10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)
☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
Or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-34942

Inphi Corporation

(Exact Name of Registrant as Specified in Its Charter)

Delaware	77-0557980
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

2953 Bunker Hill Lane, Suite 300,

Santa Clara, California 95054

(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (408) 217-7300

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 (§ 232.405 of this chapter) 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, 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. (Check one):

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 is a shell company (as defined in 12b-2 of the Exchange Act).  Yes  ☐      No  ☑

The total number of shares outstanding of the Registrant’s common stock, $0.001 par value per share, as of November 1, 2018 was 44,111,553.

INPHI CORPORATION

QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2018

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION			2
Item 1.	Financial Statements		2
	Unaudited Condensed Consolidated Balance Sheets at September 30, 2018 and December 31, 2017		2
	Unaudited Condensed Consolidated Statements of Income (Loss) for the Three and Nine Months Ended September 30, 2018 and 2017		3
	Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2018 and 2017		4
	Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2018 and 2017		5
	Notes to Unaudited Condensed Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		21
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		28
Item 4.	Controls and Procedures		29
PART II. OTHER INFORMATION			29
Item 1.	Legal Proceedings		29
Item 1A.	Risk Factors		29
Item 6.	Exhibits		30
Signatures			31

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

INPHI CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

	September 30, 2018			December 31, 2017
Assets
Current assets:
Cash and cash equivalents	$	172,420		$	163,450
Investments in marketable securities		222,561			241,737
Accounts receivable, net		48,440			67,993
Inventories		34,124			31,721
Prepaid expenses and other current assets		8,402			12,208
Total current assets		485,947			517,109
Property and equipment, net		67,469			60,344
Goodwill		104,502			104,502
Identifiable intangible assets, net		196,533			222,933
Other assets, net		30,929			12,618
Total assets	$	885,380		$	917,506
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	14,257		$	14,721
Deferred revenue		300			435
Accrued employee expenses		9,173			15,214
Other accrued expenses		5,193			8,290
Other current liabilities		23,499			21,387
Total current liabilities		52,422			60,047
Convertible debt		440,997			421,431
Other long-term liabilities		14,694			24,627
Total liabilities		508,113			506,105
Commitments and contingencies (Note 16)
Stockholders’ equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued		—			—
Common stock, $0.001 par value; 500,000,000 shares authorized; 44,027,738 and 42,780,229 issued and outstanding at September 30, 2018 and December 31, 2017, respectively		44			43
Additional paid-in capital		524,915			484,934
Accumulated deficit		(148,265	)		(74,145	)
Accumulated other comprehensive income		573			569
Total stockholders’ equity		377,267			411,401
Total liabilities and stockholders’ equity	$	885,380		$	917,506

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2

INPHI CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(in thousands, except share and per share amounts)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Revenue	$	78,009		$	84,511		$	207,959		$	262,518
Cost of revenue		34,547			42,440			92,340			119,099
Gross profit		43,462			42,071			115,619			143,419
Operating expenses:
Research and development		41,558			78,849			127,300			158,574
Sales and marketing		10,819			10,100			32,472			31,580
General and administrative		7,134			5,584			21,767			18,177
Total operating expenses		59,511			94,533			181,539			208,331
Loss from operations		(16,049	)		(52,462	)		(65,920	)		(64,912	)
Interest expense		(8,202	)		(7,566	)		(23,870	)		(22,109	)
Other income, net		1,383			1,080			7,264			2,656
Loss before income taxes		(22,868	)		(58,948	)		(82,526	)		(84,365	)
Benefit for income taxes		(203	)		(10,182	)		(8,406	)		(9,359	)
Net loss	$	(22,665	)	$	(48,766	)	$	(74,120	)	$	(75,006	)
Earnings per share:
Basic earnings per share	$	(0.52	)	$	(1.15	)	$	(1.70	)	$	(1.78	)
Diluted earnings per share	$	(0.52	)	$	(1.15	)	$	(1.70	)	$	(1.78	)
Weighted-average shares used in computing earnings per share:
Basic		43,934,598			42,350,313			43,535,033			42,022,272
Diluted		43,934,598			42,350,313			43,535,033			42,022,272

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3

INPHI CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands) 

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Net loss	$	(22,665	)	$	(48,766	)	$	(74,120	)	$	(75,006	)
Other comprehensive income (loss):
Available for sale investments:
Change in unrealized gain or loss, net of tax		140			42			5			266
Realized gain reclassified into earnings, net of tax		—			—			(1	)		—
Comprehensive loss	$	(22,525	)	$	(48,724	)	$	(74,116	)	$	(74,740	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

INPHI CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Nine Months Ended September 30,
	2018			2017
Cash flows from operating activities
Net loss	$	(74,120	)	$	(75,006	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		59,944			58,730
Stock-based compensation		47,509			32,368
Impairment of intangible assets		—			47,014
Deferred income taxes		(8,858	)		(10,304	)
Accretion of convertible debt and amortization of debt issuance costs		19,566			18,217
Net unrealized gain on equity investments		(2,375	)		—
Amortization of premium (discount) on marketable securities		(341	)		931
Other noncash items		362			(50	)
Changes in assets and liabilities:
Accounts receivable		19,553			(21,576	)
Inventories		(2,403	)		(2,597	)
Prepaid expenses and other assets		704			2,494
Income tax payable/receivable		(1,607	)		(1,020	)
Accounts payable		918			3,081
Accrued expenses		(9,235	)		(3,836	)
Deferred revenue		(135	)		4,369
Other liabilities		(1,080	)		(4,570	)
Net cash provided by operating activities		48,402			48,245
Cash flows from investing activities
Purchases of property and equipment		(23,876	)		(30,914	)
Purchases of marketable securities		(177,003	)		(158,244	)
Sales of marketable securities		6,312			39,372
Maturities of marketable securities		190,060			139,768
Payment of debt related to purchase of intangible assets		(17,178	)		(12,799	)
Remaining payment related to acquisition of business		—			(1,800	)
Purchase of equity investment		(12,811	)		—
Proceeds from sale of discontinued operations		—			10,690
Proceeds from sale of equity investment		2,414			—
Other investing activity		125			100
Net cash used in investing activities		(31,957	)		(13,827	)
Cash flows from financing activities
Proceeds from exercise of stock options		522			1,514
Proceeds from employee stock purchase plan		5,906			5,776
Payment of capital lease obligations		(417	)		(731	)
Repayment of long-term loan		310			272
Minimum tax withholding paid on behalf of employees for restricted stock units		(13,796	)		(20,248	)
Net cash used in financing activities		(7,475	)		(13,417	)
Net increase in cash and cash equivalents		8,970			21,001
Cash and cash equivalents at beginning of period		163,450			144,867
Cash and cash equivalents at end of period	$	172,420		$	165,868
Supplemental cash flow information:
Income taxes paid	$	2,000		$	2,100
Interest paid		4,214			3,378
Supplemental disclosure of non-cash investing and financing activities:
Intangible assets financed with debt		18,611			2,808

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5

INPHI CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

1. Organization and Basis of Presentation

Inphi Corporation (the “Company”), a Delaware corporation, was incorporated in November 2000. The Company is a fabless provider of high-speed analog and mixed signal semiconductor solutions for the communications and datacenter markets. The Company’s semiconductor solutions are designed to address bandwidth bottlenecks in networks, maximize throughput and minimize latency in computing environments and enable the rollout of next generation communications and datacenter infrastructures. In addition, the semiconductor solutions provide a vital high-speed interface between analog signals and digital information in high-performance systems such as telecommunications transport systems, enterprise networking equipment and datacenters.

The interim unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all of the information and footnotes required by GAAP for complete financial statements. Therefore, these interim unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2017, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 28, 2018.

The interim condensed consolidated financial statements included herein are unaudited; however, they contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary to state fairly the Company’s consolidated financial position at September 30, 2018, and its consolidated results of operations for the three and nine months ended September 30, 2018 and 2017 and cash flows for the nine months ended September 30, 2018 and 2017. The results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of the results to be expected for future quarters or the full year.

2. Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued guidance on “Revenue from Contracts with Customers.” The new revenue recognition guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. The guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The FASB issued several updates to the guidance. The Company adopted the new revenue guidance effective January 1, 2018, using the modified retrospective transition method applied to those contracts which were not completed as of that date. See Note 3 of the condensed consolidated financial statements for further details.

In January 2016, the FASB issued guidance that requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The guidance simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value. The guidance eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, and requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. The guidance also requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. Separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements is required under this guidance. The guidance further clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The Company adopted this guidance starting January 1, 2018 and concluded that there was no cumulative effect adjustment required. The Company has elected to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer (referred to as the measurement alternative). See Note 4 of the condensed consolidated financial statements for further details.

6

 INPHI CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

In February 2016, the FASB issued guidance that requires companies that lease assets (lessees) to recognize on the balance sheet the assets and liabilities for the rights and obligations created by the leases with lease terms of more than 12 months. This guidance is effective for the Company beginning January 1, 2019. Early adoption is permitted. The Company is currently evaluating the impact of this new guidance on its consolidated financial statements and related disclosures.

In June 2016, the FASB issued guidance which requires the credit losses related to debt securities classified as available-for sale to be presented as an allowance rather than as a write-down. This guidance is effective for the Company beginning after December 15, 2019. The Company is currently evaluating the impact that this new guidance will have on its consolidated financial statements and related disclosures.

In August 2016, the FASB issued guidance related to the classification of certain transactions on the statement of cash flows. The guidance is effective for calendar year-end public companies in 2018. The adoption of this guidance did not have a material impact on the Company’s consolidated statements of cash flows.

In January 2017, the FASB issued guidance on classifying the definition of a business. This guidance clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance is effective for calendar year-end public companies in 2018. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued guidance to simplify the measurement of goodwill by eliminating the Step 2 impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The new guidance requires an entity to compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The new guidance becomes effective for goodwill impairment tests in fiscal years beginning after December 15, 2019, though early adoption is permitted. The Company is currently evaluating the impact that this new guidance will have on its consolidated financial statements and related disclosures.

In May 2017, the FASB issued guidance to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award changes as a result of the change in terms or conditions. The guidance was effective for fiscal years beginning after December 15, 2017. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.

In February 2018, the FASB issued guidance that allows an option to reclassify from accumulated other comprehensive income to retained earnings any stranded tax effects resulting from the Tax Cuts and Jobs Act (the "Tax Act").  The guidance will be effective for fiscal years beginning after December 15, 2018, though early adoption is permitted in any interim period after issuance of the update. The Company is currently evaluating the impact that this new guidance will have on its consolidated financial statements and related disclosures.

In June 2018, the FASB issued guidance to eliminate the separate guidance applicable to share-based payments to nonemployees. Under the new guidance, equity-classified share-based payment awards issued to nonemployees will be measured on the grant date, instead of being remeasured through the performance completion date (generally the vesting date), as required under the current guidance. The new guidance will also require recognition of compensation cost for awards with performance conditions when achievement of those conditions are probable, rather than upon their achievement.  Further, the new guidance will eliminate the requirement to reassess the classification of nonemployee awards under the financial instruments literature upon vesting.  The guidance will be effective for fiscal years beginning after December 15, 2018. The Company is currently evaluating the impact that this new guidance will have on its consolidated financial statements and related disclosures.

In August 2018, the FASB issued guidance that eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information and modifies some disclosure requirements.  The new guidance will no longer require disclosure of the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will require disclosure of the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements.  The guidance will be effective for fiscal years beginning after December 15, 2019. The Company is currently evaluating the impact that this new guidance will have on its consolidated financial statements and related disclosures.

7

 INPHI CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

In August 2018, the FASB issued guidance requiring a customer in a cloud computing arrangement that is a service contract to follow the internal use software guidance in Accounting Standards Codification (ASC) 350-40 to determine which implementation costs to capitalize as assets.  Capitalized implementation costs are expensed over the term of the hosting arrangement beginning when the module or component of the hosting arrangement is ready for its intended use.   The guidance will be effective for fiscal years beginning after December 15, 2019. The Company is currently evaluating the impact that this new guidance will have on its consolidated financial statements and related disclosures.

3. Revenue

On January 1, 2018, the Company adopted Accounting Standards Update (ASU) 2014-09, Revenue from Contract with Customers (Topic 606), using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. The adoption of this guidance resulted in no cumulative effect adjustment as of January 1, 2018. Starting January 1, 2018, the Company recognizes revenue on sales to distributors upon shipment and transfer of control (known as “sell-in” revenue recognition), rather than deferring recognition until distributors report that they have sold the products to their customers (known as “sell-through” revenue recognition). The impact on revenue for the three and nine months ended September 30, 2018 was an increase (decrease) of ($154) and $3,019, respectively. The impact on cost of revenue for the three and nine months ended September 30, 2018 was an increase of $5 and $548, respectively. The deferred revenue and inventories decreased by $3,019 and $548 as of September 30, 2018, respectively. Results for reporting periods beginning after January 1, 2018 are presented under the new revenue guidance, while prior periods will not be retrospectively adjusted and continue to be reported in accordance with the Company’s historic revenue recognition accounting.

The Company recognizes revenue when the control of the promised goods or services is transferred to customers in an amount that reflects the consideration the Company expects to receive in exchange for such goods or services.

The following table shows revenue by geography, based on the shipping location of customers:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
China	$	31,723	$	20,435	$	70,710	$	80,990
United States		25,746		31,985		72,710		63,029
Thailand		10,687		14,447		26,807		38,185
Other		9,853		17,644		37,732		80,314
	$	78,009	$	84,511	$	207,959	$	262,518

Product Revenue

The Company’s products are fully functional at the time of shipment and do not require additional production, modification, or customization. The Company recognizes revenue upon transfer of control at a point in time when title transfers either upon shipment to or receipt by the customer, net of accruals for estimated sales returns and allowances. Sales and other taxes the Company collects are excluded from revenue. The fee is based on specific products and quantities to be delivered at specified prices, which is evidenced by a customer purchase order or other persuasive evidence of an arrangement. Certain distributors may receive a credit for the price discounts associated with the distributors' customers that purchased those products. The Company estimates the extent of these distributor price discounts at each reporting period to reduce accounts receivable and revenue. Although the Company accrues an estimate of distributor price discount, the Company does not issue these discounts to the distributor until the inventory is sold to the distributors' customers. As of September 30, 2018, the estimated price discount was $961. Payment terms of customers are typically 30 to 60 days after invoice date. The Company’s products are under warranty against defects in material and workmanship generally for a period of one or two years. The Company accrues for estimated warranty cost at the time of sale based on anticipated warranty claims and actual historical warranty claims experience including knowledge of specific product failures that are outside of the Company’s typical experience.

Other Revenue

Occasionally, the Company enters into license and development agreements with some of its customers and recognizes revenue from these agreements upon completion and acceptance by the customer of contract deliverables by milestones or as services are provided, depending on the terms of the arrangement. Revenue is deferred for any amounts billed or received prior to completion of milestones or delivery of services. The Company believes the milestone method best depicts efforts expended to transfer services to the customers. Certain contracts may include multiple performance obligations in which the Company allocates revenues to each performance obligation based on relative stand-alone selling price. The Company determines stand-alone selling prices based on the adjusted market assessment approach or residual approach, if applicable.

8

 INPHI CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less or (ii) contracts for which the Company recognizes revenue at the amount to which the right to invoice for services performed.

4. Investments

The following table summarizes the investments by investment category:

	September 30, 2018				December 31, 2017
	Cost		Fair Value		Cost		Fair Value
Available-for-sale securities:
Municipal bonds	$	12,531	$	12,491	$	27,725	$	27,657
Corporate notes/bonds		137,270		137,122		146,549		146,401
Variable rate demand notes		4,500		4,500		3,500		3,500
Commercial paper		34,368		34,361		57,006		56,994
Asset backed securities		34,125		34,087		7,197		7,185
Total investments	$	222,794	$	222,561	$	241,977	$	241,737

As of September 30, 2018, the Company had 77 investments that were in an unrealized loss position. The gross unrealized losses on these investments at September 30, 2018 of $315 were determined to be temporary in nature. The Company reviews the investments to identify and evaluate investments that have an indication of possible other-than-temporary impairment. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the investee, and the intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.

The contractual maturities of available-for-sale securities at September 30, 2018 are presented in the following table:

	Cost		Fair Value
Due in one year or less	$	143,077	$	142,924
Due between one and five years		71,717		71,634
Due after five years		8,000		8,003
	$	222,794	$	222,561

The Company has a marketable equity investment in a company located in Taiwan. The fair value of the investment and unrealized loss as of September 30, 2018 was $1,321 and $672, respectively. This investment is presented as Other assets, net on the condensed consolidated balance sheet.

The Company has non-marketable equity investments in privately held companies without readily determinable market values. Prior to January 1, 2018, the Company accounted for non-marketable equity investments at cost less impairment. Realized gains and losses on non-marketable equity investments sold or impaired were recognized in Other income, net. On January 1, 2018, the Company adopted ASU 2016-01, Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities, which changed the way the Company accounts for non-marketable equity investments. The Company adjusts the carrying value of non-marketable equity investments to fair value upon observable transactions for identical or similar investments of the same issuer or impairment (referred to as the measurement alternative). All gains and losses on non-marketable equity investments, realized and unrealized, are recognized in Other income, net. There was no cumulative effect adjustment upon adoption of this guidance. As of September 30, 2018, non-marketable equity investments had a carrying value of approximately $23,866, of which $6,066 was remeasured to fair value based on observable transaction during the nine months ended September 30, 2018. These investments are presented as Other assets, net on the condensed consolidated balance sheet. The unrealized gain recorded in other income and included as adjustment to the carrying value of non-marketable equity investments held as of September 30, 2018 was $3,066 for the nine months ended September 30, 2018.

9

INPHI CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

5. Inventories

Inventories consist of the following:

	September 30, 2018		December 31, 2017
Raw materials	$	13,710	$	12,267
Work in process		14,126		13,800
Finished goods		6,288		5,654
	$	34,124	$	31,721

6. Property and Equipment, net

Property and equipment consist of the following:

	September 30, 2018			December 31, 2017
Laboratory and production equipment	$	113,707		$	94,609
Office, software and computer equipment		29,619			28,594
Furniture and fixtures		1,529			1,698
Leasehold improvements		7,588			7,250
		152,443			132,151
Less accumulated depreciation		(84,974	)		(71,807	)
	$	67,469		$	60,344

Depreciation and amortization expense of property and equipment for the three and nine months ended September 30, 2018 was $5,134 and $14,931, respectively. Depreciation and amortization expense of property and equipment for the three and nine months ended September 30, 2017 was $5,304 and $15,203, respectively.

As of September 30, 2018 and December 31, 2017, computer software costs included in property and equipment was $6,776 and $7,181, respectively. Amortization expense of capitalized computer software costs was $126 and $471 for the three and nine months ended September 30, 2018, respectively. Amortization expense of capitalized computer software costs was $252 and $791 for the three and nine months ended September 30, 2017, respectively.

Property and equipment not yet paid as of September 30, 2018 and December 31, 2017 was $1,890 and $3,339, respectively.

The Company leases certain equipment under capital lease agreements. Assets held under capital leases are included in property and equipment above. Gross amount and accumulated depreciation of assets under capital lease as of September 30, 2018 was $3,639 and $1,544, respectively. Gross amount and accumulated depreciation of assets under capital lease as of December 31, 2017 was $3,639 and $898, respectively.

10

INPHI CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

The minimum lease payments under capital leases as of September 30, 2018 are as follows:

2018 (remaining)	$	150
2019		501
2020		364
2021		94
Total minimum lease payments		1,109
Less: Amount representing interest		130
Minimum lease payments, net of interest	$	979

7. Identifiable Intangible Assets

The following table presents details of identifiable intangible assets:

	September 30, 2018						December 31, 2017
	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Developed technology	$	186,800	$	76,654	$	110,146	$	126,300	$	53,533	$	72,767
Customer relationships		70,540		19,250		51,290		70,540		11,954		58,586
Trade name		2,310		1,234		1,076		2,310		888		1,422
Patents		1,579		846		733		1,579		734		845
Software		62,899		29,611		33,288		47,039		18,226		28,813
In-process research and development		—		—		—		60,500		—		60,500
	$	324,128	$	127,595	$	196,533	$	308,268	$	85,335	$	222,933

During the three months ended September 30, 2018, the Company reclassified $60,500 of acquired in-process research and development to developed technology as the technology was commercialized.

