operations; audit outcomes and related interest or penalties; revaluations of deferred tax assets or changes in tax credit availability; new tax laws or accounting standards, including implementation of BEPS 2.0 or OBBBA; and our decision to repatriate foreign earnings subject to additional taxes.

We operate in intensely competitive markets characterized by price erosion, rapid technological change, and competition from major domestic and international companies. Some of our current and potential competitors may offer bundled solutions; introduce new products with disruptive technologies and AI-enhanced features; or benefit from greater brand recognition, longer operating histories, larger customer bases and more extensive resources in sales, R&D, and manufacturing. As a result, they may be able to devote greater resources to promotion, negotiate lower prices for raw materials and components, deliver products at lower prices, or respond more quickly to customer requirements. To compete effectively, we must win design opportunities with OEM customers, meet their development timelines, and align our solutions with their technical and commercial objectives. One of our core business strategies is to win competitive bid selection processes with OEM customers to design our products into their platforms. These selection processes are often lengthy and require significant design and development investment, with no assurance of winning a contract or generating revenue. Delays in our design cycle, failure to anticipate market needs, or inability to align our products with customer roadmaps may result in missed opportunities. If a customer designs another supplier's product into one of its product platforms, it is more difficult for us to achieve future design wins with that platform because changing suppliers involves significant cost, time, effort and risk on the part of that customer. This risk is particularly pronounced in markets such as Automotive, where long design cycles, combined with failure to win a design-in, could lock us out of a customer for several years. If we fail to win key design opportunities, or if we are not perceived as a technology or industry leader,our business, financial condition and results of operations could be materially harmed. Also, a design win does not guarantee revenue. Customers may reduce or cease purchases at any time-for example, if their products are not commercially successful. If we fail to convert design wins into sales, our operating results could be materially and adversely affected. Even if we secure a design win, our revenue depends on the commercial success of the customer's product. If that product is delayed, fails to meet expectations, or is discontinued, our sales may not materialize. Additionally, if our interfaces fail to meet customer performance, cost, or integration requirements during development, projects may be canceled altogether. The timing and cost of our development efforts may exceed expectations, especially as we invest significant engineering, testing, and support resources long before volume production begins. We may not recover these costs if the product does not launch or is replaced by an alternative solution. In addition, if we do not keep pace with rapid technological innovation-such as in AI, ML, edge computing and connectivity-our solutions may become less competitive or obsolete. We must invest substantial resources to enhance and develop new technologies, including hiring and retaining skilled engineers, adopting advanced tools and scaling R&D. Even with investment, our technologies may fail to transition from development to cost-effective production or customers may choose competitors' solutions due to price, performance or strategic alignment. We are also integrating AI and ML technologies into our products, services and internal processes, including in edge computing, voice and vision interfaces and wireless connectivity. The rapid pace of AI and ML innovations may challenge our ability to remain competitive if we fail to keep pace with technological developments or if our competitors more effectively deploy these technologies. While AI and ML offer opportunities to enhance the functionality and efficiency of our product offerings, they also introduce operational, compliance and reputational risks. These include unintended consequences, such as inaccurate or biased outputs, potential misuse by personnel, vulnerabilities in third-party AI tools and heightened scrutiny under evolving laws and regulations governing data privacy, algorithmic transparency and ethical AI use. The use of AI also may expose us to increased intellectual property risks, including claims of infringement, misappropriation or loss of proprietary information. Failure to innovate, keep pace with customer expectations and win key design opportunities, convert such opportunities into sales, offer compelling features at competitive prices, could materially harm our market position and financial performance.

We compete in a highly technical industry that requires a workforce with deep domain expertise in areas such as edge AI, wireless IP, System on a Chip architecture, video processing and embedded firmware. Our future success depends on our ability to recruit, retain and develop highly skilled engineers, program managers and leadership across our global R&D centers, including in the United States, Taiwan, South Korea, Israel and India. The market for semiconductor engineering talent is highly competitive and employee attrition or difficulty hiring in key geographies could delay product development, reduce innovation or harm customer delivery schedules. In addition, restrictive immigration policies, labor market saturation or compensation pressures could affect our access to technical talent. Our compensation programs, which include cash and share-based compensation award components, has been instrumental in attracting, hiring, motivating and retaining qualified personnel. Our success depends on our continued ability to use our share-based compensation programs to effectively compete for engineering and other technical personnel and professional talent without significantly increasing cash compensation costs. We may also be impacted if a competitor recruits key employees, or we experience attrition in our senior leadership without adequate succession planning. In addition, in May 2025, we announced the appointment of a new Chief Executive Officer. Transitions in executive leadership may result in strategic business and operational changes, shifts in personnel priorities and/or uncertainty among employees, customers and investors. Any failure to effectively manage this transition, or to retain senior leaders in critical roles across the organization, could impact continuity, delay initiatives or reduce morale. Such turnover can also disrupt long-term customer relationships, strategic execution or internal governance.

We depend on our contract manufacturers and semiconductor fabricators, primarily located in Asia, to produce and assemble our products. These third parties are responsible for maintaining satisfactory manufacturing yields and delivery schedules. We provide our contract manufacturers with six-month rolling forecasts of our production requirements, but generally do not have long-term agreements that guarantee production capacity, pricing, or lead times. If end customer demand fluctuates unexpectedly, either rising sharply or declining, our ability to respond is constrained by limited capacity control and long lead time. Our manufacturers also serve other customers, some of whom may have greater volume commitments or purchasing leverage, which could lead to a re-prioritization of production at our expense. Qualifying new contract manufacturers, specifically semiconductor foundries, is time consuming and might result in unforeseen manufacturing and operations problems. We may also encounter lower manufacturing yields and longer delivery schedules in commencing volume production of new products that we introduce, which could increase our costs or disrupt our supply of such products. In addition, a foundry or supplier may become unavailable to us as a result of economic or political instability. The loss of relationships with our contract manufacturers or assemblers, or their inability to conduct their manufacturing and assembly services for us as anticipated in terms of capacity, cost, quality and timeliness, could adversely affect our ability to fill customer orders in accordance with required delivery, quality and performance requirements and adversely affect our operating results. We also face significant risk from forecasting errors, inventory imbalances, and order variability. We typically sell pursuant to customer purchase orders rather than long-term purchase commitments, and customers may delay, cancel, or fail to honor their orders. If we overestimate demand, we may hold excess or obsolete inventory; if we underestimate, we may lack sufficient inventory or manufacturing capacity to meet demand. Many of our customers have shifted to just-in-time inventory strategies, increasing our exposure to short-notice adjustments. Because our forecasts are based on assumptions about customer behavior, market conditions, and development timelines, any of which may prove inaccurate, our inventory and revenue may vary significantly from expectations. Supply chain disruptions can also impact upstream demand for our solutions. Our products are used in complex devices and systems that depend on numerous components. Delays in one part of the chain can lead to a broader reduction in product builds that include our technologies. In addition, we face ongoing risks from component and material shortages. Key inputs, including silicon wafers, substrates, and packaging materials, are sourced from a limited number of foreign suppliers. If these suppliers face capacity constraints, pricing shifts, or economic disruptions, we may be unable to obtain sufficient quantities or meet production timelines. Without long-term supply contracts, we are exposed to price increases and allocation risk. If larger or better-financed supply chain customers secure preferential access to limited supplies, our production and costs could be adversely affected. Future shortages or procurement delays may cause missed shipments, customer dissatisfaction, and lost revenue opportunities. Altogether, uncertainty in demand forecasting, reliance on outsourced manufacturing, and limited sourcing alternatives may materially impact our operating results, margins, and ability to fulfill customer expectations.