Kulicke and Soffa Industries Inc

Item 1A. - RISK FACTORS

Certain Risks Related to Our Business

There have been no material changes from the risk factors discussed in Part I, Item 1A, Risk Factors, of our 2024 Annual Report.

, except for the following:

Substantially all of our sales, distribution channels and manufacturing operations are located outside of the U.S., which subjects us to risks, including risks from changes in trade regulations, currency fluctuations, political instability and conflicts.

From time to time, our customers may request that we deliver our products to countries where they own or operate production facilities or to countries where they utilize third party subcontractors or warehouses as part of their supply chain. Our customer base in the Asia/Pacific region has become more geographically concentrated over time as a result of general economic and industry conditions and trends. Over 85% of our net revenue is derived from shipments to customers located outside of the U.S., primarily in the Asia/Pacific region. Approximately 47.3% and 47.4% of our net revenue for the six months ended March 29, 2025 and March 30, 2024, respectively, were for shipments to customers headquartered in China.

We expect our future performance to depend on our ability to continue to compete in foreign markets, particularly in the Asia/Pacific region. Some of these economies have been highly volatile, resulting in significant fluctuation in local currencies, and political and economic instability. Some of these economies may also increase trade protectionism, thereby increasing barriers to entry, amplifying supply chain risks and adversely affecting the demand for our products. These conditions may continue or worsen, which may materially and adversely affect our business, financial condition and operating results.

We also rely on non U.S. suppliers for materials and components used in our products, and substantially all of our manufacturing operations are located in countries other than the U.S. We currently manufacture our ball, wedge, APAMATM and APTURATM bonders in Singapore, our Hybrid and Electronic Assembly solutions in the Netherlands and in Singapore, our dicing blades, capillaries and bonding wedges in China, our capillaries in Israel and China, and our advanced dispensing equipment in Taiwan. We also rely on independent foreign distribution channels for certain of our product lines. As a result, a major portion of our business is subject to the risks associated with international commerce, particularly Asia/Pacific region, such as:

stringent and frequently changing trade compliance regulations;

less protective foreign intellectual property laws, and the enforcement of patent and other intellectual property rights;

longer payment cycles in foreign markets and potential default risks;

foreign exchange restrictions and capital controls, monetary policies and regulatory requirements;

restrictions or significant taxes on the repatriation of our assets, including cash;

tariff and currency fluctuations;

trade wars or trade conflicts;

difficulties of staffing and managing dispersed international operations, including labor work stoppages and strikes in our factories or the factories of our suppliers;

changes in our structure or tax incentive arrangements;

possible disagreements with tax authorities;

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episodic events outside our control such as, for example, outbreaks of coronaviruses, influenza, monkeypox or other illnesses;

natural disasters such as earthquakes, fires or floods, including as a result of climate change;

war, risks and rumors of war and civil disturbances, including the prolonged tensions in the Middle East and the Ukraine/Russia conflict, or other events that may limit or disrupt manufacturing, markets and international trade;

act of terrorism that impact our operations, customers or supply chain or that target U.S. interests or U.S. companies;

seizure of our foreign assets, including cash;

the imposition of sanctions of countries in which we do business;

changing political conditions and rising geopolitical tensions; and

legal systems which are less developed and may be less predictable than those in the U.S.

In addition, there remains a potential risk of conflict and instability in the relationship between Taiwan and China which could disrupt the operations of our customers and/or suppliers in both Taiwan and China, our manufacturing operations in Taiwan and China, and our future plans in the region.

Our international operations also depend on favorable trade relations between the U.S. and those foreign countries in which our customers, subcontractors and materials suppliers have operations. In 2025, the U.S. has imposed, or threatened to impose, additional tariffs on a number of countries. Impacted countries have imposed, and in the future may impose, retaliatory tariffs, and such actions could give rise to an escalation of other trade measures by the countries subject to such tariffs. While the application of certain previously announced tariffs has been delayed, there is no guarantee that the tariffs will not go into effect and there is the possibility that additional U.S. tariffs may be imposed on certain countries. In addition to tariffs, the U.S. has imposed export controls targeted at specific industries, including the semiconductor industry.

These tariffs and other adverse trade actions, as well as the threat of trade wars against foreign countries/regions, have created even more uncertainties in international trade, which may affect our business. For example, the imposition of tariffs and export controls could increase the cost of our products, which could in turn materially and adversely affect our ability to sell our products in foreign markets.