The following table presents amortization of intangible assets for the three and nine months ended September 30, 2018 and 2017:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Cost of goods sold	$	9,723	$	7,249	$	23,121	$	21,749
Research and development		5,058		4,777		14,138		13,999
Sales and marketing		2,432		2,432		7,296		7,295
General and administrative		151		158		458		484
	$	17,364	$	14,616	$	45,013	$	43,527

11

INPHI CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

Based on the amount of intangible assets subject to amortization at September 30, 2018, the expected amortization expense for each of the next five fiscal years and thereafter is as follows:

2018 (remaining)	$	17,363
2019		66,882
2020		38,841
2021		32,887
2022		24,261
Thereafter		16,299
	$	196,533

The weighted-average amortization periods remaining by intangible asset category are as follows (in years):

Developed technology	3.7
Customer relationship	5.3
Trade name	2.8
Patents	8.2
Software	1.9

8. Product Warranty Obligation

As of September 30, 2018 and December 31, 2017, the product warranty liability was $110. There was no change in product warranty liability during the three and nine months ended September 30, 2018 and 2017.

9. Convertible debt

In December 2015, the Company issued $230,000 of 1.125% convertible senior notes due 2020 (Convertible Notes 2015). The Convertible Notes 2015 will mature December 1, 2020, unless earlier converted or repurchased. Interest on the Convertible Notes 2015 is payable on June 1 and December 1 of each year, beginning on June 1, 2016. The initial conversion rate is 24.8988 shares of common stock per $1 principal amount of Convertible Notes 2015, which represents an initial conversion price of approximately $40.16 per share. The total interest expense recognized for the three months ended September 30, 2018 was $3,652, which consists of $650 of contractual interest expense, $2,754 of amortization of debt discount and $248 of amortization of debt issuance costs. The total interest expense recognized for the nine months ended September 30, 2018 was $10,685, which consists of $1,936 of contractual interest expense, $8,026 of amortization of debt discount and $723 of amortization of debt issuance costs. The total interest expense recognized for the three months ended September 30, 2017 was $3,443, which consists of $650 of contractual interest expense, $2,562 of amortization of debt discount and $231 of amortization of debt issuance costs. The total interest expense recognized for the nine months ended September 30, 2017 was $10,075, which consists of $1,936 of contractual interest expense, $7,467 of amortization of debt discount and $672 of amortization of debt issuance costs.

In connection with the issuance of the Convertible Notes 2015, the Company entered into capped call transactions (Capped Call 2015) in private transactions. Under the Capped Call 2015, the Company purchased capped call options that in aggregate relate to 100% of the total number of shares of the Company's common stock underlying the Convertible Notes 2015, with a strike price equal to the conversion price of the Convertible Notes 2015 and with a cap price equal to $52.06 per share.

In September 2016, the Company issued $287,500 of 0.75% convertible senior notes due 2021 (Convertible Notes 2016, and together with the Convertible Notes 2015, the Convertible Notes). The Convertible Notes 2016 will mature September 1, 2021, unless earlier converted or repurchased. Interest on the Convertible Notes 2016 is payable on March 1 and September 1 of each year, beginning on March 1, 2017. The initial conversion rate is 17.7508 shares of common stock per $1 principal amount of Convertible Notes 2016, which represents an initial conversion price of approximately $56.34 per share. The total interest expense recognized for the three months ended September 30, 2018 was $4,253, which consists of $542 of contractual interest expense, $3,430 of amortization of debt discount and $281 of amortization of debt issuance costs. The total interest expense recognized for the nine months ended September 30, 2018 was $12,425, which consists of $1,608 of contractual interest expense, $9,998 of amortization of debt discount and $819 of amortization of debt issuance costs. The total interest expense recognized for the three months ended September 30, 2017 was $3,999, which consists of $542 of contractual interest expense, $3,195 of amortization of debt discount and $262 of amortization of debt issuance costs. The total interest expense recognized for the nine months ended September 30, 2017 was $11,684, which consists of $1,606 of contractual interest expense, $9,315 of amortization of debt discount and $763 of amortization of debt issuance costs.

12

INPHI CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

In connection with the issuance of the Convertible Notes 2016, the Company entered into capped call transactions (Capped Call 2016) in private transactions. Under the Capped Call 2016, the Company purchased capped call options that in aggregate relate to 100% of the total number of shares of the Company's common stock underlying the Convertible Notes 2016, with a strike price approximately equal to the conversion price of the Convertible Notes 2016 and with a cap price equal to approximately $73.03 per share.

10. Other liabilities

Other current liabilities consist of the following:

	September 30, 2018		December 31, 2017
Obligations under capital lease	$	459	$	539
Intangible asset liability		21,231		16,892
Others		1,809		3,956
	$	23,499	$	21,387

Other long-term liabilities consist of the following:

	September 30, 2018		December 31, 2017
Deferred rent	$	1,187	$	1,487
Income tax payable		687		830
Obligations under capital lease		520		857
Intangible asset liability		11,539		14,445
Deferred tax liabilities		—		6,146
Others		761		862
	$	14,694	$	24,627

11. Income Taxes

The Company normally determines its interim provision using an estimated single annual effective tax rate for all tax jurisdictions. ASC 740 provides that when an entity operates in a jurisdiction that has generated ordinary losses on a year-to-date basis or on the basis of the results anticipated for the full fiscal year and no benefit can be recognized on those losses, a separate effective tax rate should be computed and applied to ordinary income (or loss) in that jurisdiction. The Company incurred pretax loss during the three and nine months ended September 30, 2018 and 2017 from its U.S. operations and will not recognize tax benefit of the losses due to full valuation allowance established against deferred tax assets. Thus, a separate effective tax rate was applied to losses from the U.S. jurisdiction to compute the Company’s interim tax provision.

The Company recorded an income tax benefit of $203 and $8,406 in the three and nine months ended September 30, 2018, respectively. The effective tax rates were 1% and 10% in the three and nine months ended September 30, 2018, respectively. The difference between the effective tax rates and the 21% federal statutory rate in the three and nine months ended September 30, 2018 resulted primarily due to change in valuation allowance, foreign income taxes provided at lower rates, geographic mix in expected operating results, unrecognized tax benefits, recognition of federal and state research and development credits, and windfall tax benefits from stock-based compensation. In addition, the income tax benefit for the nine months ended September 30, 2018, included the partial release of federal valuation allowance resulting from the transfer of an acquired in-process research and development to developed technology in 2018 which allowed the related deferred tax liability to be considered a source of income for realizing deferred tax assets, as well as the revaluation of the foreign deferred tax liability on the in-process research and development based on the foreign tax rates applicable to the anticipated reversal periods, partially offset by income tax expense for the accrual of unrecognized tax benefit for foreign taxes.

13

INPHI CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

The Company recorded an income tax benefit of $10,182 and $9,359 in the three and nine months ended September 30, 2017, respectively. The effective tax rate for the three and nine months ended September 30, 2017 was 17% and 11%, respectively. The difference between the effective tax rates and the 34% federal statutory rate was primarily due to tax impact of developed technology and in-process research and development impairment charge, change in valuation allowance, foreign income taxes provided at lower rates, geographic mix in expected operating results, unrecognized tax benefits, recognition of federal and state research and development credits and windfall tax benefits from stock-based compensation.

During the three and nine months ended September 30, 2018, the gross amount of the Company’s unrecognized tax benefits increased approximately $1,196 and $5,404, respectively, primarily as a result of tax positions taken during the current year. Substantially all of the unrecognized tax benefits as of September 30, 2018, if recognized, would not affect the Company’s effective tax rate due to valuation allowance. A significant amount of the Company’s unrecognized tax benefits is recorded against deferred tax asset, and a recognition of such unrecognized benefits would be offset by an increase in valuation allowance, resulting in no net effect on the effective tax rate. The Company believes that in the next twelve months, it is reasonably possible that the gross unrecognized tax benefit may decrease by approximately $51 due to expiration of statute of limitations on certain foreign income taxes.

The Company is currently under examination by the Inland Revenue Authority of Singapore (“IRAS”) for the years 2010, 2011 and 2012. The audit adjustment made by IRAS to date generally affected only the timing of certain deductions claimed in those years and had no net effect on the Company’s income statement. IRAS is still in the process of examining the valuation of certain intangible assets transferred to Singapore during the years under audit, which may affect the deduction of related amortization in the subsequent years. As of the report date, the examination is ongoing.

The Tax Act, signed into law on December 22, 2017, made significant changes to U.S. federal corporate taxation, including a reduction of the corporate tax rate from 35% to 21% effective January 1, 2018, a one-time transition tax on mandatory repatriation of accumulated earnings and profits of foreign subsidiaries in conjunction with the elimination of U.S. tax on dividend distributions from foreign subsidiaries as of December 31, 2017, and inclusion of global intangible low-tax income (“GILTI”) earned by certain foreign subsidiaries.

Staff Accounting Bulletin 118 (“SAB 118”) allows for a measurement period of up to one year after the enactment date of the new tax legislation to finalize the recording of the related tax impacts.  In accordance with SAB 118, as of December 31, 2017, the Company made a provisional estimate of the remeasurement of the federal deferred tax assets and liabilities as of December 31, 2017 to reflect the reduced U.S. statutory corporate tax rate to 21%,  the mandatory repatriation income which was fully absorbed by the U.S. net operating loss, the related valuation allowance offset, and valuation allowance release on deferred tax assets for the federal AMT credit that was made refundable by the Tax Reform Act. During the three and nine months ended September 30, 2018, the Company made changes to its provisional estimates previously recorded for the mandatory repatriation upon filing of its 2017 U.S. income tax return.  The change in the mandatory repatriation income was fully absorbed by the U.S. net operating loss, which is subject to valuation allowance and resulted in no current tax liability.  These measurement period adjustments had no net tax effect after the offsetting change to valuation allowance.   The Company will continue to analyze the effects of the Tax Act on the consolidated financial statements and will finalize the impacts of tax reform in its year-end financial statements.

In January 2018, the FASB released guidance on the accounting for tax on the GILTI inclusion. Entities can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or account for GILTI as a period cost in the year the tax is incurred. The Company has not made an election. The Company continues to evaluate the impact of the Tax Act, including provisions impacting certain foreign income, such as a GILTI tax and a deduction for foreign derived intangible income. During the three and nine months ended September 30, 2018, these items did not result in an impact on the Company’s effective tax rate.

12. Earnings Per Share

The following securities were not included in the computation of diluted earnings per share as inclusion would have been anti-dilutive:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Common stock options		1,186,358		1,430,497		1,220,323		1,479,810
Unvested restricted stock unit		2,945,422		2,591,442		2,886,675		3,107,210
Convertible debt		10,830,038		10,830,038		10,830,038		10,830,038
		14,961,818		14,851,977		14,937,036		15,417,058

14

INPHI CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

13. Stock–Based Compensation

In June 2010, the Board of Directors (the “Board”) approved the Company’s 2010 Stock Incentive Plan (the “2010 Plan”), which became effective in November 2010. The 2010 Plan provides for the grants of restricted stock, stock appreciation rights and stock unit awards to employees, non-employee directors, advisors and consultants. The compensation committee of the Board administers the 2010 Plan, including the determination of the recipient of an award, the number of shares subject to each award, whether an option is to be classified as an incentive stock option or nonstatutory option, and the terms and conditions of each award, including the exercise and purchase prices and the vesting or duration of the award. Options granted under the 2010 Plan are exercisable only upon vesting. At September 30, 2018, 4,493,952 shares of common stock have been reserved for future grants under the 2010 Plan.

Stock Option Awards 

The Company did not grant any stock options during the three and nine months ended September 30, 2018 and 2017.

The following table summarizes information regarding options outstanding:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value
Outstanding at December 31, 2017		1,346,863		$	11.67		3.26	$	33,578
Exercised		(164,302	)		3.21
Outstanding at September 30, 2018		1,182,561		$	12.85		2.85	$	29,723
Vested and exercisable at September 30, 2018		1,182,561		$	12.85		2.85	$	29,723

The intrinsic value of options outstanding, exercisable and vested and expected to vest is calculated based on the difference between the exercise price and the fair value of the Company’s common stock as of the respective balance sheet dates.

The total intrinsic value of options exercised during the nine months ended September 30, 2018 and 2017 was $3,887 and $8,796, respectively. The intrinsic value of exercised options is calculated based on the difference between the exercise price and the fair value of the Company’s common stock as of the exercise date. Cash received from the exercise of stock options was $522 and $1,514, respectively, for the nine months ended September 30, 2018 and 2017.

Restricted Stock Units

The Company granted restricted stock units (“RSUs”) to members of the Board and employees. Most of the Company’s outstanding RSUs vest over four years with vesting contingent upon continuous service. The Company estimates the fair value of RSUs using the market price of the common stock on the date of the grant. The fair value of these awards is amortized on a straight-line basis over the vesting period.

15

INPHI CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

The following table summarizes information regarding outstanding RSUs:

	Number of Shares			Weighted Average Grant Date Fair Value Per Share
Outstanding at December 31, 2017		3,987,552		$	34.48
Granted		2,065,066			31.58
Vested		(1,241,495	)		28.72
Canceled		(542,420	)		36.68
Outstanding at September 30, 2018		4,268,703		$	34.48
Expected to vest at September 30, 2018		4,157,753

The RSUs include performance-based stock units subject to achievement of pre-established revenue goal and earnings per share on non-GAAP basis. Once the goals are met, the performance-based stock units are subject to four years of vesting from the original grant date, contingent upon continuous service. The total performance-based units that vested for the nine months ended September 30, 2018 was 92,205. As of September 30, 2018, the total performance-based units outstanding was 123,984.

Market Value Stock Units

In January 2018, the compensation committee of the Board approved long-term market value stock unit (MVSU) awards to certain executive officers and employees, subject to certain market and service conditions in the maximum total amount of 801,000 units. Recipients may earn between 0% to 225% of the target number of shares based on the Company’s achievement of total shareholder return (TSR) in comparison to the TSR of companies in the S&P 500 Index over a period of approximately three years in length ending in the first calendar quarter of 2021 after reporting of fiscal year 2020 results. If the Company’s absolute TSR is negative for the performance period, then, even if the relative TSR performance compared to other companies is high, the maximum number of shares that may be earned would be limited to the target number of shares. The fair value of the MVSU awards was estimated using Monte Carlo simulation model and compensation is being recognized ratably over the performance period. The expected volatility of the Company’s common stock was estimated based on historical average volatility rate for the three-year performance period. The dividend yield assumption was based on historical and anticipated dividend payouts. The risk-free interest rate assumption was based on observed interest rates consistent with three-year performance measurement period. The total amount of compensation to recognized over the performance period, and the assumptions used to value the grants are as follows:

Total target shares		336,000
Fair value per share	$	55.81
Total amount to be recognized over the performance period	$	18,752
Risk free interest rate		2.29	%
Expected volatility		47.52	%
Dividend yield		—

Employee Stock Purchase Plan

In December 2011, the Company adopted the Employee Stock Purchase Plan (“ESPP”), which was amended and restated effective April 2015 and further amended and restated effective April 2018. Participants purchase the Company's stock using payroll deductions, which may not exceed 15% of their total cash compensation. Pursuant to the terms of the ESPP, the "look-back" period for the stock purchase price is six months. Offering and purchase periods will begin on February 10 and August 10 of each year. Participants will be granted the right to purchase common stock at a price per share that is 85% of the lesser of the fair market value of the Company's common stock at the beginning or the end of each six-month period.

The ESPP imposes certain limitations upon an employee’s right to acquire common stock, including the following: (i) no employee shall be granted a right to participate if such employee immediately after the election to purchase common stock, would own stock possessing 5% or more of the total combined voting power or value of all classes of stock of the Company, and (ii) no employee may be granted rights to purchase more than $25 fair value of common stock for each calendar year. The maximum aggregate number of shares of common stock available for purchase under the ESPP is 2,750,000 shares. The total common stock issued under the ESPP during the nine months ended September 30, 2018 and 2017 was 283,493 and 171,099, respectively.

16

INPHI CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

The fair value of the ESPP is estimated at the start of offering period using the Black-Scholes option pricing model with the following assumptions:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Risk-free interest rate		2.24	%		1.13	%		2.01	%		0.94	%
Expected life (in years)		0.50			0.50			0.50			0.50
Dividend yield		—			—			—			—
Expected volatility		45	%		45	%		46	%		42	%
Estimated fair value	$	9.29		$	10.04		$	8.35		$	11.03

 Stock-Based Compensation Expense

Stock-based compensation expense is included in the Company’s results of operations as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Operating expenses
Cost of goods sold	$	636	$	556	$	1,810	$	1,654
Research and development		9,614		7,770		27,853		20,959
Sales and marketing		3,702		2,247		10,185		6,048
General and administrative		2,788		1,320		7,661		3,707
	$	16,740	$	11,893	$	47,509	$	32,368

Total unrecognized compensation cost related to unvested stock options, restricted stock units and awards at September 30, 2018, prior to the consideration of expected forfeitures, is approximately $130,504 and is expected to be recognized over a weighted-average period of 2.58 years.

14. Fair Value Measurements

The guidance on fair value measurements requires fair value measurements to be classified and disclosed in one of the following three categories:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; or

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

The Company measures its investments in marketable securities at fair value using the market approach, which uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The Company has cash equivalents, which consist of money market funds valued using the amortized cost method, in accordance with Rule 2a-7 under the 1940 Act, which approximates fair value.

The Company determines the amount of transfers between Levels 1 and 2 or transfers into or out of Level 3 by using the end-of-period fair value. The Company had no transfers among the fair value hierarchy during the three and nine months ended September 30, 2018.

The Convertible Notes are carried on the consolidated balance sheets at their original issuance value including accreted interest, net of unamortized debt discount and issuance cost. The Convertible Notes are not marked to fair value at the end of each reporting period. As of September 30, 2018 and December 31, 2017, the fair value of Convertible Notes was determined on the basis of market prices observable for similar instruments and is considered Level 2 in the fair value hierarchy.

17

INPHI CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

The following table presents information about assets required to be carried at fair value on a recurring basis:

September 30, 2018	Total		Level 1		Level 2
Assets
Cash equivalents:
Money market funds	$	949	$	42	$	907
Commercial paper		106,605		—		106,605
Investment in marketable securities:
Municipal bonds		12,491		—		12,491
Corporate notes/bonds		137,122		—		137,122
Variable rate demand notes		4,500		—		4,500
Asset backed securities		34,087		—		34,087
Commercial paper		34,361		—		34,361
	$	330,115	$	42	$	330,073
Liabilities
Convertible Notes	$	549,476	$	—	$	549,476

December 31, 2017	Total		Level 1		Level 2
Assets
Cash equivalents:
Money market funds	$	3,332	$	31	$	3,301
Municipal bonds		999		—		999
Corporate notes/bonds		2,608		—		2,608
Commercial paper		76,456		—		76,456
Investment in marketable securities:
Municipal bonds		27,657		—		27,657
Corporate notes/bonds		146,401		—		146,401
Variable rate demand notes		3,500		—		3,500
Asset backed securities		7,185		—		7,185
Commercial paper		56,994		—		56,994
	$	325,132	$	31	$	325,101
Liabilities
Convertible Notes	$	555,200	$	—	$	555,200

As discussed in Note 4, the Company has a marketable equity investment. The marketable equity investment is classified as Level 1 in the fair value hierarchy. As discussed in Note 4, the Company has non-marketable equity investments which are classified within Level 3 in the fair value hierarchy because the Company estimates the value based on valuation methods using the observable transaction price at the transaction date.

15. Segment and Geographic Information

The Company operates in one reportable segment. The Company’s Chief Executive Officer, who is considered to be the chief operating decision maker, manages the Company’s operations as a whole and reviews consolidated financial information for purposes of evaluating financial performance and allocating resources. Revenue by region is classified based on the locations to which the product is transported, which may differ from the customer’s principal offices.

18

INPHI CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

The following table sets forth the Company’s revenue by geographic region:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
China	$	31,723	$	20,435	$	70,710	$	80,990
United States		25,746		31,985		72,710		63,029
Thailand		10,687		14,447		26,807		38,185
Other		9,853		17,644		37,732		80,314
	$	78,009	$	84,511	$	207,959	$	262,518

As of September 30, 2018, $29,561 of long-lived tangible assets are located outside the United States, of which $26,271 are located in Taiwan. As of December 31, 2017, $8,695 of long-lived tangible assets are located outside the United States, of which $4,647 are located in Taiwan.

16. Commitments and Contingencies

Leases

The Company leases its facility under noncancelable lease agreements expiring in various years through 2026. The Company also licenses certain software used in its research and development activities under a term license subscription and maintenance arrangement.

As of September 30, 2018, future minimum lease payments under noncancelable operating leases having initial terms in excess of one year are as follows:

2018 (remaining)	$	1,639
2019		5,553
2020		2,724
2021		1,967
2022		1,723
Thereafter		3,317
	$	16,923

For the three and nine months ended September 30, 2018, lease operating expense was $1,142 and $4,590, respectively. For the three and nine months ended September 30, 2017, lease operating expense was $1,709 and $5,075, respectively.

