Netgear 2012 Annual Report Download - page 24

Table of Contents
We rely on a limited number of retailers, wholesale distributors and service provider customers for a substantial portion of our sales, and
our net revenue could decline if they refuse to pay our requested prices or reduce their level of purchases or if there is significant
consolidation in our customer base which results in less customers to sell our products.
We sell a substantial portion of our products through retailers, including Best Buy Co., Inc. and its affiliates, and wholesale distributors,
including Ingram Micro, Inc. and Tech Data Corporation. We expect that a significant portion of our net revenue will continue to come from sales to
a small number of retailers and wholesale distributors for the foreseeable future. In addition, because our accounts receivable are often concentrated
with a small group of purchasers, the failure of any of them to pay on a timely basis, or at all, would reduce our cash flow. We are also exposed to
increased credit risk if any one of these limited numbers of retailers and wholesale distributors fails or becomes insolvent. We generally have no
minimum purchase commitments or long-
term contracts with any of these retailers or distributors. These purchasers could decide at any time to
discontinue, decrease or delay their purchases of our products. If our retailers or wholesale distributors increase the size of their product orders
without sufficient lead-
time for us to process the order, our ability to fulfill product demands would be compromised. These customers have a variety
of suppliers to choose from and therefore can make substantial demands on us, including demands on product pricing and on contractual terms,
which often results in the allocation of risk to us as the supplier. Accordingly, the prices that they pay for our products are subject to negotiation and
could change at any time. Our ability to maintain strong relationships with our principal customers is essential to our future performance. If any of
our major retailers or wholesale distributors reduce their level of purchases or refuse to pay the prices that we set for our products, our net revenue
and operating results could be harmed. Our traditional retail customers have faced increased and significant competition from online retailers, and
some of these traditional retail customers have increasingly become a smaller portion of our business. If key retail customers continue to reduce their
level of purchases, our business could be harmed.
Additionally, if there is consolidation among our customer base, certain customers may be able to command increased leverage in negotiating
prices and other terms of sale, which could adversely affect our profitability. In addition, if, as a result of increased leverage, customer pressures
require us to reduce our pricing such that our gross margins are diminished, we could decide not to sell our products to a particular customer, which
could result in a decrease in our revenue. Consolidation among our customer base may also lead to reduced demand for our products, replacement of
our products with those of our competitors and cancellations of orders, each of which would harm our operating results. Consolidation among our
service providers customers worldwide may also make it more difficult to grow our service provider business, given the fierce competition for the
already limited number of service providers worldwide and the long sales cycles to close deals. For example, Liberty Global, a service provider with
operations worldwide, announced in February 2013 that it is entering into an agreement to acquire Virgin Media Limited, one of our significant
customers. Because we have not conducted business with Liberty Global in the past, Virgin Media may be directed by Liberty Global to develop
relationships and business with other Liberty Global vendors, many of which are our competitors. If consolidation among our customer base becomes
more prevalent, our operating results may be harmed.
We depend on large, recurring purchases from certain significant customers, and a loss, cancellation or delay in purchases by these
customers could negatively affect our revenue.
The loss of recurring orders from any of our more significant customers could cause our revenue and profitability to suffer. Our ability to attract
new customers will depend on a variety of factors, including the cost-
effectiveness, reliability, scalability, breadth and depth of our products. In
addition, a change in the mix of our customers, or a change in the mix of direct and indirect sales, could adversely affect our revenue and gross
margins.
Although our financial performance may depend on large, recurring orders from certain customers and resellers, we do not generally have
binding commitments from them. For example:
Further, our revenue may be impacted by significant one-
time purchases which are not contemplated to be repeatable. While such purchases are
reflected in our financial statements, we do not rely on and do not forecast for continued significant one-
time purchases. As a result, lack of
repeatable one-time purchases will adversely affect our revenue.
Because our expenses are based on our revenue forecasts, a substantial reduction or delay in sales of our products to, or unexpected returns
from, customers and resellers, or the loss of any significant customer or reseller, could harm or otherwise
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our reseller agreements generally do not require substantial minimum purchases;
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our customers can stop purchasing and our resellers can stop marketing our products at any time; and
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our reseller agreements generally are not exclusive.