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REVENUE

9 Months Ended

Sep. 30, 2020

NOTE 3. REVENUE

Revenue Recognition

We recognize revenue when we have satisfied our performance obligations which typically occurs when control of the products or services has been transferred to our customers. The transaction price is based upon the standalone selling price. In most transactions, we have no obligations to our customers after the date products are shipped, other than pursuant to warranty obligations. Shipping and handling fees billed to customers, if any, are recognized as revenue. The related shipping and handling costs are recognized in cost of sales. Support services include warranty and non-warranty repair services, upgrades, and refurbishments on the products we sell. Repairs that are covered under our standard warranty do not generate revenue.

Practical Expedients

We expense incremental costs of obtaining contracts when the amortization period of the costs is less than one year. These costs are included in selling, general, and administrative expenses.

Nature of goods and services

Products

Advanced Energy provides highly engineered, mission-critical, precision power conversion, measurement, and control solutions to our global customers. We design, manufacture, sell and support precision power products that transform electrical power into various usable forms. Our power conversion products refine, modify, and control the raw electrical power from a utility and convert it into power that is predictable, repeatable and customizable. Our products enable thin film manufacturing processes such as plasma enhanced chemical and physical deposition and etch for various semiconductor and industrial products, industrial thermal applications for material and chemical processes, and specialty power for critical industrial technology applications. We also supply thermal instrumentation products for advanced temperature measurement and control in these markets. As a result of the Artesyn acquisition, we now sell precision power conversion products into the telecom and networking, data center, including hyperscale, and new medical and industrial markets.

Our products are designed to enable new process technologies, improve productivity, and lower the cost of ownership for our customers. We also provide repair and maintenance services for all our products. We principally serve original equipment manufacturers ("OEM") and end customers in the semiconductor, flat panel display, high voltage, solar panel, telecom and networking, data center, medical, and other industrial capital equipment markets. Our advanced power products are used in diverse markets, applications, and processes including the manufacture of capital equipment for semiconductor device manufacturing, thin film applications for thin film renewables and architectural glass, and for other thin film applications including flat panel displays, and industrial coatings. Our embedded power products are used in a wide range of applications, including 5G, datacenter including hyperscale and other industrial and medical applications.

Services

Our services group offers warranty and after-market repair services in the regions in which we operate, providing us with preventive maintenance opportunities. Our customers continue to pursue low cost of ownership of their capital equipment and are increasingly sensitive to the costs of system downtime. They expect that suppliers offer comprehensive local repair service and customer support. To meet these market requirements, we maintain a worldwide support organization comprising both direct and indirect activities, through partnership with local distributors, primarily in the United States ("U.S."), the People’s Republic of China ("PRC"), Japan, South Korea, Taiwan, Malaysia, Israel, Philippines, Germany, Singapore and United Kingdom.

As part of our ongoing service business, we satisfy our service obligations under preventative maintenance contracts and extended warranties which had previously been offered on our discontinued inverter products. Any up-front fees received for extended warranties or maintenance plans are deferred. Revenue under these arrangements is recognized ratably over the underlying terms as we do not have historical information which would allow us to project the estimated service usage pattern at this time.

In May 2019, we sold our grid-tied central inverter repair and service operation to a third party. In connection with this sale, approximately $22.0 million of deferred revenue related to extended warranties and service contracts were transferred to the buyer. See Note 4. Disposed and Discontinued Operations for additional information in relation to this sale. We have deferred revenue related to our extended warranties and service contracts totaling $8.7 million as of September 30, 2020 and $9.2 million as of December 31, 2019. We are expected to recognize between $0.2 million and $1.1 million per year in revenue through year 2031.

Disaggregation of Revenue

The following table presents our sales by product line, inclusive of both products and services, which includes certain reclassification to prior comparative periods to conform to our current year presentation:


		Three Months Ended September 30,						Nine Months Ended September 30,
		2020			2019			2020			2019
Semiconductor Equipment		$	167,058		$	96,426		$	446,107		$	277,911
Industrial & Medical			87,013			55,187			219,877			149,255
Data Center Computing			87,741			13,498			257,240			13,498
Telecom & Networking			47,709			10,016			121,633			10,016
Total		$	389,521		$	175,127		$	1,044,857		$	450,680

The following table presents our sales by geographic region:


		Three Months Ended September 30,						Nine Months Ended September 30,
		2020			2019			2020			2019
North America		$	190,629		$	83,632		$	504,719		$	203,531
Asia			180,660			66,157			462,388			175,554
Europe			17,886			25,008			76,070			70,526
Other			346			330			1,680			1,069
Total		$	389,521		$	175,127		$	1,044,857		$	450,680

The following table presents our net sales by extended warranty and service contracts recognized over time and our product and service revenue recognized at a point in time:


		Three Months Ended September 30,						Nine Months Ended September 30,
		2020			2019			2020			2019
Product and service revenue recognized at point in time		$	389,306		$	174,827		$	1,044,255		$	448,964
Extended warranty and service contracts recognized over time			215			300			602			1,716
Total		$	389,521		$	175,127		$	1,044,857		$	450,680