Noncancelable Purchase Obligations

The Company depends upon third party subcontractors to manufacture its wafers.  These subcontractor relationships typically allow for the cancellation of outstanding purchase orders, but require payment of all expenses incurred through the date of cancellation. As of September 30, 2018, the total value of open purchase orders for wafers was approximately $9,030. As of September 30, 2018, the Company has a commitment to pay $1,339 for software licenses and $804 for mask costs.

Legal Proceedings

Netlist, Inc. v. Inphi Corporation, Case No. 09-cv-6900 (C.D. Cal.)

On September 22, 2009, Netlist filed suit in the United States District Court, Central District of California, or the Court, asserting that the Company infringes U.S. Patent No. 7,532,537. Netlist filed an amended complaint on December 22, 2009, further asserting that the Company infringes U.S. Patent Nos. 7,619,912 and 7,636,274, collectively with U.S. Patent No. 7,532,537, the patents-in-suit, and seeking both unspecified monetary damages to be determined and an injunction to prevent further infringement. These infringement claims allege that the iMB™ and certain other memory module components infringe the patents-in-suit. The Company answered the amended complaint on February 11, 2010 and asserted that the Company does not infringe the patents-in-suit and that the patents-in-suit are invalid. In 2010, the Company filed inter partes requests for reexamination with the United States Patent and Trademark Office (the “USPTO”), asserting that the patents-in-suit are invalid. As a result of the proceedings at the USPTO, the Court has stayed the litigation, with the parties advising the Court on status every 120 days.

19

INPHI CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

(Dollars in thousands except share and per share amounts)

As to the proceeding at the USPTO, reexamination has been ordered for all of the patents that were alleged to infringe, and at present, the USPTO has determined that almost all of the originally filed claims are not valid, with certain amended claims being determined patentable. The Reexamination Certificate for U.S. Patent No. 7,532,537 was issued on August 2, 2016 based upon amended claims. The parties continue to assert their respective positions with respect to the reexamination proceeding for U.S. Patent No. 7,619,912. With respect to the reexamination proceeding for U.S. Patent No. 7,636,274, the Patent Trial and Appeal Board has determined that none of the claims are patentable, Netlist has dismissed its appeal to the U.S. Court of Appeals for the Federal Circuit regarding this determination, and the parties are awaiting the USPTO issuance of the Reexamination Certificate based upon these proceedings.

While the Company intends to defend the foregoing USPTO proceedings and lawsuit vigorously, the USPTO proceedings and litigation, whether or not determined in the Company’s favor or settled, could be costly and time-consuming and could divert management’s attention and resources, which could adversely affect the Company’s business.

Based on the nature of USPTO proceedings and litigation, the Company is currently unable to predict the final outcome of this lawsuit and therefore, cannot determine the likelihood of loss nor estimate a range of possible loss. However, because of the nature and inherent uncertainties of litigation, should the outcome of these actions be unfavorable, the Company’s business, financial condition, results of operations or cash flows could be materially and adversely affected.

During the nine months ended September 30, 2018, the Company entered into settlement agreements related to claims by certain customers of ClariPhy Communications Inc. (ClariPhy) associated with contracts entered prior to the acquisition date under which the Company paid $8,000 to the customers. The Company also entered into an agreement with former shareholders of ClariPhy in which the Company recovered $4,875 from the escrow set up as part of the ClariPhy acquisition. The Company recorded a charge of $2,125, net of amount previously accrued, during the nine months ended September 30, 2018 included in General and administrative expenses in the condensed consolidated statements of income (loss).

The Company has recently been notified that it may be subject to additional possible claims by a customer of ClariPhy associated with circumstances arising prior to the acquisition date. The Company is currently reviewing whether these additional claims are valid, and the Company is unable to reasonably estimate the amount of any potential liability at this time. Amounts payable as a result of any or part of these claims may be recoverable from the escrow set up as part of the ClariPhy acquisition.

Indemnifications

In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to customers, vendors, lessors, investors, directors, officers, employees and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of such agreements, services to be provided by the Company, or from intellectual property infringement claims made by third-parties. These indemnifications may survive termination of the underlying agreement and the maximum potential amount of future payments the Company could be required to make under these indemnification provisions may not be subject to maximum loss clauses. The Company has not incurred material costs to defend lawsuits or settle claims related to these indemnifications. Accordingly, the Company has no liabilities recorded for these agreements as of September 30, 2018 and December 31, 2017.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and notes to those statements included elsewhere in this Quarterly Report. This Management’s Discussion and Analysis of Financial Condition and Results of Operations and this report contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this report, the terms “may,” “might,” “will,” “objective,” “intend,” “should,” “could,” “can,” “would,” “expect,” “believe,” “estimate,” “predict,” “potential,” “plan,” “anticipate,” “seek,” “future,” “strategy,” “likely,” or the negative of these terms, and similar expressions intended to identify forward-looking statements. These statements include statements regarding our anticipated trends and challenges in our business and the markets in which we operate, including the market for 25G to 600G high-speed analog semiconductor solutions, demand for our current products, our plans for future products and anticipated features and benefits thereof, expansion of our product offerings and business activities, enhancements of existing products, critical accounting policies and estimates, our expectations regarding our expenses and revenue, sources of revenue, our tax benefits, the benefits of our products and services, increase in headcount, our technological capabilities and expertise, timing of the development of our products, our liquidity position and sufficiency thereof, including our anticipated cash needs and uses of cash, our ability to generate cash, our operating and capital expenditures and requirements and our needs for additional financing and potential consequences thereof, repatriation of cash balances from our foreign subsidiaries, our contractual obligations, our anticipated growth and growth strategies, including growing our end customer base, our ability to retain and attract customers, particularly in light of our dependence on a limited number of customers for a substantial portion of our revenue, competition, interest rate sensitivity, adequacy of our disclosure controls, our legal proceedings and warranty claims. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these or any other forward-looking statements. These risks and uncertainties include, but are not limited to, those risks discussed below, as well as factors affecting our results of operations, our ability to manage our growth, our ability to sustain or increase profitability, demand for our solutions, the effect of declines in average selling prices for our products, our ability to compete, our ability to rapidly develop new technology and introduce new products, our ability to safeguard our intellectual property, our ability to qualify for tax holidays and incentives, trends in the semiconductor industry and fluctuations in general economic conditions, and the risks set forth throughout this report, including the risks set forth under Part II, “Item 1A, Risk Factors.” Readers are cautioned not to place undue reliance on these forward-looking statements, which are based on current expectations and reflect management's opinions only as of the date hereof. These forward-looking statements speak only as of the date of this report. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based.

All references to “Inphi,” “we,” “us” or “our” mean Inphi Corporation.

Inphi®, iKON™, InphiNityCore™, ColorZ®, ColorZ-Lite™, Polaris™, Vega™, and the Inphi logo are among the trademarks, registered trademarks, or service marks owned by Inphi.

Overview

Our Company     

We are a fabless provider of high-speed analog and mixed signal semiconductor solutions for the communications and datacenter markets. Our analog and mixed signal semiconductor solutions provide high signal integrity at leading-edge data speeds while reducing system power consumption. Our semiconductor solutions are designed to address bandwidth bottlenecks in networks, maximize throughput and minimize latency in computing environments and enable the rollout of next generation communications and datacenter infrastructures. Our solutions provide a vital high-speed interface between analog signals and digital information in high-performance systems such as telecommunications transport systems, enterprise networking equipment and datacenters. We provide 25G to 600G high-speed analog semiconductor solutions for the communications market.

A detailed discussion of our business may be found in Part I, Item 1, “Business,” of our Annual Report on Form 10-K for the year ended December 31, 2017.

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Quarterly Update 

As discussed in more detail below, for the three and nine months ended September 30, 2018 compared to the three and nine months ended September 30, 2017, we delivered the following financial performance:

• Revenue decreased by $6.5 million, or 7.7%, to $78.0 million in the three months ended September 30, 2018. In the nine months ended September 30, 2018, revenue decreased by $54.6 million, or 20.8%, to $208.0 million.

• Gross profit as a percentage of revenue increased to 55.7% from 49.8% in the three months ended September 30, 2018. In the nine months ended September 30, 2018, gross profit as a percentage of revenue slightly increased to 55.6% from 54.6%.

• Total operating expenses decreased by $35.0 million, or 37.0%, to $59.5 million in the three months ended September 30, 2018. In the nine months ended September 30, 2018, total operating expenses decreased by $26.8 million, or 12.9%, to $181.5 million.

• Loss from operations decreased by $36.4 million to $16.0 million in the three months ended September 30, 2018. In the nine months ended September 30, 2018, loss from operations slightly increased by $1.0 million to $65.9 million.

• Loss per share decreased to $0.52 from $1.15 in the three months ended September 30, 2018. In the nine months ended September 30, 2018, loss per share decreased to $1.70 from $1.78.

The decrease in our revenue for the three and nine months ended September 30, 2018 was primarily the result of a lower level of consumption of our long haul and metro products as well as our Cortina legacy products, partially offset by increase in consumption of our data center products.

The increase in gross profit as a percentage of revenue in the three months ended September 30, 2018 was due to impairment of certain developed technology in the three months ended September 30, 2017 and change in product mix.

Total operating expenses for the three and nine months ended September 30, 2018 decreased year-over-year primarily due to impairment of certain in-process research and development in 2017, partially offset by an increase in stock-based compensation expense as a result of higher equity awards. Our expenses primarily consist of personnel costs, which include compensation, benefits, payroll related taxes and stock-based compensation. We expect expenses to continue to increase in absolute dollars as we continue to invest resources to develop more products and to support the growth of our business. Our loss per share decreased primarily due to decrease in operating expenses, partially offset by lower revenue and lower benefit for income taxes.

Our cash and cash equivalents were $172.4 million at September 30, 2018, compared with $163.5 million at December 31, 2017. Cash provided by operating activities was $48.4 million during the nine months ended September 30, 2018 compared to $48.2 million during the nine months ended September 30, 2017. Cash used in investing activities during the nine months ended September 30, 2018 was $32.0 million primarily due to purchases of marketable securities of $177.0 million, purchases of property and equipment of $23.9 million, purchase of equity investment of $12.8 million, and payment of debt related to purchase of intangible assets of $17.2 million, partially offset by sales and maturities of marketable securities totaling $196.4 million and proceeds from sale of equity investment of $2.4 million. Cash used in financing activities was $7.5 million primarily due to minimum tax withholding paid on behalf of employees of $13.8 million, partially offset by proceeds from employee stock purchase plan and exercise of stock options of $6.4 million.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with U.S. generally accepted accounting principles, or GAAP, requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses in the reporting period. We regularly evaluate our estimates and assumptions related to allowances for doubtful accounts, warranty reserves, inventory reserves, stock-based compensation expense, goodwill and intangible assets valuation, deferred income tax asset valuation allowances, uncertain tax positions, litigation, other loss contingencies and business combinations. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenue, costs and expenses that are not readily apparent from other sources. The actual results experienced by us may differ materially and adversely from our estimates. To the extent there are material differences between our estimates and the actual results, our future results of operations will be affected. For a description of our critical accounting policies and estimates, please refer to the “Critical Accounting Policies and Estimates” section of our Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2017. There have been no material changes in any of our critical accounting policies during the nine months ended September 30, 2018. On January 1, 2018, we adopted ASU 2014-09, Revenue from Contract with Customers (Topic 606). We also adopted ASU 2016-1, Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities. The effects of these adoptions are discussed in Note 2 of notes to our unaudited condensed consolidated financial statements.

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Results of Operations

The following table sets forth a summary of our statement of operations as a percentage of each line item to the revenue:

	Three Months Ended September 30,							Nine Months Ended September 30,
	2018			2017			2018			2017
Revenue		100	%		100	%		100	%		100	%
Cost of revenue		44			50			44			45
Gross profit		56			50			56			55
Operating expenses:
Research and development		53			93			61			60
Sales and marketing		14			12			16			12
General and administrative		9			6			11			7
Total operating expenses		76			111			88			79
Loss from operations		(20	)		(61	)		(32	)		(24	)
Interest expense		(11	)		(9	)		(11	)		(9	)
Other income		2			1			3			1
Loss before income taxes		(29	)		(69	)		(40	)		(32	)
Benefit for income taxes		—			(12	)		(4	)		(4	)
Net loss		(29	%)		(57	%)		(36	%)		(28	%)

Comparison of Three and Nine Months Ended September 30, 2018 and 2017

Revenue

	Three Months Ended September 30,				Change
	2018		2017		Amount			%
	(dollars in thousands)
Revenue	$	78,009	$	84,511	$	(6,502	)		(8	%)

	Nine Months Ended September 30,				Change
	2018		2017		Amount			%
	(dollars in thousands)
Revenue	$	207,959	$	262,518	$	(54,559	)		(21	%)

Revenue for the three and nine months ended September 30, 2018 decreased compared to corresponding 2017 periods mainly due to decrease in number of units sold, partially offset by increase in average selling price (ASP).  Revenue for the three months ended September 30, 2018 decreased by $6.5 million primarily due to decline in revenue from Cortina legacy products by $8.3 million and long haul and metro products by $4.3 million.  The decreases were partially offset by an increase in consumption of our data center products by $6.1 million.  The ASP for the three months ended September 30, 2018 increased by 260% due to a decrease in the number of units sold of lower ASP products such as Cortina legacy. 

Revenue for the nine months ended September 30, 2018 decreased by $54.6 million primarily due to decline in revenue from long haul and metro products by $63.2 million and Cortina legacy products by $16.8 million.  The decreases were partially offset by an increase in revenue from data center products by $25.4 million.  The ASP for the nine months ended September 30, 2018 increased by 47% due to product mix mainly from decrease in number of units sold of lower ASP products.  The decline in revenue from long haul and metro products was partly driven by China original equipment manufacturers (OEMs) due to an oversupply which peaked in the first quarter of 2017.  The remaining decline in revenue came from North American and European OEMs which also reflected a similar market weakness in communication products.  The decline in revenue from Cortina legacy products was due to end of life programs for certain older products initiated in 2017, the last shipments of which were made in the first quarter of 2018.

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Cost of Revenue and Gross Profit

	Three Months Ended September 30,						Change
	2018			2017			Amount			%
	(dollars in thousands)
Cost of revenue	$	34,547		$	42,440		$	(7,893	)		(19	%)
Gross profit	$	43,462		$	42,071		$	1,391			3	%
Gross profit as a percentage of revenue		56	%		50	%		—			6	%

	Nine Months Ended September 30,						Change
	2018			2017			Amount			%
	(dollars in thousands)
Cost of revenue	$	92,340		$	119,099		$	(26,759	)		(22	%)
Gross profit	$	115,619		$	143,419		$	(27,800	)		(19	%)
Gross profit as a percentage of revenue		56	%		55	%		—			1	%

Cost of revenue for the three and nine months ended September 30, 2018 decreased compared to corresponding 2017 periods due mainly to impairment of certain developed technology in 2017.  Gross profit for the nine months ended September 30, 2018 decreased compared to the corresponding 2017 period primarily due to impairment of developed technology and decrease in revenue as discussed above. Gross profit as a percentage of revenue for the three months ended September 30, 2018 increased compared to corresponding 2017 period due to effect of impairment of developed technology in 2017 and product mix.  Gross profit as a percentage of revenue for the nine months ended September 30, 2018 was comparable to the corresponding 2017 period.

Research and Development

	Three Months Ended September 30,				Change
	2018		2017		Amount			%
	(dollars in thousands)
Research and development	$	41,558	$	78,849	$	(37,291	)		(47%	)

	Nine Months Ended September 30,				Change
	2018		2017		Amount			%
	(dollars in thousands)
Research and development	$	127,300	$	158,574	$	(31,274	)		(20%	)

Research and development expenses for the three and nine months ended September 30, 2018 decreased compared to the corresponding 2017 periods primarily due to impairment of certain in-process research and development of $36.8 million in the three and nine months ended September 30, 2017. Salary and employee benefits decreased by $1.8 million and $3.2 million during the three and nine months ended September 30, 2018, respectively, due to completion of accrual of retention bonus of employees from the ClariPhy acquisition, reduction in employee headcount as a result of restructuring and vacation usage. In addition, testing, laboratory supplies, and consulting expenses decreased by $0.6 million and $4.0 million during the three and nine months ended September 30, 2018, respectively, due to cost reduction efforts implemented. These decreases were partially offset by an increase in equity awards, which resulted in a $1.8 million and $6.9 million increase in stock-based compensation expense, respectively. In addition, for the nine months ended September 30, 2017, we recorded reimbursement from a customer related to research and development of $3.0 million and none in 2018. Depreciation, information technology (IT) and allocated expenses increased by $0.4 million and $2.9 million during the three and nine months ended September 30, 2018, respectively, due to an increase in equipment, IT expenses and higher engineering activities of operations group.

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Sales and Marketing

	Three Months Ended September 30,				Change
	2018		2017		Amount		%
	(dollars in thousands)
Sales and marketing	$	10,819	$	10,100	$	719		7	%

	Nine Months Ended September 30,				Change
	2018		2017		Amount		%
	(dollars in thousands)
Sales and marketing	$	32,472	$	31,580	$	892		3	%

Sales and marketing expenses for the three and nine months ended September 30, 2018 increased compared to corresponding 2017 periods due to personnel costs, including stock-based compensation expense, increased by $0.7 million and $2.8 million, respectively, due to higher equity awards. The increase in the nine months ended September 30, 2018 was partially offset by decrease in commission, supplies, travel and allocated expenses by $1.6 million, due to lower revenue and cost reduction efforts implemented.

General and Administrative

	Three Months Ended September 30,				Change
	2018		2017		Amount		%
	(dollars in thousands)
General and administrative	$	7,134	$	5,584	$	1,550		28	%

	Nine Months Ended September 30,				Change
	2018		2017		Amount		%
	(dollars in thousands)
General and administrative	$	21,767	$	18,177	$	3,590		20	%

General and administrative expenses for the three and nine months ended September 30, 2018 increased compared to the corresponding 2017 periods due to salaries and stock-based compensation increase by $1.3 million and $3.0 million, respectively, due mainly to higher equity awards. During the three and nine months ended September 30, 2018, we recorded a bad debt expense of $0.6 million. In addition, during the nine months ended September 30, 2018, we recorded a loss on a settlement of claims related to the ClariPhy acquisition of $2.1 million. The increases were partially offset by decrease in professional, consulting fees and public company filing fees by $1.1 million during the nine months ended September 30, 2018, due to higher fees in 2017 in relation to the acquisition of ClariPhy. In addition, allocated expense decreased by $0.1 million and $0.6 million during the three and nine months ended September 30, 2018 due to cost reduction efforts implemented.

Benefit for Income Taxes

	Three Months Ended September 30,						Change
	2018			2017			Amount		%
	(dollars in thousands)
Benefit for income taxes	$	(203	)	$	(10,182	)	$	9,979		98	%

	Nine Months Ended September 30,						Change
	2018			2017			Amount		%
	(dollars in thousands)
Benefit for income taxes	$	(8,406	)	$	(9,359	)	$	953		10	%

We normally determine our interim provision using an estimated single annual effective tax rate for all tax jurisdictions. ASC 740 provides that when an entity operates in a jurisdiction that has generated ordinary losses on a year-to-date basis or on the basis of the results anticipated for the full fiscal year and no benefit can be recognized on those losses, a separate effective tax rate should be computed and applied to ordinary income (or loss) in that jurisdiction. We incurred pretax loss during the three and nine months ended September 30, 2018 and 2017 from our U.S. operations and will not recognize tax benefit of the losses due to full valuation allowance established against deferred tax assets. Thus, a separate effective tax rate was applied to losses from the U.S. jurisdiction to compute the Company’s interim tax provision.

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The income tax benefit of $0.2 million and $8.4 million for the three and nine months ended September 30, 2018, reflects an effective tax rate of 1% and 10%, respectively. The effective tax rate for the three and nine months ended September 30, 2018 differed from the statutory rate of 21% primarily due to the change in valuation allowance, foreign income taxes provided at lower rates, geographic mix in operating results, unrecognized tax benefits, recognition of federal and state research and development credits, and windfall tax benefits from stock-based compensation. In addition, the income tax benefit for the nine months ended September 30, 2018, included the partial release of federal valuation allowance resulting from the transfer of an acquired in-process research and development to developed technology in 2018 which allowed the related deferred tax liability to be considered a source of income for realizing deferred tax assets, as well as the revaluation of the foreign deferred tax liability on the in-process research and development based on the foreign tax rates applicable to the anticipated reversal periods, partially offset by income tax expense for the accrual of unrecognized tax benefit for foreign taxes.

The income tax benefit of $10.2 million and $9.4 million in the three and nine months ended September 30, 2017, respectively, reflects an effective tax rate of 17% and 11%, respectively. The effective tax rate for both three and nine months ended September 30, 2017 differs from the statutory rate of 34% primarily due to the tax impact of developed technology and in-process research and development impairment charge, change in valuation allowance, foreign income taxes provided at lower rates, geographic mix in expected operating results, unrecognized tax benefits, recognition of federal and state research and development credits and windfall tax benefits from stock-based compensation.

