Netgear 2012 Annual Report Download - page 32

Table of Contents
While we believe we generally have good relations with our employees, employees in certain jurisdictions have rights which give them certain
collective rights. If management must expend significant resources and effort to address and comply with these rights, our business may be harmed.
We are also required to comply with local environmental legislation and our customers rely on this compliance in order to sell our products. If our
customers do not agree with our interpretations and requirements of new legislation, such as the European Ecodesign directive (EuP), they may cease
to order our products and our revenue would be harmed.
We are expanding our operations and infrastructure, which may strain our operations and increase our operating expenses.
We are expanding our operations and pursuing market opportunities both domestically and internationally in order to grow our sales. We expect
that this expansion will require enhancements to our existing management information systems, and operational and financial controls. In addition, if
we continue to grow, our expenditures will likely be significantly higher than our historical costs. We may not be able to install adequate controls in
an efficient and timely manner as our business grows, and our current systems may not be adequate to support our future operations. The difficulties
associated with installing and implementing new systems, procedures and controls may place a significant burden on our management, operational
and financial resources. In addition, if we grow internationally, we will have to expand and enhance our communications infrastructure. In the second
fiscal quarter of 2011, we reorganized our business into three business units: retail, commercial, and service provider. Our reorganization into three
business units may cause significant distraction to our management and employees. For example, channel and pricing conflicts may arise in certain
territories as each of our business units may engage in selling activities which may benefit that business unit at the expense of another business unit.
In addition, disclosures of previously non-
public information in connection with our reorganization may also provide our competitors with strategic
data which may put us at a competitive disadvantage and harm our business. These new disclosures about our performance may also cause our stock
price to decline. As part of this expansion and reorganization, we have also commenced utilizing an alternative customer support model for certain of
our end user technical support services. This alternative model permits a customer support agent to attempt to sell additional services and/or products
to an end user who calls for technical support. If we are unable to successfully manage this alternative model, our end user customers may become
frustrated with the customer experience and cease purchasing our products, and our business would be harmed. If we fail to continue to improve our
management information systems, procedures and financial controls or encounter unexpected difficulties during expansion and reorganization, our
business could be harmed.
For example, we have invested, and will continue to invest, significant capital and human resources in the design and enhancement of our
financial and enterprise resource planning systems, which may be disruptive to our underlying business. We depend on these systems in order to
timely and accurately process and report key components of our results of operations, financial position and cash flows. If the systems fail to operate
appropriately or we experience any disruptions or delays in enhancing their functionality to meet current business requirements, our ability to fulfill
customer orders, bill and track our customers, fulfill contractual obligations, accurately report our financials and otherwise run our business could be
adversely affected. Even if we do not encounter these adverse effects, the enhancement of systems may be much more costly than we anticipated. If
we are unable to continue to enhance our information technology systems as planned, our financial position, results of operations and cash flows
could be negatively impacted.
Governmental regulations of imports or exports affecting Internet security could affect our net revenue.
Any additional governmental regulation of imports or exports or failure to obtain required export approval of our encryption technologies could
adversely affect our international and domestic sales. The United States and various foreign governments have imposed controls, export license
requirements, and restrictions on the import or export of some technologies, particularly encryption technology. In addition, from time to time,
governmental agencies have proposed additional regulation of encryption technology, such as requiring the escrow and governmental recovery of
private encryption keys. In response to terrorist activity, governments could enact additional regulation or restriction on the use, import, or export of
encryption technology. This additional regulation of encryption technology could delay or prevent the acceptance and use of encryption products and
public networks for secure communications, resulting in decreased demand for our products and services. In addition, some foreign competitors are
subject to less stringent controls on exporting their encryption technologies. As a result, they may be able to compete more effectively than we can in
the United States and the international Internet security market.
We are exposed to credit risk and fluctuations in the market values of our investment portfolio.
Although we have not recognized any material losses on our cash equivalents and short-
term investments, future declines in their market values
could have a material adverse effect on our financial condition and operating results. Given the global nature of our business, we have investments
with both domestic and international financial institutions. Accordingly, we face exposure to fluctuations in interest rates, which may limit our
investment income. If these financial institutions default on their obligations or their credit ratings are negatively impacted by liquidity issues, credit
deterioration or losses, financial results, or other factors,
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