Netgear 2012 Annual Report Download - page 31

Table of Contents
to these risks as we continue to develop and market more products containing third-
party software, such as our TV connectivity, security and network
attached storage products.
If the redemption rate for our end-
user promotional programs is higher than we estimate, then our net revenue and gross margin will be
negatively affected.
From time to time we offer promotional incentives, including cash rebates, to encourage end-
users to purchase certain of our products.
Purchasers must follow specific and stringent guidelines to redeem these incentives or rebates. Often qualified purchasers choose not to apply for the
incentives or fail to follow the required redemption guidelines, resulting in an incentive redemption rate of less than 100%. Based on historical data,
we estimate an incentive redemption rate for our promotional programs. If the actual redemption rate is higher than our estimated rate, then our net
revenue and gross margin will be negatively affected.
If we are unable to secure and protect our intellectual property rights, our ability to compete could be harmed.
We rely upon third parties for a substantial portion of the intellectual property that we use in our products. At the same time, we rely on a
combination of copyright, trademark, patent and trade secret laws, nondisclosure agreements with employees, consultants and suppliers and other
contractual provisions to establish, maintain and protect our intellectual property rights. Despite efforts to protect our intellectual property,
unauthorized third parties may attempt to design around, copy aspects of our product design or obtain and use technology or other intellectual
property associated with our products. For example, one of our primary intellectual property assets is the NETGEAR name, trademark and logo. We
may be unable to stop third parties from adopting similar names, trademarks and logos, particularly in those international markets where our
intellectual property rights may be less protected. Furthermore, our competitors may independently develop similar technology or design around our
intellectual property. Our inability to secure and protect our intellectual property rights could significantly harm our brand and business, operating
results and financial condition.
Our sales and operations in international markets expose us to operational, financial and regulatory risks.
International sales comprise a significant amount of our overall net revenue. International sales were 48% of overall net revenue in fiscal 2012
and 52% of overall net revenue in fiscal 2011. We continue to be committed to growing our international sales and while we have committed
resources to expanding our international operations and sales channels, these efforts may not be successful. International operations are subject to a
number of other risks, including:
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• political and economic instability, international terrorism and anti-
American sentiment, particularly in emerging markets;
• potential for violations of anti-
corruption laws and regulations, such as those related to bribery and fraud;
•
preference for locally branded products, and laws and business practices favoring local competition;
•
exchange rate fluctuations;
•
increased difficulty in managing inventory;
•
delayed revenue recognition;
•
less effective protection of intellectual property;
•
stringent consumer protection and product compliance regulations, including but not limited to the Restriction of Hazardous Substances
directive, the Waste Electrical and Electronic Equipment directive and the recently enacted Ecodesign directive (EuP) in Europe that are
costly to comply with and may vary from country to country;
•
difficulties and costs of staffing and managing foreign operations;
•
business difficulties, including potential bankruptcy or liquidation, of any of our worldwide third party logistics providers; and
•
changes in local tax laws.