Liquidity and Capital Resources

As of September 30, 2018, we had cash, cash equivalents and investments in marketable securities of $395.0 million. Our primary uses of cash are to fund operating expenses, purchase inventory and acquire property and equipment. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the changes in our outstanding accounts payable and accrued expenses. Our primary sources of cash are cash receipts on accounts receivable from our revenue. In 2015 and 2016, we issued convertible debt, which resulted in an increase in cash, cash equivalents and investments in marketable securities. Aside from the growth in amounts billed to our customers, net cash collections of accounts receivable are impacted by the efficiency of our cash collections process, which can vary from period to period, depending on the payment cycles of our major customers.

The following table summarizes our cash flows for the periods indicated:

	Nine Months Ended September 30,
	2018			2017
	(in thousands)
Net cash provided by operating activities	$	48,402		$	48,245
Net cash used in investing activities		(31,957	)		(13,827	)
Net cash used in financing activities		(7,475	)		(13,417	)
Net increase in cash and cash equivalents	$	8,970		$	21,001

Net Cash Provided by Operating Activities

Net cash provided by operating activities during the nine months ended September 30, 2018 primarily reflected depreciation and amortization of $59.9 million, stock-based compensation expense of $47.5 million, accretion of convertible debt and amortization of issuance expenses of $19.6 million, decrease in accounts receivable of $19.6 million and prepaid expenses and other assets of $0.7 million and increase in accounts payable of $0.9 million, partially offset by a net loss of $74.1 million, deferred income taxes of $8.9 million, net unrealized gain on equity investments of $2.4 million, increase in inventories of $2.4 million, decreases in accrued expenses of $9.2 million and other liabilities of $1.1 million, and change in income tax payable/receivable of $1.6 million.  Our accounts receivable decreased due mainly to collections.  Our prepaid and other assets decreased due to amortization.  Our inventories and accounts payable increased due to increased production volume for shipment in the fourth quarter of 2018.  Our accrued expenses decreased mainly due to the timing of payment of employee-related expenses.  Other liabilities decreased due to payment of liability to a customer related to the ClariPhy acquisition.

Net cash provided by operating activities during the nine months ended September 30, 2017 primarily reflected depreciation and amortization of $58.7 million, stock-based compensation expense of $32.4 million, impairment of intangible assets of $47.0 million, accretion of convertible debt of $18.2 million, decrease in prepaid expenses and other assets of $2.5 million and increases in accounts payable of $3.1 million and deferred revenue of $4.4 million, partially offset by a net loss of $75.0 million, increases in accounts receivable of $21.6 million and inventories of $2.6 million, and decreases in accrued expenses of $3.8 million and other liabilities of $4.6 million. Our prepaid expenses and other assets decreased mainly due to receipt of funds from escrow related to the ClariPhy acquisition. Our accounts payable increased due to increased production volume and timing of payments. Our deferred revenue increased due to higher inventory in the distributors and receipts from customers. Our accounts receivable increased due to higher product shipments to customers and longer payment terms of some customers. Inventories increased due to driver products and the acquisition of ClariPhy. Our accrued expenses and other liabilities decreased mainly due to the timing of payments.

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Net Cash Used in Investing Activities

Net cash used in investing activities during the nine months ended September 30, 2018 primarily consisted of purchases of marketable securities of $177.0 million, purchases of property and equipment of $23.9 million, purchases of equity investments of $12.8 million, and payment of debt related to purchase of intangible assets of $17.2 million, partially offset by proceeds from maturities and sales of marketable securities of $196.4 million and proceeds from sale of equity investment of $2.4 million.

Net cash used in investing activities during the nine months ended September 30, 2017 primarily consisted of cash used to purchase property and equipment of $30.9 million, purchases of marketable securities of $158.2 million, payment of debt related to purchase of intangible assets of $12.8 million, and remaining payment to shareholders of ClariPhy of $1.8 million, partially offset by sales and maturities of marketable securities of $179.1 million and proceeds from the sale of discontinued operations previously held in escrow of $10.7 million.

Net Cash Used in Financing Activities

Net cash used in financing activities during the nine months ended September 30, 2018 primarily consisted of minimum tax withholding paid on behalf of employees for restricted stock of $13.8 million and payment of capital lease obligations of $0.4 million, partially offset by proceeds from exercise of stock options and employee stock purchase plan of $6.4 million and repayment of long-term loan provided to a supplier of $0.3 million.

Net cash used in financing activities during the nine months ended September 30, 2017 primarily consisted of minimum tax withholding paid on behalf of employees for restricted stock units of $20.2 million and payment of capital lease obligations of $0.7 million; partially offset by proceeds from the exercise of stock options and employee stock purchase plan of $7.3 million and repayment of long-term loan provided to a supplier of $0.3 million.

 Operating and Capital Expenditure Requirements

Our principal source of liquidity as of September 30, 2018 consisted of $395.0 million of cash, cash equivalents and investments in marketable securities, of which $28.6 million is held by our foreign subsidiaries. Based on our current operating plan, we believe that our existing cash and cash equivalents from operations will be sufficient to finance our operational cash needs through at least the next 12 months. In the future, we expect our operating and capital expenditures to increase as we increase headcount, expand our business activities and grow our end customer base which will result in higher needs for working capital. Our ability to generate cash from operations is also subject to substantial risks described in Part II, Item 1A, Risk Factors. If any of these risks occur, we may be unable to generate or sustain positive cash flow from operating activities. We would then be required to use existing cash and cash equivalents to support our working capital and other cash requirements. If additional funds are required to support our working capital requirements, acquisitions or other purposes, we may seek to raise funds through debt financing or from other sources. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders could be significantly diluted, and these newly-issued securities may have rights, preferences or privileges senior to those of existing stockholders. If we raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our operating flexibility, and would also require us to incur interest expense. We can provide no assurance that additional financing will be available at all or, if available, that we would be able to obtain additional financing on terms favorable to us.

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We do not plan to repatriate cash balances from foreign subsidiaries to fund our operations in the United States. There may be adverse tax effects upon repatriation of these funds to the United States.  

 Contractual Payment Obligations

Our contractual obligations for 2018 and beyond are included in our Annual Report on Form 10-K for the year ended December 31, 2017, filed with the SEC on February 28, 2018. See Note 16 of the notes to our unaudited condensed consolidated financial statements for information regarding obligations as of September 30, 2018.

Off-Balance Sheet Arrangements

At September 30, 2018, we had no material off-balance sheet arrangements, other than our facility operating leases.

Recent Authoritative Accounting Guidance

See Note 2 of the notes to our unaudited condensed consolidated financial statements for information regarding recently issued accounting pronouncements.

Item 3.     Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Sensitivity

We had cash and cash equivalents and investments in marketable securities of $395.0 million and $405.2 million at September 30, 2018 and December 31, 2017, respectively, which was held for working capital purposes. Our exposure to market interest-rate risk relates primarily to our investment portfolio. We do not use derivative financial instruments to hedge the market risks of our investments. We manage our total portfolio to encompass a diversified pool of investment-grade securities to preserve principal and maintain liquidity. We place our investments with high-quality issuers, money market funds and debt securities. Our investment portfolio as of September 30, 2018 consisted of money market funds, municipal bonds, corporate bonds/notes, variable rate demand notes, commercial papers and asset backed securities. Investments in both fixed rate and floating rate instruments carry a degree of interest rate risk. Fixed rate securities may have their market value adversely impacted due to an increase in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates or if the decline in fair value of our publicly traded debt investments is judged to be other-than-temporary. We may suffer losses in principal if we are forced to sell securities that have declined in market value due to changes in interest rates. However, because any debt securities we hold are classified as available-for-sale, no gains or losses are realized in the income statement due to changes in interest rates unless such securities are sold prior to maturity or unless declines in value are determined to be other-than-temporary. These securities are reported at fair value with the related unrealized gains and losses, net of applicable taxes, included in accumulated other comprehensive income (loss), reported in a separate component of stockholders' equity. Although, we currently expect that our ability to access or liquidate these investments as needed to support our business activities will continue, we cannot ensure that this will not change.

In a low interest rate environment, as short-term investments mature, reinvestment may occur at less favorable market rates. Given the short-term nature of certain investments, the current interest rate environment may negatively impact our investment income.

As of September 30, 2018, we had outstanding debt of $517.5 million in the form of Convertible Notes. The fair value of our Convertible Notes is subject to interest rate risk, market risk and other factors due to the convertible feature. The fair value of the Convertible Notes will generally increase as interest rates fall and decrease as interest rates rise. In addition, the fair value of the Convertible Notes will generally increase as our common stock price increases and will generally decrease as our common stock price declines in value. The interest and market value changes affect the fair value of our Convertible Notes but do not impact our financial position, cash flows or results of operations due to the fixed nature of the debt obligation.

Foreign Currency Risk

To date, our international customer and vendor agreements have been denominated almost exclusively in United States dollars. Accordingly, we have limited exposure to foreign currency exchange rates and currently enter into immaterial foreign currency hedging transactions. 

28

Item 4.      Controls and Procedures

Evaluation of disclosure controls and procedures

We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act 1934, or the Exchange Act, that are designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer), as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that such controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet reasonable assurance standards, but management does not expect that our disclosure controls and procedures will prevent or detect all error and all fraud. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer) have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.       Legal Proceedings

The information required by this Item 1 is set forth under Note 16 of the notes to our unaudited condensed consolidated financial statements, included in Part I, Item 1 of this Report, and is hereby incorporated by reference herein. For an additional discussion of certain risks associated with legal proceedings, see Item 1A. Risk Factors, below.

Item 1A.     Risk Factors

You should carefully consider the risks described in Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2017, which are incorporated by reference herein, as our business, financial condition and results of operations could be adversely affected by any of the risks and uncertainties described therein. There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017 and in our Quarterly Report on Form 10-Q for the three months ended March 31, 2018.

29

Item 6.      Exhibits

(a) Exhibits.

Exhibit
Number	Description
2.1	Agreement and Plan of Merger dated as of November 1, 2016 by and among the Registrant, Clarice Acquisition Corporation, a Delaware corporation and wholly owned subsidiary of the Registrant, ClariPhy Communications, Inc., a Delaware corporation, and Fortis Advisors LLC, a Delaware limited liability company, solely in its capacity as Securityholders’ Agent (incorporated by reference to exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on November 1, 2016).
3(i)	Restated Certificate of Incorporation of the Registrant (incorporated by reference to exhibit 3(i) of the Registrant’s annual report on Form 10-K filed with the SEC on March 7, 2011).
3(ii)	Amended and Restated Bylaws of the Registrant (incorporated by reference to exhibit 3.1 of the Registrant’s current report on Form 8-K filed with the SEC on October 20, 2015).
4.1	Specimen Common Stock Certificate (incorporated by reference to exhibit 4.1 filed with Registration Statement on Form S-1 (File No. 333-167564).
4.2	Amended and Restated Investors’ Rights Agreement dated as of August 12, 2010 (incorporated by reference to exhibit 4.2 of the Registrant’s annual report on Form 10-K filed with the SEC on March 7, 2011).
10.1+	Inphi Corporation Amended and Restated Employee Stock Purchase Plan, as amended and restated effective April 3, 2015 and as further amended and restated effective April 17, 2018 (incorporated by reference from Annex A to the Registrant’s definitive proxy statement for the year ended December 31, 2017, filed on April 25, 2018).
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1(1)	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
32.2(1)	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).

101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase

+ Indicates management contract or compensatory plan.

(1) The material contained in Exhibit 32.1 and Exhibit 32.2 is not deemed “filed” with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing, except to the extent that the registrant specifically incorporates it by reference.

30

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

INPHI CORPORATION,

(Registrant)

By: /s/ Ford Tamer

Ford Tamer 

Chief Executive Officer

(Duly Authorized and Principal Executive Officer)

By: /s/ John Edmunds

John Edmunds 

Chief Financial Officer

(Duly Authorized and Principal Financial Officer and Principal Accounting Officer)

November 7, 2018

31

EX-31.1

EXHIBIT 31.1

Certification of Chief Executive Officer Pursuant to
Exchange Act Rule 13a-14(a)/15d-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Ford Tamer, certify that:

     1. I have reviewed this quarterly report on Form 10-Q of Inphi Corporation;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 7, 2018

/s/ Ford Tamer

Ford Tamer 

President and Chief Executive Officer
(Principal Executive Officer) 

EX-31.2

EXHIBIT 31.2

Certification of Chief Financial Officer Pursuant to
Exchange Act Rule 13a-14(a)/15d-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, John Edmunds, certify that:

     1. I have reviewed this quarterly report on Form 10-Q of Inphi Corporation;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 7, 2018

/s/ John Edmunds

John Edmunds 

Chief Financial Officer and Chief Accounting Officer
(Principal Financial Officer) 

EX-32.1

EXHIBIT 32.1

Certification of Chief Executive Officer Pursuant to
18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

I, Ford Tamer, the chief executive officer of Inphi Corporation (the "Company"), certify for the purposes of section 1350 of chapter 63 of title 18 of the United States Code that, to my knowledge:

1. The Company's Quarterly Report on Form 10-Q (the “Quarterly Report”) for the three months ended September 30, 2018 fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act, and

2. The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 7, 2018

/s/ Ford Tamer

Ford Tamer

President and Chief Executive Officer

(Principal Executive Officer)

EX-32.2

EXHIBIT 32.2

Certification of Chief Financial Officer Pursuant to
18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 

I, John Edmunds, the chief financial officer of Inphi Corporation (the "Company"), certify for the purposes of section 1350 of chapter 63 of title 18 of the United States Code that, to my knowledge:

1. The Company's Quarterly Report on Form 10-Q (the “Quarterly Report”) for the three months ended September 30, 2018 fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act, and

2. The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 7, 2018

/s/ John Edmunds

John Edmunds

Chief Financial Officer and Chief Accounting Officer

(Principal Financial Officer)

XML

Document And Entity Information - shares	9 Months Ended
	Sep. 30, 2018	Nov. 01, 2018
Document Information [Line Items]
Entity Registrant Name	INPHI CORP
Entity Central Index Key	0001160958
Trading Symbol	iphi
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	false
Entity Common Stock, Shares Outstanding (in shares)		44,111,553
Document Type	10-Q
Document Period End Date	Sep. 30, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q3
Amendment Flag	false

XML

Unaudited Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Current assets:
Cash and cash equivalents	$ 172,420	$ 163,450
Investments in marketable securities	222,561	241,737
Accounts receivable, net	48,440	67,993
Inventories	34,124	31,721
Prepaid expenses and other current assets	8,402	12,208
Total current assets	485,947	517,109
Property and equipment, net	67,469	60,344
Goodwill	104,502	104,502
Identifiable intangible assets, net	196,533	222,933
Other assets, net	30,929	12,618
Total assets	885,380	917,506
Current liabilities:
Accounts payable	14,257	14,721
Deferred revenue	300	435
Accrued employee expenses	9,173	15,214
Other accrued expenses	5,193	8,290
Other current liabilities	23,499	21,387
Total current liabilities	52,422	60,047
Convertible debt	440,997	421,431
Other long-term liabilities	14,694	24,627
Total liabilities	508,113	506,105
Commitments and contingencies (Note 16)
Stockholders’ equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued
Common stock, $0.001 par value; 500,000,000 shares authorized; 44,027,738 and 42,780,229 issued and outstanding at September 30, 2018 and December 31, 2017, respectively	44	43
Additional paid-in capital	524,915	484,934
Accumulated deficit	(148,265)	(74,145)
Accumulated other comprehensive income	573	569
Total stockholders’ equity	377,267	411,401
Total liabilities and stockholders’ equity	$ 885,380	$ 917,506

XML

Unaudited Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares	Sep. 30, 2018	Dec. 31, 2017
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, authorized (in shares)	10,000,000	10,000,000
Preferred stock, issued (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, authorized (in shares)	500,000,000	500,000,000
Common stock, issued (in shares)	44,027,738	42,780,229
Common stock, outstanding (in shares)	44,027,738	42,780,229

XML

Unaudited Condensed Consolidated Statements of Income (Loss) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Revenue	$ 78,009	$ 84,511	$ 207,959	$ 262,518
Cost of revenue	34,547	42,440	92,340	119,099
Gross profit	43,462	42,071	115,619	143,419
Operating expenses:
Research and development	41,558	78,849	127,300	158,574
Sales and marketing	10,819	10,100	32,472	31,580
General and administrative	7,134	5,584	21,767	18,177
Total operating expenses	59,511	94,533	181,539	208,331
Loss from operations	(16,049)	(52,462)	(65,920)	(64,912)
Interest expense	(8,202)	(7,566)	(23,870)	(22,109)
Other income, net	1,383	1,080	7,264	2,656
Loss before income taxes	(22,868)	(58,948)	(82,526)	(84,365)
Benefit for income taxes	(203)	(10,182)	(8,406)	(9,359)
Net loss	$ (22,665)	$ (48,766)	$ (74,120)	$ (75,006)
Earnings per share:
Basic earnings per share (in dollars per share)	$ (0.52)	$ (1.15)	$ (1.70)	$ (1.78)
Diluted earnings per share (in dollars per share)	$ (0.52)	$ (1.15)	$ (1.70)	$ (1.78)
Weighted-average shares used in computing earnings per share:
Basic (in shares)	43,934,598	42,350,313	43,535,033	42,022,272
Diluted (in shares)	43,934,598	42,350,313	43,535,033	42,022,272

XML

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Net loss	$ (22,665)	$ (48,766)	$ (74,120)	$ (75,006)
Other comprehensive income (loss):
Change in unrealized gain or loss, net of tax	140	42	5	266
Realized gain reclassified into earnings, net of tax			(1)
Comprehensive loss	$ (22,525)	$ (48,724)	$ (74,116)	$ (74,740)

XML

Unaudited Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Cash flows from operating activities
Net loss	$ (74,120)	$ (75,006)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	59,944	58,730
Stock-based compensation	47,509	32,368
Impairment of intangible assets		47,014
Deferred income taxes	(8,858)	(10,304)
Accretion of convertible debt and amortization of debt issuance costs	19,566	18,217
Net unrealized gain on equity investments	(2,375)
Amortization of premium (discount) on marketable securities	(341)	931
Other noncash items	362	(50)
Changes in assets and liabilities:
Accounts receivable	19,553	(21,576)
Inventories	(2,403)	(2,597)
Prepaid expenses and other assets	704	2,494
Income tax payable/receivable	(1,607)	(1,020)
Accounts payable	918	3,081
Accrued expenses	(9,235)	(3,836)
Deferred revenue	(135)	4,369
Other liabilities	(1,080)	(4,570)
Net cash provided by operating activities	48,402	48,245
Cash flows from investing activities
Purchases of property and equipment	(23,876)	(30,914)
Purchases of marketable securities	(177,003)	(158,244)
Sales of marketable securities	6,312	39,372
Maturities of marketable securities	190,060	139,768
Payment of debt related to purchase of intangible assets	(17,178)	(12,799)
Remaining payment related to acquisition of business		(1,800)
Purchase of equity investment	(12,811)
Proceeds from sale of discontinued operations		10,690
Proceeds from sale of equity investment	2,414
Other investing activity	125	100
Net cash used in investing activities	(31,957)	(13,827)
Cash flows from financing activities
Proceeds from exercise of stock options	522	1,514
Proceeds from employee stock purchase plan	5,906	5,776
Payment of capital lease obligations	(417)	(731)
Repayment of long-term loan	310	272
Minimum tax withholding paid on behalf of employees for restricted stock units	(13,796)	(20,248)
Net cash used in financing activities	(7,475)	(13,417)
Net increase in cash and cash equivalents	8,970	21,001
Cash and cash equivalents at beginning of period	163,450	144,867
Cash and cash equivalents at end of period	172,420	165,868
Supplemental cash flow information:
Income taxes paid	2,000	2,100
Interest paid	4,214	3,378
Supplemental disclosure of non-cash investing and financing activities:
Intangible assets financed with debt	$ 18,611	$ 2,808

XML

Note 1 - Organization and Basis of Presentation

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

1.

Organization and Basis of Presentation

Inphi Corporation (the “Company”), a Delaware corporation, was incorporated in

November 2000.

The Company is a fabless provider of high-speed analog and mixed signal semiconductor solutions for the communications and datacenter markets. The Company’s semiconductor solutions are designed to address bandwidth bottlenecks in networks, maximize throughput and minimize latency in computing environments and enable the rollout of next generation communications and datacenter infrastructures. In addition, the semiconductor solutions provide a vital high-speed interface between analog signals and digital information in high-performance systems such as telecommunications transport systems, enterprise networking equipment and datacenters.