We are subject to export restrictions that may limit our ability to sell to certain customers, and trade wars, in particular the U.S. China trade war, could adversely affect our business.

The U.S. and several other countries levy tariffs on certain goods and impose other trade restrictions that may impact our customers investment in manufacturing equipment, reduce the competitiveness of our products, or inhibit our ability to sell products or purchase necessary equipment and supplies.

In particular, trade tensions between the U.S. and China have been escalating since 2018, with U.S. tariffs on Chinese goods and retaliatory Chinese tariffs on U.S. goods. In 2025, the U.S. has imposed additional tariffs on Chinese-origin goods. In addition, the U.S. has imposed extensive export controls targeted primarily at the semiconductor industry in China. In response, China has imposed retaliatory tariffs and has recently restricted the export of certain metals and prohibited the export of certain rare minerals from China to the U.S.

We cannot predict what further actions may ultimately be taken with respect to tariffs or trade relations between the U.S. and other countries, what products may be subject to such actions, or what actions may be taken by other countries in response. Further changes in trade policy, tariffs, additional taxes, restrictions on exports or other trade barriers, or restrictions on supplies, equipment, and raw materials, may limit our ability to produce products, increase our selling and/or manufacturing costs, reduce the competitiveness of our products, or inhibit our ability to sell products or purchase necessary equipment and supplies, which could have a material adverse effect on our business, results of operations, or financial condition.

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Though nearly all of our manufacturing activities take place outside of the U.S., certain of our advanced packaging products are subject to the EAR because they are based on U.S. technology or contain more than a de minimis amount of controlled U.S. content. The EAR require licenses for, and sometimes prohibit, the export of certain products. The CCL sets forth the types of goods and services controlled by the EAR, including civilian science, technology, and engineering dual use items. For products listed on the CCL, a license may be required as a condition to export depending on the end destination, end use or end user and any applicable license exceptions.

In 2020, the U.S. Department of Commerce Bureau of Industry and Security (BIS) amended the EAR to expand controls on certain foreign products based on U.S. technology and sold to Huawei and certain other companies. In October 2022, the BIS amended the EAR again to extend those foreign controls to numerous companies on BIS so called Entity List. The 2020 and 2022 amendments impact some of our advanced packaging products, which are based on U.S. technology and are within the scope of the expanded EAR controls on Huawei and other Entity List companies. Therefore, these products cannot be sold to Huawei and other Entity List companies, and are subject to certain end use restrictions. To date, these amendments to the EAR have not had a material direct impact on our business, financial condition or results of operations and we do not expect that they will, although they could have indirect impact, including increasing tensions in U.S. and Chinese trade relations, potentially leading to negative sentiments towards U.S. based companies among Chinese consumers. Additionally, some end users may prefer to avoid the U.S. supply chain in its entirety to avoid the application of these regulations.

In November 2023, the BIS issued additional rules to update export controls on advanced computing semiconductors and semiconductor manufacturing equipment , as well as items that support supercomputing applications and end uses, to arms embargoed countries, including China. Further in December 2024, the BIS added new export controls pertaining to high-bandwidth memory, semiconductor manufacturing equipment and related items that enable advanced-node integrated circuit production. In January 2025, the BIS issued its "Framework for AI Diffusion", which includes a set of additional export controls on advanced computing chips and certain closed artificial intelligence ("AI") model weights, as well as a three-tiered framework for AI access.

We are taking appropriate measures to comply with all applicable BIS Rules. Where required, we will apply for export licenses from the BIS to avoid disruption to our customers operations. Export licenses may be subject to a prolonged review and appeals process, to which there cannot be an assurance as to whether an export license may be granted, granted with conditions or eventually revoked due to subsequent challenge.

Additionally, the rules promulgated by the BIS are typically complex, and the BIS could revise or expand them in response to public comments. Likewise, the BIS may issue guidance clarifying the scope of the rules. Such revisions, expansions or guidance could change the impact of the rules for our business. Future changes in, and responses to, the various export regulations, tariffs, or other trade regulations between the U.S. and other countries may be unpredictable. Such further changes may limit our ability to produce products, increase our selling or manufacturing costs, decrease margins, reduce the competitiveness of our products and cause our sales to decline, and therefore could have a material adverse effect on our business, financial condition or results of operations.

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