content_image/1049468.jpg
## ANALOG DEVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 

<img src='content_image/1049468.jpg'>

## k. Use of Estimates 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingencies at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Such estimates relate to the useful lives of fixed assets and identified intangible assets; allowances for doubtful accounts and customer returns; the net realizable value of inventory; potential reserves relating to litigation matters; accrued liabilities, including estimates of variable consideration related to distributor sales; accrued taxes; uncertain tax positions; deferred tax valuation allowances; assumptions pertaining to stock-based compensation payments and defined benefit plans; and fair value of acquired assets and liabilities, including inventory, property, plant and equipment, goodwill, and acquired intangibles; and other reserves. Actual results could differ from those estimates and such differences may be material to the financial statements. 

## l. Concentrations of Risk 

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of investments and trade accounts receivable. 

The Company maintains cash and cash equivalents with high credit quality counterparties, continuously monitors the amount of credit exposure to any one issuer and diversifies its investments in order to minimize its credit risk. 

The Company sells its products to distributors and original equipment manufacturers (OEMs) involved in a variety of industries including industrial, communications, automotive and consumer end markets. The Company has adopted credit policies and standards to accommodate growth in these markets. The Company performs continuing credit evaluations of its customers’ financial condition and although the Company generally does not require collateral, the Company may require letters of credit from customers in certain circumstances. The Company provides reserves for estimated amounts of accounts receivable that may not be collected. 

The Company's largest customer, which is a distributor rather than an end customer, accounted for approximately 29%, 30%, and 28% of net revenues in fiscal 2020, fiscal 2019 and fiscal 2018, respectively. The Company's next largest customer, which is also a distributor, accounted for approximately 10% of net revenues in fiscal 2019. This next largest customer accounted for less than 10% of net revenues in fiscal 2020 and fiscal 2018. No other customer accounted for greater than 10% of revenue in any period presented. 

## m. Concentration of Other Risks 

The semiconductor industry is characterized by rapid technological change, competitive pricing pressures and cyclical market patterns. The Company’s financial results are affected by a wide variety of factors, including general economic conditions worldwide, economic conditions specific to the semiconductor industry, the timely implementation of new manufacturing technologies, the ability to safeguard patents and intellectual property in a rapidly evolving market and reliance on assembly and test subcontractors, third-party wafer fabricators and independent distributors. In addition, the semiconductor market has historically been cyclical and subject to significant economic downturns at various times. The Company is exposed to the risk of obsolescence of its inventory depending on the mix of future business. Additionally, a large portion of the 