The interim unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form

10

-Q and Rule

10

-

01

of Regulation S-

X.

They do

not

include all of the information and footnotes required by GAAP for complete financial statements. Therefore, these interim unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended

December 

31,

2017,

included in the Company’s Annual Report on Form

10

-K filed with the Securities and Exchange Commission (“SEC”) on

February 28, 2018.

The interim condensed consolidated financial statements included herein are unaudited; however, they contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary to state fairly the Company’s consolidated financial position at

September 30, 2018,

and its consolidated results of operations for the

three

and

nine

months ended

September 30, 2018

and

2017

and cash flows for the

nine

months ended

September 30, 2018

and

2017.

The results of operations for the

three

and

nine

months ended

September 30, 2018

are

not

necessarily indicative of the results to be expected for future quarters or the full year.

XML

Note 2 - Recent Accounting Pronouncements

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

New Accounting Pronouncements and Changes in Accounting Principles [Text Block]

2.

Recent Accounting Pronouncements

In

May 2014,

the Financial Accounting Standards Board (FASB) issued guidance on “Revenue from Contracts with Customers.” The new revenue recognition guidance provides a

five

-step analysis of transactions to determine when and how revenue is recognized. The guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The FASB issued several updates to the guidance. The Company adopted the new revenue guidance effective

January 1, 2018,

using the modified retrospective transition method applied to those contracts which were

not

completed as of that date. See Note

3

of the condensed consolidated financial statements for further details.

In

January 2016,

the FASB issued guidance that requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. However, an entity

may

choose to measure equity investments that do

not

have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The guidance simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value. The guidance eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, and requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. The guidance also requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. Separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements is required under this guidance. The guidance further clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The Company adopted this guidance starting

January 1, 2018

and concluded that there was

no

cumulative effect adjustment required. The Company has elected to measure equity investments that do

not

have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer (referred to as the measurement alternative). See Note

4

of the condensed consolidated financial statements for further details.

In

February 2016,

the FASB issued guidance that requires companies that lease assets (lessees) to recognize on the balance sheet the assets and liabilities for the rights and obligations created by the leases with lease terms of more than

12

months. This guidance is effective for the Company beginning

January 1, 2019.

Early adoption is permitted. The Company is currently evaluating the impact of this new guidance on its consolidated financial statements and related disclosures.

In

June 2016,

the FASB issued guidance which requires the credit losses related to debt securities classified as available-for sale to be presented as an allowance rather than as a write-down. This guidance is effective for the Company beginning after

December 15, 2019.

The Company is currently evaluating the impact that this new guidance will have on its consolidated financial statements and related disclosures.

In

August 2016,

the FASB issued guidance related to the classification of certain transactions on the statement of cash flows. The guidance is effective for calendar year-end public companies in

2018.

The adoption of this guidance did

not

have a material impact on the Company’s consolidated statements of cash flows.

In

January 2017,

the FASB issued guidance on classifying the definition of a business. This guidance clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance is effective for calendar year-end public companies in

2018.

The adoption of this standard did

not

have a material impact on the Company’s consolidated financial statements.

In

January 2017,

the FASB issued guidance to simplify the measurement of goodwill by eliminating the Step

2

impairment test. Step

2

measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The new guidance requires an entity to compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The new guidance becomes effective for goodwill impairment tests in fiscal years beginning after

December 15, 2019,

though early adoption is permitted. The Company is currently evaluating the impact that this new guidance will have on its consolidated financial statements and related disclosures.

In

May 2017,

the FASB issued guidance to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award changes as a result of the change in terms or conditions. The guidance was effective for fiscal years beginning after

December 15, 2017.

The adoption of this standard did

not

have a material impact on the Company’s consolidated financial statements and related disclosures.

In

February 2018,

the FASB issued guidance that allows an option to reclassify from accumulated other comprehensive income to retained earnings any stranded tax effects resulting from the Tax Cuts and Jobs Act (the "Tax Act").  The guidance will be effective for fiscal years beginning after

December 15, 2018,

though early adoption is permitted in any interim period after issuance of the update. The Company is currently evaluating the impact that this new guidance will have on its consolidated financial statements and related disclosures.

In

June 2018,

the FASB issued guidance to eliminate the separate guidance applicable to share-based payments to nonemployees. Under the new guidance, equity-classified share-based payment awards issued to nonemployees will be measured on the grant date, instead of being remeasured through the performance completion date (generally the vesting date), as required under the current guidance. The new guidance will also require recognition of compensation cost for awards with performance conditions when achievement of those conditions are probable, rather than upon their achievement.  Further, the new guidance will eliminate the requirement to reassess the classification of nonemployee awards under the financial instruments literature upon vesting.  The guidance will be effective for fiscal years beginning after

December 15, 2018.

The Company is currently evaluating the impact that this new guidance will have on its consolidated financial statements and related disclosures.

In

August 2018,

the FASB issued guidance that eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information and modifies some disclosure requirements.  The new guidance will

no

longer require disclosure of the amount of and reasons for transfers between Level

1

and Level

2

of the fair value hierarchy, but will require disclosure of the range and weighted average used to develop significant unobservable inputs for Level

3

fair value measurements.  The guidance will be effective for fiscal years beginning after

December 15, 2019.

The Company is currently evaluating the impact that this new guidance will have on its consolidated financial statements and related disclosures.

In

August 2018,

the FASB issued guidance requiring a customer in a cloud computing arrangement that is a service contract to follow the internal use software guidance in Accounting Standards Codification (ASC)

350

-

40

to determine which implementation costs to capitalize as assets.  Capitalized implementation costs are expensed over the term of the hosting arrangement beginning when the module or component of the hosting arrangement is ready for its intended use.   The guidance will be effective for fiscal years beginning after

December 15, 2019.

The Company is currently evaluating the impact that this new guidance will have on its consolidated financial statements and related disclosures.

XML

Note 3 - Revenue

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

3.

Revenue

On

January 1, 2018,

the Company adopted Accounting Standards Update (ASU)

2014

-

09,

Revenue from Contract with Customers (Topic

606

), using the modified retrospective method applied to those contracts which were

not

completed as of

January 1, 2018.

The adoption of this guidance resulted in

no

cumulative effect adjustment as of

January 1, 2018.

Starting

January 1, 2018,

the Company recognizes revenue on sales to distributors upon shipment and transfer of control (known as “sell-in” revenue recognition), rather than deferring recognition until distributors report that they have sold the products to their customers (known as “sell-through” revenue recognition). The impact on revenue for the

three

and

nine

months ended

September 30, 2018

was an increase (decrease) of (

$154

) and

$3,019,

respectively. The impact on cost of revenue for the

three

and

nine

months ended

September 30, 2018

was an increase of

$5

and

$548,

respectively. The deferred revenue and inventories decreased by

$3,019

and

$548

as of

September 30, 2018,

respectively. Results for reporting periods beginning after

January 1, 2018

are presented under the new revenue guidance, while prior periods will

not

be retrospectively adjusted and continue to be reported in accordance with the Company’s historic revenue recognition accounting.

The Company recognizes revenue when the control of the promised goods or services is transferred to customers in an amount that reflects the consideration the Company expects to receive in exchange for such goods or services.

The following table shows revenue by geography, based on the shipping location of customers:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
China	$	31,723	$	20,435	$	70,710	$	80,990
United States		25,746		31,985		72,710		63,029
Thailand		10,687		14,447		26,807		38,185
Other		9,853		17,644		37,732		80,314
	$	78,009	$	84,511	$	207,959	$	262,518

Product Revenue

The Company’s products are fully functional at the time of shipment and do

not

require additional production, modification, or customization. The Company recognizes revenue upon transfer of control at a point in time when title transfers either upon shipment to or receipt by the customer, net of accruals for estimated sales returns and allowances. Sales and other taxes the Company collects are excluded from revenue. The fee is based on specific products and quantities to be delivered at specified prices, which is evidenced by a customer purchase order or other persuasive evidence of an arrangement. Certain distributors

may

receive a credit for the price discounts associated with the distributors' customers that purchased those products. The Company estimates the extent of these distributor price discounts at each reporting period to reduce accounts receivable and revenue. Although the Company accrues an estimate of distributor price discount, the Company does

not

issue these discounts to the distributor until the inventory is sold to the distributors' customers. As of

September 30, 2018,

the estimated price discount was

$961.

Payment terms of customers are typically

30

to

60

days after invoice date. The Company’s products are under warranty against defects in material and workmanship generally for a period of

one

or

two

years. The Company accrues for estimated warranty cost at the time of sale based on anticipated warranty claims and actual historical warranty claims experience including knowledge of specific product failures that are outside of the Company’s typical experience.

Other Revenue

Occasionally, the Company enters into license and development agreements with some of its customers and recognizes revenue from these agreements upon completion and acceptance by the customer of contract deliverables by milestones or as services are provided, depending on the terms of the arrangement. Revenue is deferred for any amounts billed or received prior to completion of milestones or delivery of services. The Company believes the milestone method best depicts efforts expended to transfer services to the customers. Certain contracts

may

include multiple performance obligations in which the Company allocates revenues to each performance obligation based on relative stand-alone selling price. The Company determines stand-alone selling prices based on the adjusted market assessment approach or residual approach, if applicable.

The Company does

not

disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of

one

year or less or (ii) contracts for which the Company recognizes revenue at the amount to which the right to invoice for services performed.

XML

Note 4 - Investments

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Investment [Text Block]

4

. Investments

The following table summarizes the investments by investment category:

	September 30, 201 8				December 31, 201 7
	Cost		Fair Value		Cost		Fair Value
Available-for-sale securities:
Municipal bonds	$	12,531	$	12,491	$	27,725	$	27,657
Corporate notes/bonds		137,270		137,122		146,549		146,401
Variable rate demand notes		4,500		4,500		3,500		3,500
Commercial paper		34,368		34,361		57,006		56,994
Asset backed securities		34,125		34,087		7,197		7,185
Total investments	$	222,794	$	222,561	$	241,977	$	241,737

As of

September 30, 2018,

the Company had

77

investments that were in an unrealized loss position. The gross unrealized losses on these investments at

September 30, 2018

of

$315

were determined to be temporary in nature. The Company reviews the investments to identify and evaluate investments that have an indication of possible other-than-temporary impairment. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the investee, and the intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.

The contractual maturities of available-for-sale securities at

September 30, 2018

are presented in the following table:

	Cost		Fair Value
Due in one year or less	$	143,077	$	142,924
Due between one and five years		71,717		71,634
Due after five years		8,000		8,003
	$	222,794	$	222,561

The Company has a marketable equity investment in a company located in Taiwan. The fair value of the investment and unrealized loss as of

September 30, 2018

was

$1,321

and

$672,

respectively. This investment is presented as Other assets, net on the condensed consolidated balance sheet.

The Company has non-marketable equity investments in privately held companies without readily determinable market values. Prior to

January 1, 2018,

the Company accounted for non-marketable equity investments at cost less impairment. Realized gains and losses on non-marketable equity investments sold or impaired were recognized in Other income, net. On

January 1, 2018,

the Company adopted ASU

2016

-

01,

Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities, which changed the way the Company accounts for non-marketable equity investments. The Company adjusts the carrying value of non-marketable equity investments to fair value upon observable transactions for identical or similar investments of the same issuer or impairment (referred to as the measurement alternative). All gains and losses on non-marketable equity investments, realized and unrealized, are recognized in Other income, net. There was

no

cumulative effect adjustment upon adoption of this guidance. As of

September 30, 2018,

non-marketable equity investments had a carrying value of approximately

$23,866,

of which

$6,066

was remeasured to fair value based on observable transaction during the

nine

months ended

September 30, 2018.

These investments are presented as Other assets, net on the condensed consolidated balance sheet. The unrealized gain recorded in other income and included as adjustment to the carrying value of non-marketable equity investments held as of

September 30, 2018

was

$3,066

for the

nine

months ended

September 30, 2018.

XML

Note 5 - Inventories

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Inventory Disclosure [Text Block]

5

. Inventories

Inventories consist of the following:

	September 30, 201 8		December 31, 201 7
Raw materials	$	13,710	$	12,267
Work in process		14,126		13,800
Finished goods		6,288		5,654
	$	34,124	$	31,721

XML

Note 6 - Property and Equipment, Net

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Property, Plant and Equipment Disclosure [Text Block]

6

. Property and Equipment, net

Property and equipment consist of the following:

	September 30, 201 8			December 31, 201 7
Laboratory and production equipment	$	113,707		$	94,609
Office, software and computer equipment		29,619			28,594
Furniture and fixtures		1,529			1,698
Leasehold improvements		7,588			7,250
		152,443			132,151
Less accumulated depreciation		(84,974	)		(71,807	)
	$	67,469		$	60,344

Depreciation and amortization expense of property and equipment for the

three

and

nine

months ended

September 30, 2018

was

$5,134

and

$14,931,

respectively. Depreciation and amortization expense of property and equipment for the

three

and

nine

months ended

September 30, 2017

was

$5,304

and

$15,203,

respectively.

As of

September 30, 2018

and

December 

31,

2017,

computer software costs included in property and equipment was

$6,776

and

$7,181,

respectively. Amortization expense of capitalized computer software costs was

$126

and

$471

for the

three

and

nine

months ended

September 30, 2018,

respectively. Amortization expense of capitalized computer software costs was

$252

and

$791

for the

three

and

nine

months ended

September 30, 2017,

respectively.

Property and equipment

not

yet paid as of

September 30, 2018

and

December 31, 2017

was

$1,890

and

$3,339,

respectively.

The Company leases certain equipment under capital lease agreements. Assets held under capital leases are included in property and equipment above. Gross amount and accumulated depreciation of assets under capital lease as of

September 30, 2018

was

$3,639

and

$1,544,

respectively. Gross amount and accumulated depreciation of assets under capital lease as of

December 31, 2017

was

$3,639

and

$898,

respectively.

The minimum lease payments under capital leases as of

September 30, 2018

are as follows:

2018 (remaining)	$	150
2019		501
2020		364
2021		94
Total minimum lease payments		1,109
Less: Amount representing interest		130
Minimum lease payments, net of interest	$	979

XML

Note 7 - Identifiable Intangible Assets

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Goodwill and Intangible Assets Disclosure [Text Block]

7

. Identifiable Intangible Assets

The following table presents details of identifiable intangible assets:

	September 30, 201 8						December 31, 201 7
	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Developed technology	$	186,800	$	76,654	$	110,146	$	126,300	$	53,533	$	72,767
Customer relationships		70,540		19,250		51,290		70,540		11,954		58,586
Trade name		2,310		1,234		1,076		2,310		888		1,422
Patents		1,579		846		733		1,579		734		845
Software		62,899		29,611		33,288		47,039		18,226		28,813
In-process research and development		—		—		—		60,500		—		60,500
	$	324,128	$	127,595	$	196,533	$	308,268	$	85,335	$	222,933

During the

three

months ended

September 30, 2018,

the Company reclassified

$60,500

of acquired in-process research and development to developed technology as the technology was commercialized.

The following table presents amortization of intangible assets for the

three

and

nine

months ended

September 30, 2018

and

2017:

	Three Months Ended September 30,				Nine Months Ended September 30,
	201 8		201 7		201 8		201 7
Cost of goods sold	$	9,723	$	7,249	$	23,121	$	21,749
Research and development		5,058		4,777		14,138		13,999
Sales and marketing		2,432		2,432		7,296		7,295
General and administrative		151		158		458		484
	$	17,364	$	14,616	$	45,013	$	43,527

Based on the amount of intangible assets subject to amortization at

September 30, 2018,

the expected amortization expense for each of the next

five

fiscal years and thereafter is as follows:

2018 (remaining)	$	17,363
2019		66,882
2020		38,841
2021		32,887
2022		24,261
Thereafter		16,299
	$	196,533

The weighted-average amortization periods remaining by intangible asset category are as follows (in years):

Developed technology	3.7
Customer relationship	5.3
Trade name	2.8
Patents	8.2
Software	1.9

XML

Note 8 - Product Warranty Obligation

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Product Warranty Disclosure [Text Block]

8

.

Product Warranty Obligation

As of

September 30, 2018

and

December 31, 2017,

the product warranty liability was

$110

.

There was

no

change in product warranty liability during the

three

and

nine

months ended

September 30, 2018

and

2017.

XML

Note 9 - Convertible Debt

9 Months Ended

Sep. 30, 2018

Convertible Debt [Member]

Notes to Financial Statements

Debt Disclosure [Text Block]

9

. Convertible debt

In

December 2015,

the Company issued 

$230,000

 of

1.125%

convertible senior notes due

2020

(Convertible Notes

2015

). The Convertible Notes

2015

will mature

December 1, 2020,

unless earlier converted or repurchased. Interest on the Convertible Notes

2015

is payable on

June 1

and

December 1

of each year, beginning on

June 1, 2016.

The initial conversion rate is 

24.8988

 shares of common stock per

$1

principal amount of Convertible Notes

2015,

which represents an initial conversion price of approximately 

$40.16

 per share. The total interest expense recognized for the

three

months ended

September 30, 2018

was

$3,652,

which consists of

$650

of contractual interest expense,

$2,754

of amortization of debt discount and

$248

of amortization of debt issuance costs. The total interest expense recognized for the

nine

months ended

September 30, 2018

was

$10,685,

which consists of

$1,936

of contractual interest expense,

$8,026

of amortization of debt discount and

$723

of amortization of debt issuance costs. The total interest expense recognized for the

three

months ended

September 30, 2017

was

$3,443,

which consists of

$650

of contractual interest expense,

$2,562

of amortization of debt discount and

$231

of amortization of debt issuance costs. The total interest expense recognized for the

nine

months ended

September 30, 2017

was

$10,075,

which consists of

$1,936

of contractual interest expense,

$7,467

of amortization of debt discount and

$672

of amortization of debt issuance costs.

In connection with the issuance of the Convertible Notes

2015,

the Company entered into capped call transactions (Capped Call

2015

) in private transactions. Under the Capped Call

2015,

the Company purchased capped call options that in aggregate relate to 

100%

 of the total number of shares of the Company's common stock underlying the Convertible Notes

2015,

with a strike price equal to the conversion price of the Convertible Notes

2015

and with a cap price equal to 

$52.06

 per share.

In

September 2016,

the Company issued

$287,500

of

0.75%

convertible senior notes due

2021

(Convertible Notes

2016,

and together with the Convertible Notes

2015,

the Convertible Notes). The Convertible Notes

2016

will mature

September 1, 2021,

unless earlier converted or repurchased. Interest on the Convertible Notes

2016

is payable on

March 1

and

September 1

of each year, beginning on

March 1, 2017.

The initial conversion rate is

17.7508

shares of common stock per

$1

principal amount of Convertible Notes

2016,

which represents an initial conversion price of approximately

$56.34

per share. The total interest expense recognized for the

three

months ended

September 30, 2018

was

$4,253,

which consists of

$542

of contractual interest expense,

$3,430

of amortization of debt discount and

$281

of amortization of debt issuance costs. The total interest expense recognized for the

nine

months ended

September 30, 2018

was

$12,425,

which consists of

$1,608

of contractual interest expense,

$9,998

of amortization of debt discount and

$819

of amortization of debt issuance costs. The total interest expense recognized for the

three

months ended

September 30, 2017

was

$3,999,

which consists of

$542

of contractual interest expense,

$3,195

of amortization of debt discount and

$262

of amortization of debt issuance costs. The total interest expense recognized for the

nine

months ended

September 30, 2017

was

$11,684,

which consists of

$1,606

of contractual interest expense,

$9,315

of amortization of debt discount and

$763

of amortization of debt issuance costs.

In connection with the issuance of the Convertible Notes

2016,

the Company entered into capped call transactions (Capped Call

2016

) in private transactions. Under the Capped Call

2016,

the Company purchased capped call options that in aggregate relate to

100%

of the total number of shares of the Company's common stock underlying the Convertible Notes

2016,

with a strike price approximately equal to the conversion price of the Convertible Notes

2016

and with a cap price equal to approximately

$73.03

per share.

XML

Note 10 - Other Liabilities

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Other Liabilities Disclosure [Text Block]

10

.

Other liabilities

Other current liabilities consist of the following:

	September 30, 201 8		December 31, 201 7
Obligations under capital lease	$	459	$	539
Intangible asset liability		21,231		16,892
Others		1,809		3,956
	$	23,499	$	21,387

Other long-term liabilities consist of the following:

	September 30, 201 8		December 31, 201 7
Deferred rent	$	1,187	$	1,487
Income tax payable		687		830
Obligations under capital lease		520		857
Intangible asset liability		11,539		14,445
Deferred tax liabilities		—		6,146
Others		761		862
	$	14,694	$	24,627

XML

Note 11 - Income Taxes

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Income Tax Disclosure [Text Block]

1

1

. Income Taxes

The Company normally determines its interim provision using an estimated single annual effective tax rate for all tax jurisdictions. ASC

740

provides that when an entity operates in a jurisdiction that has generated ordinary losses on a year-to-date basis or on the basis of the results anticipated for the full fiscal year and

no

benefit can be recognized on those losses, a separate effective tax rate should be computed and applied to ordinary income (or loss) in that jurisdiction. The Company incurred pretax loss during the

three

and

nine

months ended

September 30, 2018

and

2017

from its U.S. operations and will

not

recognize tax benefit of the losses due to full valuation allowance established against deferred tax assets. Thus, a separate effective tax rate was applied to losses from the U.S. jurisdiction to compute the Company’s interim tax provision.

The Company recorded an income tax benefit of

$203

and

$8,406

in the

three

and

nine

months ended

September 30, 2018,

respectively. The effective tax rates were

1%

and

10%

in the

three

and

nine

months ended

September 30, 2018,

respectively. The difference between the effective tax rates and the

21%

federal statutory rate in the

three

and

nine

months ended

September 30, 2018

resulted primarily due to change in valuation allowance, foreign income taxes provided at lower rates, geographic mix in expected operating results, unrecognized tax benefits, recognition of federal and state research and development credits, and windfall tax benefits from stock-based compensation. In addition, the income tax benefit for the

nine

months ended

September 30, 2018,

included the partial release of federal valuation allowance resulting from the transfer of an acquired in-process research and development to developed technology in

2018

which allowed the related deferred tax liability to be considered a source of income for realizing deferred tax assets, as well as the revaluation of the foreign deferred tax liability on the in-process research and development based on the foreign tax rates applicable to the anticipated reversal periods, partially offset by income tax expense for the accrual of unrecognized tax benefit for foreign taxes.

The Company recorded an income tax benefit of

$10,182

and

$9,359

in the

three

and

nine

months ended

September 30, 2017,

respectively. The effective tax rate for the

three

and

nine

months ended

September 30, 2017

was

17%

and

11%,

respectively. The difference between the effective tax rates and the

34%

federal statutory rate was primarily due to tax impact of developed technology and in-process research and development impairment charge, change in valuation allowance, foreign income taxes provided at lower rates, geographic mix in expected operating results, unrecognized tax benefits, recognition of federal and state research and development credits and windfall tax benefits from stock-based compensation.

During the

three

and

nine

months ended

September 30, 2018,

the gross amount of the Company’s unrecognized tax benefits increased approximately

$1,196

and

$5,404,

respectively, primarily as a result of tax positions taken during the current year. Substantially all of the unrecognized tax benefits as of

September 30, 2018,

if recognized, would

not

affect the Company’s effective tax rate due to valuation allowance. A significant amount of the Company’s unrecognized tax benefits is recorded against deferred tax asset, and a recognition of such unrecognized benefits would be offset by an increase in valuation allowance, resulting in

no

net effect on the effective tax rate. The Company believes that in the next

twelve

months, it is reasonably possible that the gross unrecognized tax benefit

may

decrease by approximately

$51

due to expiration of statute of limitations on certain foreign income taxes.

The Company is currently under examination by the Inland Revenue Authority of Singapore (“IRAS”) for the years

2010,

2011

and

2012.

The audit adjustment made by IRAS to date generally affected only the timing of certain deductions claimed in those years and had

no

net effect on the Company’s income statement. IRAS is still in the process of examining the valuation of certain intangible assets transferred to Singapore during the years under audit, which

may

affect the deduction of related amortization in the subsequent years. As of the report date, the examination is ongoing.

The Tax Act, signed into law on

December 22, 2017,

made significant changes to U.S. federal corporate taxation, including a reduction of the corporate tax rate from

35%

to

21%

effective

January 1, 2018,

a

one

-time transition tax on mandatory repatriation of accumulated earnings and profits of foreign subsidiaries in conjunction with the elimination of U.S. tax on dividend distributions from foreign subsidiaries as of

December 31, 2017,

and inclusion of global intangible low-tax income (“GILTI”) earned by certain foreign subsidiaries.

Staff Accounting Bulletin

118

(“SAB

118”

) allows for a measurement period of up to

one

year after the enactment date of the new tax legislation to finalize the recording of the related tax impacts.  In accordance with SAB

118,

as of

December 31, 2017,

the Company made a provisional estimate of the remeasurement of the federal deferred tax assets and liabilities as of

December 31, 2017

to reflect the reduced U.S. statutory corporate tax rate to

21%,

  the mandatory repatriation income which was fully absorbed by the U.S. net operating loss, the related valuation allowance offset, and valuation allowance release on deferred tax assets for the federal AMT credit that was made refundable by the Tax Reform Act. During the

three

and

nine

months ended

September 30, 2018,

the Company made changes to its provisional estimates previously recorded for the mandatory repatriation upon filing of its

2017

U.S. income tax return.  The change in the mandatory repatriation income was fully absorbed by the U.S. net operating loss, which is subject to valuation allowance and resulted in

no

current tax liability.  These measurement period adjustments had

no

net tax effect after the offsetting change to valuation allowance.   The Company will continue to analyze the effects of the Tax Act on the consolidated financial statements and will finalize the impacts of tax reform in its year-end financial statements.

In

January 2018,

the FASB released guidance on the accounting for tax on the GILTI inclusion. Entities can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or account for GILTI as a period cost in the year the tax is incurred. The Company has

not

made an election. The Company continues to evaluate the impact of the Tax Act, including provisions impacting certain foreign income, such as a GILTI tax and a deduction for foreign derived intangible income. During the

three

and

nine

months ended

September 30, 2018,

these items did

not

result in an impact on the Company’s effective tax rate.

XML

Note 12 - Earnings Per Share

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Earnings Per Share [Text Block]

1

2

. Earnings Per Share

The following securities were

not

included in the computation of diluted earnings per share as inclusion would have been anti-dilutive:

	Three Months Ended September 30,				Nine Months Ended September 30,
	201 8		201 7		201 8		201 7
Common stock options		1,186,358		1,430,497		1,220,323		1,479,810
Unvested restricted stock unit		2,945,422		2,591,442		2,886,675		3,107,210
Convertible debt		10,830,038		10,830,038		10,830,038		10,830,038
		14,961,818		14,851,977		14,937,036		15,417,058

XML

Note 13 - Stock-based Compensation

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

1

3

. Stock

–Based Compensation

In

June 2010,

the Board of Directors (the “Board”) approved the Company’s

2010

Stock Incentive Plan (the

“2010

Plan”), which became effective in

November 2010.

The

2010

Plan provides for the grants of restricted stock, stock appreciation rights and stock unit awards to employees, non-employee directors, advisors and consultants. The compensation committee of the Board administers the

2010

Plan, including the determination of the recipient of an award, the number of shares subject to each award, whether an option is to be classified as an incentive stock option or nonstatutory option, and the terms and conditions of each award, including the exercise and purchase prices and the vesting or duration of the award. Options granted under the

2010

Plan are exercisable only upon vesting. At

September 30, 2018,

4,493,952

shares of common stock have been reserved for future grants under the

2010

Plan.

Stock Option Awards

 

The Company did

not

grant any stock options during the

three

and

nine

months ended

September 30, 2018

and

2017.

The following table summarizes information regarding options outstanding:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value
Outstanding at December 31, 201 7		1,346,863		$	11.67		3.26	$	33,578
Exercised		(164,302	)		3.21
Outstanding at September 30 , 201 8		1,182,561		$	12.85		2.85	$	29,723
Vested and e xercisable at September 30 , 201 8		1,182,561		$	12.85		2.85	$	29,723

The intrinsic value of options outstanding, exercisable and vested and expected to vest is calculated based on the difference between the exercise price and the fair value of the Company’s common stock as of the respective balance sheet dates.

The total intrinsic value of options exercised during the

nine

months ended

September 30, 2018

and

2017

was

$3,887

and

$8,796,

respectively. The intrinsic value of exercised options is calculated based on the difference between the exercise price and the fair value of the Company’s common stock as of the exercise date. Cash received from the exercise of stock options was

$522

and

$1,514,

respectively, for the

nine

months ended

September 30, 2018

and

2017.

Restricted Stock Units

The Company granted restricted stock units (“RSUs”) to members of the Board and employees. Most of the Company’s outstanding RSUs vest over

four

years with vesting contingent upon continuous service. The Company estimates the fair value of RSUs using the market price of the common stock on the date of the grant. The fair value of these awards is amortized on a straight-line basis over the vesting period.

The following table summarizes information regarding outstanding RSUs:

	Number of Shares			Weighted Average Grant Date Fair Value Per Share
Outstanding at December 31, 201 7		3,987,552		$	34.48
Granted		2,065,066			31.58
Vested		(1,241,495	)		28.72
Canceled		(542,420	)		36.68
Outstanding at September 30 , 201 8		4,268,703		$	34.48
Expected to vest at September 30 , 201 8		4,157,753

The RSUs include performance-based stock units subject to achievement of pre-established revenue goal and earnings per share on non-GAAP basis. Once the goals are met, the performance-based stock units are subject to

four

years of vesting from the original grant date, contingent upon continuous service. The total performance-based units that vested for the

nine

months ended

September 30, 2018

was

92,205.

As of

September 30, 2018,

the total performance-based units outstanding was

123,984.

Market Value Stock Units

In

January 2018,

the compensation committee of the Board approved long-term market value stock unit (MVSU) awards to certain executive officers and employees, subject to certain market and service conditions in the maximum total amount of

801,000

units. Recipients

may

earn between

0%

to

225%

of the target number of shares based on the Company’s achievement of total shareholder return (TSR) in comparison to the TSR of companies in the S&P

500

Index over a period of approximately

three

years in length ending in the

first

calendar quarter of

2021

after reporting of fiscal year

2020

results. If the Company’s absolute TSR is negative for the performance period, then, even if the relative TSR performance compared to other companies is high, the maximum number of shares that

may

be earned would be limited to the target number of shares. The fair value of the MVSU awards was estimated using Monte Carlo simulation model and compensation is being recognized ratably over the performance period. The expected volatility of the Company’s common stock was estimated based on historical average volatility rate for the

three

-year performance period. The dividend yield assumption was based on historical and anticipated dividend payouts. The risk-free interest rate assumption was based on observed interest rates consistent with

three

-year performance measurement period. The total amount of compensation to recognized over the performance period, and the assumptions used to value the grants are as follows:

Total target shares		336,000
Fair value per share	$	55.81
Total amount to be recognized over the performance period	$	18,752
Risk free interest rate		2.29	%
Expected volatility		47.52	%
Dividend yield		—

Employee Stock Purchase Plan

In

December 2011,

the Company adopted the Employee Stock Purchase Plan (“ESPP”), which was amended and restated effective

April 2015

and further amended and restated effective

April 2018.

Participants purchase the Company's stock using payroll deductions, which

may

not

exceed

15%

of their total cash compensation. Pursuant to the terms of the ESPP, the "look-back" period for the stock purchase price is

six

months. Offering and purchase periods will begin on

February 10

and

August 10

of each year. Participants will be granted the right to purchase common stock at a price per share that is

85%

of the lesser of the fair market value of the Company's common stock at the beginning or the end of each

six

-month period.

The ESPP imposes certain limitations upon an employee’s right to acquire common stock, including the following: (i)

no

employee shall be granted a right to participate if such employee immediately after the election to purchase common stock, would own stock possessing

5%

or more of the total combined voting power or value of all classes of stock of the Company, and (ii)

no

employee

may

be granted rights to purchase more than

$25

fair value of common stock for each calendar year. The maximum aggregate number of shares of common stock available for purchase under the ESPP is

2,750,000

shares. The total common stock issued under the ESPP during the

nine

months ended

September 30, 2018

and

2017

was

283,493

and

171,099,

respectively.

The fair value of the ESPP is estimated at the start of offering period using the Black-Scholes option pricing model with the following assumptions:

	Three Months Ended September 30,						Nine Months Ended September 30,
	201 8			201 7			201 8			201 7
Risk-free interest rate		2.24	%		1.13	%		2.01	%		0.94	%
Expected life (in years)		0.50			0.50			0.50			0.50
Dividend yield		—			—			—			—
Expected volatility		45	%		45	%		46	%		42	%
Estimated fair value	$	9.29		$	10.04		$	8.35		$	11.03

 

Stock-Based Compensation Expense

Stock-based compensation expense is included in the Company’s results of operations as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	201 8		201 7		201 8		201 7
Operating expenses
Cost of goods sold	$	636	$	556	$	1,810	$	1,654
Research and development		9,614		7,770		27,853		20,959
Sales and marketing		3,702		2,247		10,185		6,048
General and administrative		2,788		1,320		7,661		3,707
	$	16,740	$	11,893	$	47,509	$	32,368

Total unrecognized compensation cost related to unvested stock options, restricted stock units and awards at

September 30, 

2018,

prior to the consideration of expected forfeitures, is approximately

$130,504

and is expected to be recognized over a weighted-average period of

2.58

years.

XML

Note 14 - Fair Value Measurements

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Fair Value Disclosures [Text Block]

1

4

. Fair Value Measurements

The guidance on fair value measurements requires fair value measurements to be classified and disclosed in

one

of the following

three

categories:

Level

1

: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level

2

: Quoted prices in markets that are

not

active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; or

Level

3

: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or

no

market activity).

The Company measures its investments in marketable securities at fair value using the market approach, which uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The Company has cash equivalents, which consist of money market funds valued using the amortized cost method, in accordance with Rule

2a

-

7

under the

1940

Act, which approximates fair value.

The Company determines the amount of transfers between Levels

1

and

2

or transfers into or out of Level

3

by using the end-of-period fair value. The Company had

no

transfers among the fair value hierarchy during the

three

and

nine

months ended

September 

30,

2018.

The Convertible Notes are carried on the consolidated balance sheets at their original issuance value including accreted interest, net of unamortized debt discount and issuance cost. The Convertible Notes are

not

marked to fair value at the end of each reporting period. As of

September 30, 2018

and

December 31, 2017,

the fair value of Convertible Notes was determined on the basis of market prices observable for similar instruments and is considered Level

2

in the fair value hierarchy.

The following table presents information about assets required to be carried at fair value on a recurring basis:

September 30, 201 8	Total		Level 1		Level 2
Assets
Cash equivalents:
Money market funds	$	949	$	42	$	907
Commercial paper		106,605		—		106,605
Investment in marketable securities:
Municipal bonds		12,491		—		12,491
Corporate notes/bonds		137,122		—		137,122
Variable rate demand notes		4,500		—		4,500
Asset backed securities		34,087		—		34,087
Commercial paper		34,361		—		34,361
	$	330,115	$	42	$	330,073
Liabilities
Convertible Notes	$	549,476	$	—	$	549,476

December 31, 201 7	Total		Level 1		Level 2
Assets
Cash equivalents:
Money market funds	$	3,332	$	31	$	3,301
Municipal bonds		999		—		999
Corporate notes/bonds		2,608		—		2,608
Commercial paper		76,456		—		76,456
Investment in marketable securities:
Municipal bonds		27,657		—		27,657
Corporate notes/bonds		146,401		—		146,401
Variable rate demand notes		3,500		—		3,500
Asset backed securities		7,185		—		7,185
Commercial paper		56,994		—		56,994
	$	325,132	$	31	$	325,101
Liabilities
Convertible Notes	$	555,200	$	—	$	555,200

As discussed in Note

4,

the Company has a marketable equity investment. The marketable equity investment is classified as Level

1

in the fair value hierarchy. As discussed in Note

4,

the Company has non-marketable equity investments which are classified within Level

3

in the fair value hierarchy because the Company estimates the value based on valuation methods using the observable transaction price at the transaction date.

XML

Note 15 - Segment and Geographic Information

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

1

5

. Segment and Geographic Information

The Company operates in

one

reportable segment. The Company’s Chief Executive Officer, who is considered to be the chief operating decision maker, manages the Company’s operations as a whole and reviews consolidated financial information for purposes of evaluating financial performance and allocating resources. Revenue by region is classified based on the locations to which the product is transported, which

may

differ from the customer’s principal offices.

The following table sets forth the Company’s revenue by geographic region:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
China	$	31,723	$	20,435	$	70,710	$	80,990
United States		25,746		31,985		72,710		63,029
Thailand		10,687		14,447		26,807		38,185
Other		9,853		17,644		37,732		80,314
	$	78,009	$	84,511	$	207,959	$	262,518

As of

September 30, 2018,

$29,561

of long-lived tangible assets are located outside the United States, of which

$26,271

are located in Taiwan. As of

December 31, 2017,

$8,695

of long-lived tangible assets are located outside the United States, of which

$4,647

are located in Taiwan.

XML

Note 16 - Commitments and Contingencies

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

1

6

. Commitments and Contingencies

Leases

The Company leases its facility under noncancelable lease agreements expiring in various years through

2026.

The Company also licenses certain software used in its research and development activities under a term license subscription and maintenance arrangement.

As of

September 30, 2018,

future minimum lease payments under noncancelable operating leases having initial terms in excess of

one

year are as follows:

2018 (remaining)	$	1,639
2019		5,553
2020		2,724
2021		1,967
2022		1,723
Thereafter		3,317
	$	16,923

For the

three

and

nine

months ended

September 30, 2018,

lease operating expense was

$1,142

and

$4,590,

respectively. For the

three

and

nine

months ended

September 

30,

2017,

lease operating expense was

$1,709

and

$5,075,

respectively.

Noncancelable Purchase Obligations

The Company depends upon

third

party subcontractors to manufacture its wafers.  These subcontractor relationships typically allow for the cancellation of outstanding purchase orders, but require payment of all expenses incurred through the date of cancellation. As of

September 30, 2018,

the total value of open purchase orders for wafers was approximately

$9,030.

As of

September 30, 2018,

the Company has a commitment to pay

$1,339

for software licenses and

$804

for mask costs.

Legal Proceedings

Netlist, Inc. v. Inphi Corporation, Case

No.

 

09

-cv-

6900

(C.D. Cal.)

On

September 

22,

2009,

Netlist filed suit in the United States District Court, Central District of California, or the Court, asserting that the Company infringes U.S. Patent

No.

 

7,532,537.

Netlist filed an amended complaint on

December 

22,

2009,

further asserting that the Company infringes U.S. Patent Nos.

7,619,912

and

7,636,274,

collectively with U.S. Patent

No.

 

7,532,537,

the patents-in-suit, and seeking both unspecified monetary damages to be determined and an injunction to prevent further infringement. These infringement claims allege that the iMB™ and certain other memory module components infringe the patents-in-suit. The Company answered the amended complaint on

February 

11,

2010

and asserted that the Company does

not

infringe the patents-in-suit and that the patents-in-suit are invalid. In

2010,

the Company filed

inter partes

requests for reexamination with the United States Patent and Trademark Office (the “USPTO”), asserting that the patents-in-suit are invalid. As a result of the proceedings at the USPTO, the Court has stayed the litigation, with the parties advising the Court on status every

120

days.

As to the proceeding at the USPTO, reexamination has been ordered for all of the patents that were alleged to infringe, and at present, the USPTO has determined that almost all of the originally filed claims are

not

valid, with certain amended claims being determined patentable. The Reexamination Certificate for U.S. Patent

No.

7,532,537

was issued on

August 2, 2016

based upon amended claims. The parties continue to assert their respective positions with respect to the reexamination proceeding for U.S. Patent

No.

7,619,912.

With respect to the reexamination proceeding for U.S. Patent

No.

7,636,274,

the Patent Trial and Appeal Board has determined that

none

of the claims are patentable, Netlist has dismissed its appeal to the U.S. Court of Appeals for the Federal Circuit regarding this determination, and the parties are awaiting the USPTO issuance of the Reexamination Certificate based upon these proceedings.

While the Company intends to defend the foregoing USPTO proceedings and lawsuit vigorously, the USPTO proceedings and litigation, whether or

not

determined in the Company’s favor or settled, could be costly and time-consuming and could divert management’s attention and resources, which could adversely affect the Company’s business.

Based on the nature of USPTO proceedings and litigation, the Company is currently unable to predict the final outcome of this lawsuit and therefore, cannot determine the likelihood of loss nor estimate a range of possible loss. However, because of the nature and inherent uncertainties of litigation, should the outcome of these actions be unfavorable, the Company’s business, financial condition, results of operations or cash flows could be materially and adversely affected.

During the

nine

months ended

September 30, 2018,

the Company entered into settlement agreements related to claims by certain customers of ClariPhy Communications Inc. (ClariPhy) associated with contracts entered prior to the acquisition date under which the Company paid

$8,000

to the customers. The Company also entered into an agreement with former shareholders of ClariPhy in which the Company recovered

$4,875

from the escrow set up as part of the ClariPhy acquisition. The Company recorded a charge of

$2,125,

net of amount previously accrued, during the

nine

months ended

September 30, 2018

included in General and administrative expenses in the condensed consolidated statements of income (loss).

The Company has recently been notified that it

may

be subject to additional possible claims by a customer of ClariPhy associated with circumstances arising prior to the acquisition date. The Company is currently reviewing whether these additional claims are valid, and the Company is unable to reasonably estimate the amount of any potential liability at this time. Amounts payable as a result of any or part of these claims

may

be recoverable from the escrow set up as part of the ClariPhy acquisition.

Indemnifications

In the ordinary course of business, the Company

may

provide indemnifications of varying scope and terms to customers, vendors, lessors, investors, directors, officers, employees and other parties with respect to certain matters, including, but

not

limited to, losses arising out of the Company’s breach of such agreements, services to be provided by the Company, or from intellectual property infringement claims made by

third

-parties. These indemnifications

may

survive termination of the underlying agreement and the maximum potential amount of future payments the Company could be required to make under these indemnification provisions

may

not

be subject to maximum loss clauses. The Company has

not

incurred material costs to defend lawsuits or settle claims related to these indemnifications. Accordingly, the Company has

no

liabilities recorded for these agreements as of

September 30, 2018

and

December 

31,

2017.

XML

Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2018

Accounting Policies [Abstract]

New Accounting Pronouncements, Policy [Policy Text Block]

In

May 2014,

the Financial Accounting Standards Board (FASB) issued guidance on “Revenue from Contracts with Customers.” The new revenue recognition guidance provides a

five

-step analysis of transactions to determine when and how revenue is recognized. The guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The FASB issued several updates to the guidance. The Company adopted the new revenue guidance effective

January 1, 2018,

using the modified retrospective transition method applied to those contracts which were

not

completed as of that date. See Note

3

of the condensed consolidated financial statements for further details.

In

January 2016,

the FASB issued guidance that requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. However, an entity

may

choose to measure equity investments that do

not

have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The guidance simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value. The guidance eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, and requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. The guidance also requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. Separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements is required under this guidance. The guidance further clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The Company adopted this guidance starting

January 1, 2018

and concluded that there was

no

cumulative effect adjustment required. The Company has elected to measure equity investments that do

not

have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer (referred to as the measurement alternative). See Note

4

of the condensed consolidated financial statements for further details.

In

February 2016,

the FASB issued guidance that requires companies that lease assets (lessees) to recognize on the balance sheet the assets and liabilities for the rights and obligations created by the leases with lease terms of more than

12

months. This guidance is effective for the Company beginning

January 1, 2019.

Early adoption is permitted. The Company is currently evaluating the impact of this new guidance on its consolidated financial statements and related disclosures.

In

June 2016,

the FASB issued guidance which requires the credit losses related to debt securities classified as available-for sale to be presented as an allowance rather than as a write-down. This guidance is effective for the Company beginning after

December 15, 2019.

The Company is currently evaluating the impact that this new guidance will have on its consolidated financial statements and related disclosures.

In

August 2016,

the FASB issued guidance related to the classification of certain transactions on the statement of cash flows. The guidance is effective for calendar year-end public companies in

2018.

The adoption of this guidance did

not

have a material impact on the Company’s consolidated statements of cash flows.

In

January 2017,

the FASB issued guidance on classifying the definition of a business. This guidance clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance is effective for calendar year-end public companies in

2018.

The adoption of this standard did

not

have a material impact on the Company’s consolidated financial statements.

In

January 2017,

the FASB issued guidance to simplify the measurement of goodwill by eliminating the Step

2

impairment test. Step

2

measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The new guidance requires an entity to compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The new guidance becomes effective for goodwill impairment tests in fiscal years beginning after

December 15, 2019,

though early adoption is permitted. The Company is currently evaluating the impact that this new guidance will have on its consolidated financial statements and related disclosures.

In

May 2017,

the FASB issued guidance to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award changes as a result of the change in terms or conditions. The guidance was effective for fiscal years beginning after

December 15, 2017.

The adoption of this standard did

not

have a material impact on the Company’s consolidated financial statements and related disclosures.

In

February 2018,

the FASB issued guidance that allows an option to reclassify from accumulated other comprehensive income to retained earnings any stranded tax effects resulting from the Tax Cuts and Jobs Act (the "Tax Act").  The guidance will be effective for fiscal years beginning after

December 15, 2018,

though early adoption is permitted in any interim period after issuance of the update. The Company is currently evaluating the impact that this new guidance will have on its consolidated financial statements and related disclosures.

In

June 2018,

the FASB issued guidance to eliminate the separate guidance applicable to share-based payments to nonemployees. Under the new guidance, equity-classified share-based payment awards issued to nonemployees will be measured on the grant date, instead of being remeasured through the performance completion date (generally the vesting date), as required under the current guidance. The new guidance will also require recognition of compensation cost for awards with performance conditions when achievement of those conditions are probable, rather than upon their achievement.  Further, the new guidance will eliminate the requirement to reassess the classification of nonemployee awards under the financial instruments literature upon vesting.  The guidance will be effective for fiscal years beginning after

December 15, 2018.

The Company is currently evaluating the impact that this new guidance will have on its consolidated financial statements and related disclosures.

In

August 2018,

the FASB issued guidance that eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information and modifies some disclosure requirements.  The new guidance will

no

longer require disclosure of the amount of and reasons for transfers between Level

1

and Level

2

of the fair value hierarchy, but will require disclosure of the range and weighted average used to develop significant unobservable inputs for Level

3

fair value measurements.  The guidance will be effective for fiscal years beginning after

December 15, 2019.

The Company is currently evaluating the impact that this new guidance will have on its consolidated financial statements and related disclosures.

In

August 2018,

the FASB issued guidance requiring a customer in a cloud computing arrangement that is a service contract to follow the internal use software guidance in Accounting Standards Codification (ASC)

350

-

40

to determine which implementation costs to capitalize as assets.  Capitalized implementation costs are expensed over the term of the hosting arrangement beginning when the module or component of the hosting arrangement is ready for its intended use.   The guidance will be effective for fiscal years beginning after

December 15, 2019.

The Company is currently evaluating the impact that this new guidance will have on its consolidated financial statements and related disclosures.

XML

Note 3 - Revenue (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Disaggregation of Revenue [Table Text Block]

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
China	$	31,723	$	20,435	$	70,710	$	80,990
United States		25,746		31,985		72,710		63,029
Thailand		10,687		14,447		26,807		38,185
Other		9,853		17,644		37,732		80,314
	$	78,009	$	84,511	$	207,959	$	262,518

XML

Note 4 - Investments (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Debt Securities, Available-for-sale [Table Text Block]

	September 30, 201 8				December 31, 201 7
	Cost		Fair Value		Cost		Fair Value
Available-for-sale securities:
Municipal bonds	$	12,531	$	12,491	$	27,725	$	27,657
Corporate notes/bonds		137,270		137,122		146,549		146,401
Variable rate demand notes		4,500		4,500		3,500		3,500
Commercial paper		34,368		34,361		57,006		56,994
Asset backed securities		34,125		34,087		7,197		7,185
Total investments	$	222,794	$	222,561	$	241,977	$	241,737

Investments Classified by Contractual Maturity Date [Table Text Block]

	Cost		Fair Value
Due in one year or less	$	143,077	$	142,924
Due between one and five years		71,717		71,634
Due after five years		8,000		8,003
	$	222,794	$	222,561

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Note 5 - Inventories (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	September 30, 201 8		December 31, 201 7
Raw materials	$	13,710	$	12,267
Work in process		14,126		13,800
Finished goods		6,288		5,654
	$	34,124	$	31,721

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Note 6 - Property and Equipment, Net (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Property, Plant and Equipment [Table Text Block]

	September 30, 201 8			December 31, 201 7
Laboratory and production equipment	$	113,707		$	94,609
Office, software and computer equipment		29,619			28,594
Furniture and fixtures		1,529			1,698
Leasehold improvements		7,588			7,250
		152,443			132,151
Less accumulated depreciation		(84,974	)		(71,807	)
	$	67,469		$	60,344

Schedule of Future Minimum Lease Payments for Capital Leases [Table Text Block]

2018 (remaining)	$	150
2019		501
2020		364
2021		94
Total minimum lease payments		1,109
Less: Amount representing interest		130
Minimum lease payments, net of interest	$	979

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Note 7 - Identifiable Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Schedule of Finite-Lived Intangible Assets [Table Text Block]

	September 30, 201 8						December 31, 201 7
	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Developed technology	$	186,800	$	76,654	$	110,146	$	126,300	$	53,533	$	72,767
Customer relationships		70,540		19,250		51,290		70,540		11,954		58,586
Trade name		2,310		1,234		1,076		2,310		888		1,422
Patents		1,579		846		733		1,579		734		845
Software		62,899		29,611		33,288		47,039		18,226		28,813
In-process research and development		—		—		—		60,500		—		60,500
	$	324,128	$	127,595	$	196,533	$	308,268	$	85,335	$	222,933

Finite-lived Intangible Assets Amortization Expense [Table Text Block]

	Three Months Ended September 30,				Nine Months Ended September 30,
	201 8		201 7		201 8		201 7
Cost of goods sold	$	9,723	$	7,249	$	23,121	$	21,749
Research and development		5,058		4,777		14,138		13,999
Sales and marketing		2,432		2,432		7,296		7,295
General and administrative		151		158		458		484
	$	17,364	$	14,616	$	45,013	$	43,527

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

2018 (remaining)	$	17,363
2019		66,882
2020		38,841
2021		32,887
2022		24,261
Thereafter		16,299
	$	196,533

Finite Lived Intangible Assets Remaining Amortization Period [Table Text Block]

Developed technology	3.7
Customer relationship	5.3
Trade name	2.8
Patents	8.2
Software	1.9

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Note 10 - Other Liabilities (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Other Current Liabilities [Table Text Block]

	September 30, 201 8		December 31, 201 7
Obligations under capital lease	$	459	$	539
Intangible asset liability		21,231		16,892
Others		1,809		3,956
	$	23,499	$	21,387

Other Noncurrent Liabilities [Table Text Block]

	September 30, 201 8		December 31, 201 7
Deferred rent	$	1,187	$	1,487
Income tax payable		687		830
Obligations under capital lease		520		857
Intangible asset liability		11,539		14,445
Deferred tax liabilities		—		6,146
Others		761		862
	$	14,694	$	24,627

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Note 12 - Earnings Per Share (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block]

	Three Months Ended September 30,				Nine Months Ended September 30,
	201 8		201 7		201 8		201 7
Common stock options		1,186,358		1,430,497		1,220,323		1,479,810
Unvested restricted stock unit		2,945,422		2,591,442		2,886,675		3,107,210
Convertible debt		10,830,038		10,830,038		10,830,038		10,830,038
		14,961,818		14,851,977		14,937,036		15,417,058

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Note 13 - Stock-based Compensation (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Share-based Compensation, Stock Options, Activity [Table Text Block]

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value
Outstanding at December 31, 201 7		1,346,863		$	11.67		3.26	$	33,578
Exercised		(164,302	)		3.21
Outstanding at September 30 , 201 8		1,182,561		$	12.85		2.85	$	29,723
Vested and e xercisable at September 30 , 201 8		1,182,561		$	12.85		2.85	$	29,723

Schedule of Share-based Compensation, Restricted Stock Units Award Activity [Table Text Block]

	Number of Shares			Weighted Average Grant Date Fair Value Per Share
Outstanding at December 31, 201 7		3,987,552		$	34.48
Granted		2,065,066			31.58
Vested		(1,241,495	)		28.72
Canceled		(542,420	)		36.68
Outstanding at September 30 , 201 8		4,268,703		$	34.48
Expected to vest at September 30 , 201 8		4,157,753

Schedule of Share-based Payment Award, Equity Instruments Other than Option, Valuation Assumptions [Table Text Block]

<div style="display: inline; font-family: times new roman; font-size: 10pt"><table border="0" cellpadding="0" cellspacing="0" style="margin-right: 7.5%; margin-left: 7.5%; font-size: 10pt; font-family: "Times New Roman", Times, serif; text-indent: 0px; min-; min-width: 700px;"> <tr style="vertical-align: bottom; background-color: rgb(204, 238, 255);"> <td style="font-family: "Times New Roman", Times, serif; font-size: 10pt; width: 82%;"> <div style=" font-family: "Times New Roman", Times, serif; font-size: 10pt; margin-bottom: 0pt; margin-top: 0pt;">Total target shares</div> </td> <td style="width: 1%; font-family: "Times New Roman", Times, serif; font-size: 10pt;"> </td> <td style="width: 1%; font-family: "Times New Roman", Times, serif; font-size: 10pt;"> </td> <td style="width: 15%; text-align: right; font-family: "Times New Roman", Times, serif; font-size: 10pt; margin-left: 7.2pt;"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">336,000</div></td> <td nowrap="nowrap" style="width: 1%; font-family: "Times New Roman", Times, serif; font-size: 10pt; margin-left: 0pt;"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(255, 255, 255);"> <td style="font-family: "Times New Roman", Times, serif; font-size: 10pt;"> <div style=" font-family: "Times New Roman", Times, serif; font-size: 10pt; margin-bottom: 0pt; margin-top: 0pt;">Fair value per share</div> </td> <td style="width: 1%; font-family: "Times New Roman", Times, serif; font-size: 10pt;"> </td> <td style="width: 1%; font-family: "Times New Roman", Times, serif; font-size: 10pt; margin-left: 7.2pt;">$</td> <td style="width: 15%; text-align: right; font-family: "Times New Roman", Times, serif; font-size: 10pt; margin-left: 7.2pt;"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">55.81</div></td> <td nowrap="nowrap" style="width: 1%; font-family: "Times New Roman", Times, serif; font-size: 10pt; margin-left: 0pt;"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204, 238, 255);"> <td style="font-family: "Times New Roman", Times, serif; font-size: 10pt;"> <div style=" font-family: "Times New Roman", Times, serif; font-size: 10pt; margin-bottom: 0pt; margin-top: 0pt;">Total amount to be recognized over the performance period</div> </td> <td style="width: 1%; font-family: "Times New Roman", Times, serif; font-size: 10pt;"> </td> <td style="width: 1%; font-family: "Times New Roman", Times, serif; font-size: 10pt; margin-left: 7.2pt;">$</td> <td style="width: 15%; text-align: right; font-family: "Times New Roman", Times, serif; font-size: 10pt; margin-left: 7.2pt;"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">18,752</div></td> <td nowrap="nowrap" style="width: 1%; font-family: "Times New Roman", Times, serif; font-size: 10pt; margin-left: 0pt;"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(255, 255, 255);"> <td style="font-family: "Times New Roman", Times, serif; font-size: 10pt;"> <div style=" font-family: "Times New Roman", Times, serif; font-size: 10pt; margin-bottom: 0pt; margin-top: 0pt;">Risk free interest rate</div> </td> <td style="width: 1%; font-family: "Times New Roman", Times, serif; font-size: 10pt;"> </td> <td style="width: 1%; font-family: "Times New Roman", Times, serif; font-size: 10pt;"> </td> <td style="width: 15%; text-align: right; font-family: "Times New Roman", Times, serif; font-size: 10pt; margin-left: 7.2pt;"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">2.29</div></td> <td nowrap="nowrap" style="width: 1%; font-family: "Times New Roman", Times, serif; font-size: 10pt; margin-left: 0pt;">%</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204, 238, 255);"> <td style="font-family: "Times New Roman", Times, serif; font-size: 10pt;"> <div style=" font-family: "Times New Roman", Times, serif; font-size: 10pt; margin-bottom: 0pt; margin-top: 0pt;">Expected volatility</div> </td> <td style="width: 1%; font-family: "Times New Roman", Times, serif; font-size: 10pt;"> </td> <td style="width: 1%; font-family: "Times New Roman", Times, serif; font-size: 10pt;"> </td> <td style="width: 15%; text-align: right; font-family: "Times New Roman", Times, serif; font-size: 10pt; margin-left: 7.2pt;"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">47.52</div></td> <td nowrap="nowrap" style="width: 1%; font-family: "Times New Roman", Times, serif; font-size: 10pt; margin-left: 0pt;">%</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(255, 255, 255);"> <td style="font-family: "Times New Roman", Times, serif; font-size: 10pt;"> <div style=" font-family: "Times New Roman", Times, serif; font-size: 10pt; margin-bottom: 0pt; margin-top: 0pt;">Dividend yield</div> </td> <td style="width: 1%; font-family: "Times New Roman", Times, serif; font-size: 10pt;"> </td> <td style="width: 1%; font-family: "Times New Roman", Times, serif; font-size: 10pt;"> </td> <td style="width: 15%; text-align: right; font-family: "Times New Roman", Times, serif; font-size: 10pt; margin-left: 7.2pt;"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">—</div></td> <td nowrap="nowrap" style="width: 1%; font-family: "Times New Roman", Times, serif; font-size: 10pt; margin-left: 0pt;"> </td> </tr> </table></div>

Schedule of Share-based Payment Award, Employee Stock Purchase Plan, Valuation Assumptions [Table Text Block]

	Three Months Ended September 30,						Nine Months Ended September 30,
	201 8			201 7			201 8			201 7
Risk-free interest rate		2.24	%		1.13	%		2.01	%		0.94	%
Expected life (in years)		0.50			0.50			0.50			0.50
Dividend yield		—			—			—			—
Expected volatility		45	%		45	%		46	%		42	%
Estimated fair value	$	9.29		$	10.04		$	8.35		$	11.03

Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Table Text Block]

	Three Months Ended September 30,				Nine Months Ended September 30,
	201 8		201 7		201 8		201 7
Operating expenses
Cost of goods sold	$	636	$	556	$	1,810	$	1,654
Research and development		9,614		7,770		27,853		20,959
Sales and marketing		3,702		2,247		10,185		6,048
General and administrative		2,788		1,320		7,661		3,707
	$	16,740	$	11,893	$	47,509	$	32,368

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Note 14 - Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]

September 30, 201 8	Total		Level 1		Level 2
Assets
Cash equivalents:
Money market funds	$	949	$	42	$	907
Commercial paper		106,605		—		106,605
Investment in marketable securities:
Municipal bonds		12,491		—		12,491
Corporate notes/bonds		137,122		—		137,122
Variable rate demand notes		4,500		—		4,500
Asset backed securities		34,087		—		34,087
Commercial paper		34,361		—		34,361
	$	330,115	$	42	$	330,073
Liabilities
Convertible Notes	$	549,476	$	—	$	549,476

December 31, 201 7	Total		Level 1		Level 2
Assets
Cash equivalents:
Money market funds	$	3,332	$	31	$	3,301
Municipal bonds		999		—		999
Corporate notes/bonds		2,608		—		2,608
Commercial paper		76,456		—		76,456
Investment in marketable securities:
Municipal bonds		27,657		—		27,657
Corporate notes/bonds		146,401		—		146,401
Variable rate demand notes		3,500		—		3,500
Asset backed securities		7,185		—		7,185
Commercial paper		56,994		—		56,994
	$	325,132	$	31	$	325,101
Liabilities
Convertible Notes	$	555,200	$	—	$	555,200

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Note 15 - Segment and Geographic Information (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Revenue from External Customers by Geographic Areas [Table Text Block]

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
China	$	31,723	$	20,435	$	70,710	$	80,990
United States		25,746		31,985		72,710		63,029
Thailand		10,687		14,447		26,807		38,185
Other		9,853		17,644		37,732		80,314
	$	78,009	$	84,511	$	207,959	$	262,518

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Note 16 - Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Schedule of Future Minimum Rental Payments for Operating Leases [Table Text Block]

2018 (remaining)	$	1,639
2019		5,553
2020		2,724
2021		1,967
2022		1,723
Thereafter		3,317
	$	16,923

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Note 2 - Recent Accounting Pronouncements (Details Textual) $ in Thousands	Jan. 01, 2018 USD ($)
Accounting Standards Update 2016-01 [Member]
Cumulative Effect of New Accounting Principle in Period of Adoption	$ 0

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Note 3 - Revenue (Details Textual) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Jan. 01, 2018	Dec. 31, 2017
Revenue from Contract with Customer, Excluding Assessed Tax, Total	$ 78,009	$ 84,511	$ 207,959	$ 262,518
Cost of Goods and Services Sold, Total	34,547	$ 42,440	92,340	$ 119,099
Inventory, Net, Total	34,124		$ 34,124			$ 31,721
Minimum [Member]
Product Warranty Term			1 year
Maximum [Member]
Product Warranty Term			2 years
Accounting Standards Update 2014-09 [Member]
Cumulative Effect of New Accounting Principle in Period of Adoption					$ 0
Revenue from Contract with Customer, Excluding Assessed Tax, Total	(154)		$ 3,019
Cost of Goods and Services Sold, Total	5		548
Deferred Revenue	3,019		3,019
Inventory, Net, Total	548		548
Contract with Customer, Refund Liability, Total	$ 961		$ 961

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Note 3 - Revenue - Revenue by Geography (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Revenue	$ 78,009	$ 84,511	$ 207,959	$ 262,518
CHINA
Revenue	31,723	20,435	70,710	80,990
UNITED STATES
Revenue	25,746	31,985	72,710	63,029
THAILAND
Revenue	10,687	14,447	26,807	38,185
Other Country [Member]
Revenue	$ 9,853	$ 17,644	$ 37,732	$ 80,314

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Note 4 - Investments (Details Textual) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2018 USD ($)	Dec. 31, 2017 USD ($)
Debt Securities, Available-for-sale, Unrealized Loss Position, Number of Positions	77
Debt Securities, Available-for-sale, Unrealized Loss Position, Accumulated Loss, Total	$ 315
Equity Securities, FV-NI	1,321
Equity Securities, FV-NI, Accumulated Gross Unrealized Loss	672
Cost-method Investments, Other than Temporary Impairment		$ 0
Equity Securities without Readily Determinable Fair Value, Upward Price Adjustment, Annual Amount	3,066
Other Noncurrent Assets [Member]
Equity Securities without Readily Determinable Fair Value, Amount	23,866
Other Noncurrent Assets [Member] | Equity Securities, Fair Value Based on Observable Transaction [Member]
Equity Securities without Readily Determinable Fair Value, Amount	$ 6,066

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Note 4 - Investments - Summary of Investments by Investment (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Available-for-sale securities, amortized cost	$ 222,794	$ 241,977
Available-for-sale securities, fair value	222,561	241,737
US States and Political Subdivisions Debt Securities [Member]
Available-for-sale securities, amortized cost	12,531	27,725
Available-for-sale securities, fair value	12,491	27,657
Corporate Debt Securities [Member]
Available-for-sale securities, amortized cost	137,270	146,549
Available-for-sale securities, fair value	137,122	146,401
Variable Rate Demand Note [Member]
Available-for-sale securities, amortized cost	4,500	3,500
Available-for-sale securities, fair value	4,500	3,500
Commercial Paper [Member]
Available-for-sale securities, amortized cost	34,368	57,006
Available-for-sale securities, fair value	34,361	56,994
Asset-backed Securities [Member]
Available-for-sale securities, amortized cost	34,125	7,197
Available-for-sale securities, fair value	$ 34,087	$ 7,185

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Note 4 - Investments - Contractual Maturities of Available-for-sale Securities (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Due in one year or less, cost	$ 143,077
Due in one year or less, fair value	142,924
Due between one and five years, cost	71,717
Due between one and five years, fair value	71,634
Due after five years, cost	8,000
Due after five years, fair value	8,003
Available-for-sale securities, cost	222,794	$ 241,977
Available-for-sale securities, fair value	$ 222,561	$ 241,737

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Note 5 - Inventories - Schedule of Inventory (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Raw materials	$ 13,710	$ 12,267
Work in process	14,126	13,800
Finished goods	6,288	5,654
Total inventories	$ 34,124	$ 31,721

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Note 6 - Property and Equipment, Net (Details Textual) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Depreciation, Total	$ 5,134	$ 5,304	$ 14,931	$ 15,203
Capitalized Computer Software, Gross	6,776		6,776		$ 7,181
Capitalized Computer Software, Amortization	126	$ 252	471	$ 791
Capital Expenditures Incurred but Not yet Paid			1,890		3,339
Capital Leased Assets, Gross, Total	3,639		3,639		3,639
Capital Leases, Lessee Balance Sheet, Assets by Major Class, Accumulated Depreciation	$ 1,544		$ 1,544		$ 898

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Note 6 - Property and Equipment, Net - Property and Equipment Components (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Property and equipment, gross	$ 152,443	$ 132,151
Less accumulated depreciation	(84,974)	(71,807)
Total property and equipment	67,469	60,344
Equipment [Member]
Property and equipment, gross	113,707	94,609
Office, Software, and Computer Equipment [Member]
Property and equipment, gross	29,619	28,594
Furniture and Fixtures [Member]
Property and equipment, gross	1,529	1,698
Leasehold Improvements [Member]
Property and equipment, gross	$ 7,588	$ 7,250

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Note 6 - Property and Equipment, Net - Minimum Capital Lease Payments (Details) $ in Thousands	Sep. 30, 2018 USD ($)
2018 (remaining)	$ 150
2019	501
2020	364
2021	94
Total minimum lease payments	1,109
Less: Amount representing interest	130
Minimum lease payments, net of interest	$ 979

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Note 7 - Identifiable Intangible Assets (Details Textual) $ in Millions	3 Months Ended
	Sep. 30, 2018 USD ($)
In-Process Research and Development to Developed Technology [Member]
Current Period Reclassification Adjustment	$ 60.5

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Note 7 - Identifiable Intangible Assets - Identifiable Intangible Assets (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Intangible assets, gross	$ 324,128	$ 308,268
Intangible assets, accumulated amortization	127,595	85,335
Intangible assets, net	196,533	222,933
Developed Technology Rights [Member]
Intangible assets, gross	186,800	126,300
Intangible assets, accumulated amortization	76,654	53,533
Intangible assets, net	110,146	72,767
Customer Relationships [Member]
Intangible assets, gross	70,540	70,540
Intangible assets, accumulated amortization	19,250	11,954
Intangible assets, net	51,290	58,586
Trade Names [Member]
Intangible assets, gross	2,310	2,310
Intangible assets, accumulated amortization	1,234	888
Intangible assets, net	1,076	1,422
Patents [Member]
Intangible assets, gross	1,579	1,579
Intangible assets, accumulated amortization	846	734
Intangible assets, net	733	845
Computer Software, Intangible Asset [Member]
Intangible assets, gross	62,899	47,039
Intangible assets, accumulated amortization	29,611	18,226
Intangible assets, net	33,288	28,813
In Process Research and Development [Member]
Intangible assets, gross		60,500
Intangible assets, accumulated amortization
Intangible assets, net		$ 60,500

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Note 7 - Identifiable Intangible Assets - Amortization (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Cost of goods sold	$ 9,723	$ 7,249	$ 23,121	$ 21,749
	17,364	14,616	45,013	43,527
Research and Development Expense [Member]
Amortization of intangible assets	5,058	4,777	14,138	13,999
Selling and Marketing Expense [Member]
Amortization of intangible assets	2,432	2,432	7,296	7,295
General and Administrative Expense [Member]
Amortization of intangible assets	$ 151	$ 158	$ 458	$ 484

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Note 7 - Identifiable Intangible Assets - Expected Amortization Expense (Details) $ in Thousands	Sep. 30, 2018 USD ($)
2018 (remaining)	$ 17,363
2019	66,882
2020	38,841
2021	32,887
2022	24,261
Thereafter	16,299
Total amortization expense	$ 196,533

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Note 7 - Identifiable Intangible Assets - Weighted-average Amortization Periods Remaining (Details)	9 Months Ended
	Sep. 30, 2018
Developed Technology Rights [Member]
Finite-lived intangible assets, remaining amortization period (Year)	3 years 255 days
Customer Relationships [Member]
Finite-lived intangible assets, remaining amortization period (Year)	5 years 109 days
Trade Names [Member]
Finite-lived intangible assets, remaining amortization period (Year)	2 years 292 days
Patents [Member]
Finite-lived intangible assets, remaining amortization period (Year)	8 years 73 days
Computer Software, Intangible Asset [Member]
Finite-lived intangible assets, remaining amortization period (Year)	1 year 328 days

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Note 8 - Product Warranty Obligation (Details Textual) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Standard and Extended Product Warranty Accrual, Ending Balance	$ 110		$ 110		$ 110
Standard and Extended Product Warranty Accrual, Period Increase (Decrease), Total	$ 0	$ 0	$ 0	$ 0

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Note 9 - Convertible Debt (Details Textual) - Convertible Debt [Member] $ / shares in Units, $ in Thousands	1 Months Ended		3 Months Ended		9 Months Ended
	Sep. 30, 2016 USD ($) $ / shares $ / item	Dec. 31, 2015 USD ($) $ / shares $ / item	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)
Convertible Notes 2015 [Member]
Debt Instrument, Face Amount		$ 230,000
Debt Instrument, Interest Rate, Stated Percentage		1.125%
Debt Instrument, Convertible, Conversion Ratio		24.8988
Debt Instrument, Convertible, Conversion Price | $ / shares		$ 40.16
Interest Expense, Debt, Total			$ 3,652	$ 3,443	$ 10,685	$ 10,075
Interest Expense, Debt, Excluding Amortization			650	650	1,936	1,936
Amortization of Debt Discount (Premium)			2,754	2,562	8,026	7,467
Amortization of Debt Issuance Costs			248	231	723	672
Convertible Debt in Default, Percent Holders to Declare Due and Payable		100.00%
Derivative, Cap Price | $ / item		52.06
Convertible Notes 2016 [Member]
Debt Instrument, Face Amount	$ 287,500
Debt Instrument, Interest Rate, Stated Percentage	0.75%
Debt Instrument, Convertible, Conversion Ratio	17.7508
Debt Instrument, Convertible, Conversion Price | $ / shares	$ 56.34
Interest Expense, Debt, Total			4,253	3,999	12,425	11,684
Interest Expense, Debt, Excluding Amortization			542	542	1,608	1,606
Amortization of Debt Discount (Premium)			3,430	3,195	9,998	9,315
Amortization of Debt Issuance Costs			$ 281	$ 262	$ 819	$ 763
Convertible Debt in Default, Percent Holders to Declare Due and Payable	100.00%
Derivative, Cap Price | $ / item	73.03

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Note 10 - Other Liabilities - Other Current Liabilities (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Obligations under capital lease	$ 459	$ 539
Intangible asset liability	21,231	16,892
Others	1,809	3,956
Other current liabilities	$ 23,499	$ 21,387

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Note 10 - Other Liabilities - Other Long-term Liabilities (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Deferred rent	$ 1,187	$ 1,487
Income tax payable	687	830
Obligations under capital lease	520	857
Intangible asset liability	11,539	14,445
Deferred tax liabilities		6,146
Others	761	862
Total other long-term liabilities	$ 14,694	$ 24,627

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Note 11 - Income Taxes (Details Textual) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Income Tax Expense (Benefit), Total	$ (203)	$ (10,182)	$ (8,406)	$ (9,359)
Effective Income Tax Rate Reconciliation, Percent, Total	1.00%	17.00%	10.00%	11.00%
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent	21.00%	34.00%	21.00%	34.00%
Unrecognized Tax Benefits, Increase Resulting from Current Period Tax Positions	$ 1,196		$ 5,404
Decrease in Unrecognized Tax Benefits is Reasonably Possible	$ 51		$ 51

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Note 12 - Earnings Per Share - Securities Not Included in Computation of Earnings Per Share (Details) - shares	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Anti-dilutive securities (in shares)	14,961,818	14,851,977	14,937,036	15,417,058
Employee Stock Option [Member]
Anti-dilutive securities (in shares)	1,186,358	1,430,497	1,220,323	1,479,810
Restricted Stock [Member]
Anti-dilutive securities (in shares)	2,945,422	2,591,442	2,886,675	3,107,210
Convertible Debt Securities [Member]
Anti-dilutive securities (in shares)	10,830,038	10,830,038	10,830,038	10,830,038

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Note 13 - Stock-based Compensation (Details Textual) - USD ($) $ in Thousands	1 Months Ended		3 Months Ended		9 Months Ended
	Jan. 31, 2018	Dec. 31, 2011	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Common Stock, Capital Shares Reserved for Future Issuance			4,493,952		4,493,952
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross			0	0	0	0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period, Intrinsic Value					$ 3,887	$ 8,796
Proceeds from Stock Options Exercised					$ 522	$ 1,514
Stock Issued During Period, Shares, Employee Stock Purchase Plans					283,493	171,099
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Total			$ 130,504		$ 130,504
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition					2 years 211 days
Employee Stock Purchase Plan [Member]
Maximum Percentage of Aggregate Cash Compensation for Purchase of Stock Using Payroll Deduction		15.00%
Purchase Price PerShare as Percentage of Market Value		85.00%
Percentage of Combined Voting Power or Value of All Classes of Stock Not Eligible to Participate		5.00%
Fair Value of Common Stock in Calendar Year per Employee Not Eligible to Participate		$ 25
Maximum Aggregate Number of Shares of Common Stock Available for Purchase under Employee Stock Purchase Plan					2,750,000
Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period					4 years
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period					1,241,495
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number, Ending Balance			4,268,703		4,268,703		3,987,552
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period					2,065,066
Performance Shares [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period					4 years
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period					92,205
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number, Ending Balance			123,984		123,984
Market Value Stock Units [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	801,000
Market Value Stock Units, Performance Period	3 years
Market Value Stock Units [Member] | Minimum [Member]
Percentage of Target Number of Shares	0.00%
Market Value Stock Units [Member] | Maximum [Member]
Percentage of Target Number of Shares	225.00%

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Note 13 - Stock-based Compensation - Options Outstanding (Details) - USD ($) $ / shares in Units, $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2018	Dec. 31, 2017
Number of shares outstanding (in shares)	1,346,863
Number of shares outstanding, weighted-average exercise price (in dollars per share)	$ 11.67
Number of shares outstanding, weighted-average remaining contractual life (Year)	2 years 310 days	3 years 94 days
Number of shares outstanding, aggregate intrinsic value	$ 29,723	$ 33,578
Number of shares exercised (in shares)	(164,302)
Number of shares exercised, weighted-average exercise price (in dollars per share)	$ 3.21
Number of shares outstanding (in shares)	1,182,561	1,346,863
Number of shares outstanding, weighted-average exercise price (in dollars per share)	$ 12.85	$ 11.67
Vested and expected to vest in the future (in shares)	1,182,561
Number of shares vested and expected to vest in the future, weighted-average exercise price (in dollars per share)	$ 12.85
Number of shares vested and expected to vest in the future, weighted-average remaining contractual life (Year)	2 years 310 days
Number of shares vested and expected to vest in the future, aggregate intrinsic value	$ 29,723

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Note 13 - Stock-based Compensation - Outstanding Restricted Stock Units (Details) - Restricted Stock Units (RSUs) [Member]	9 Months Ended
	Sep. 30, 2018 $ / shares shares
Outstanding (in shares)	3,987,552
Outstanding, weighted-average grant date fair value (in dollars per share) | $ / shares	$ 34.48
Granted (in shares)	2,065,066
Granted, weighted-average grant date fair value (in dollars per share) | $ / shares	$ 31.58
Vested (in shares)	(1,241,495)
Vested, weighted-average grant date fair value (in dollars per share) | $ / shares	$ 28.72
Canceled (in shares)	(542,420)
Canceled, weighted-average grant date fair value (in dollars per share) | $ / shares	$ 36.68
Outstanding (in shares)	4,268,703
Outstanding, weighted-average grant date fair value (in dollars per share) | $ / shares	$ 34.48
Expected to vest (in shares)	4,157,753

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Note 13 - Stock-based Compensation - Assumptions Valuation for Market Value Stock Units (Details) - Market Value Stock Units [Member] $ / shares in Units, $ in Thousands	9 Months Ended
	Sep. 30, 2018 USD ($) $ / shares shares
Total target shares (in shares) | shares	336,000
Fair value per share (in dollars per share) | $ / shares	$ 55.81
Total amount to be recognized over the performance period | $	$ 18,752
Risk free interest rate	2.29%
Expected volatility	47.52%
Dividend yield

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Note 13 - Stock-based Compensation - Fair Value of Employee Stock Purchase Plan (Details) - Employee Stock Purchase Plan [Member] - $ / shares	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Risk-free interest rate	2.24%	1.13%	2.01%	0.94%
Expected life (Year)	182 days	182 days	182 days	182 days
Dividend yield
Expected volatility	45.00%	45.00%	46.00%	42.00%
Estimated fair value (in dollars per share)	$ 9.29	$ 10.04	$ 8.35	$ 11.03

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Note 13 - Stock-based Compensation - Stock-based Compensation Expense (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Stock-based compensation expense	$ 16,740	$ 11,893	$ 47,509	$ 32,368
Cost of Sales [Member]
Stock-based compensation expense	636	556	1,810	1,654
Research and Development Expense [Member]
Stock-based compensation expense	9,614	7,770	27,853	20,959
Selling and Marketing Expense [Member]
Stock-based compensation expense	3,702	2,247	10,185	6,048
General and Administrative Expense [Member]
Stock-based compensation expense	$ 2,788	$ 1,320	$ 7,661	$ 3,707

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Note 14 - Fair Value Measurements - Assets and Liabilities Carried at Fair Value on Recurring Basis (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Total fair value of assets	$ 330,115	$ 325,132
Convertible Notes	549,476	555,200
Fair Value, Inputs, Level 1 [Member]
Total fair value of assets	42	31
Convertible Notes
Fair Value, Inputs, Level 2 [Member]
Total fair value of assets	330,073	325,101
Convertible Notes	549,476	555,200
Money Market Funds [Member]
Cash equivalents	949	3,332
Money Market Funds [Member] | Fair Value, Inputs, Level 1 [Member]
Cash equivalents	42	31
Money Market Funds [Member] | Fair Value, Inputs, Level 2 [Member]
Cash equivalents	907	3,301
Commercial Paper [Member]
Cash equivalents	106,605	76,456
Investment in marketable securities	34,361	56,994
Commercial Paper [Member] | Fair Value, Inputs, Level 1 [Member]
Cash equivalents
Investment in marketable securities
Commercial Paper [Member] | Fair Value, Inputs, Level 2 [Member]
Cash equivalents	106,605	76,456
Investment in marketable securities	34,361	56,994
Municipal Bonds [Member]
Cash equivalents		999
Investment in marketable securities	12,491	27,657
Municipal Bonds [Member] | Fair Value, Inputs, Level 1 [Member]
Cash equivalents
Investment in marketable securities
Municipal Bonds [Member] | Fair Value, Inputs, Level 2 [Member]
Cash equivalents		999
Investment in marketable securities	12,491	27,657
Corporate Debt Securities [Member]
Cash equivalents		2,608
Investment in marketable securities	137,122	146,401
Corporate Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Cash equivalents
Investment in marketable securities
Corporate Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Cash equivalents		2,608
Investment in marketable securities	137,122	146,401
Variable Rate Demand Note [Member]
Investment in marketable securities	4,500	3,500
Variable Rate Demand Note [Member] | Fair Value, Inputs, Level 1 [Member]
Investment in marketable securities
Variable Rate Demand Note [Member] | Fair Value, Inputs, Level 2 [Member]
Investment in marketable securities	4,500	3,500
Asset-backed Securities [Member]
Investment in marketable securities	34,087	7,185
Asset-backed Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Investment in marketable securities
Asset-backed Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Investment in marketable securities	$ 34,087	$ 7,185

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Note 15 - Segment and Geographic Information (Details Textual) $ in Thousands	9 Months Ended
	Sep. 30, 2018 USD ($)	Dec. 31, 2017 USD ($)
Number of Reportable Segments	1
Non-US [Member]
Long-Lived Assets	$ 29,561	$ 8,695
TAIWAN, PROVINCE OF CHINA
Long-Lived Assets	$ 26,271	$ 4,647

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Note 15 - Segment and Geographic Information - Revenue by Geographic Region (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Revenue	$ 78,009	$ 84,511	$ 207,959	$ 262,518
CHINA
Revenue	31,723	20,435	70,710	80,990
UNITED STATES
Revenue	25,746	31,985	72,710	63,029
THAILAND
Revenue	10,687	14,447	26,807	38,185
Other Country [Member]
Revenue	$ 9,853	$ 17,644	$ 37,732	$ 80,314

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Note 16 - Commitments and Contingencies (Details Textual) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Operating Leases, Rent Expense, Net, Total	$ 1,142	$ 1,709	$ 4,590	$ 5,075
Value of Open Purchase Orders	9,030		9,030
Indemnification Agreement [Member]
Loss Contingency Accrual, Ending Balance	0		0		$ 0
Customers vs ClariPhy Communications Inc. [Member]
Litigation Settlement, Amount Awarded to Other Party			8,000
Amount Refunded from Escrow			4,875
Customers vs ClariPhy Communications Inc. [Member] | General and Administrative Expense [Member]
Gain (Loss) Related to Litigation Settlement, Total			(2,125)
Equipment and Software Licenses [Member]
Purchase Obligation, Total	1,339		1,339
Mask [Member]
Purchase Obligation, Total	$ 804		$ 804

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Note 16 - Commitments and Contingencies - Future Minimum Lease Payments Under Noncancelable Operating Leases (Details) $ in Thousands	Sep. 30, 2018 USD ($)
2018 (remaining)	$ 1,639
2019	5,553
2020	2,724
2021	1,967
2022	1,723
Thereafter	3,317
Total	$ 16,923