Netgear 2013 Annual Report Download - page 34

Table of Contents
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
EuP, they may cease to order our products and our revenue would be harmed.
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, the value of our cash equivalents and short-
term investments could decline and result in a material impairment,
which could have a material adverse effect on our financial condition and operating results.
Economic conditions, political events, war, terrorism, public health issues, natural disasters and other circumstances could materially adversely
affect us.
Our corporate headquarters are located in Northern California and one of our warehouses is located in Southern California, both of which are
regions known for seismic activity. Significantly all of our critical enterprise-
wide information technology systems, including our main servers, are
currently housed in colocation facilities in Mesa, Arizona. While our critical information technology systems are located at colocation facilities in a
different geographic region in the United States, our headquarters and warehouses remain susceptible to seismic activity so long as they are located in
California. In addition, substantially all of our manufacturing occurs in two geographically concentrated areas in mainland China, where disruptions
from natural disasters, health epidemics and political, social and economic instability may affect the region. If our manufacturers or warehousing
facilities are disrupted or destroyed, we would be unable to distribute our products on a timely basis, which could harm our business.
We depend significantly on worldwide economic conditions and their impact on consumer spending levels, which have recently deteriorated
significantly in many countries and regions, including without limitation the United States, and may remain depressed for the foreseeable future. Factors
that could influence the levels of consumer spending include increases in fuel and other energy costs, conditions in the residential real estate and
mortgage markets, labor and healthcare costs, access to credit, consumer confidence and other macroeconomic factors affecting consumer spending
behavior.
In addition, war, terrorism, geopolitical uncertainties, public health issues, and other business interruptions have caused and could cause damage or
disruption to international commerce and the global economy, and thus could have a strong negative effect on us, our suppliers, logistics providers,
manufacturing vendors and customers. Our business operations are subject to interruption by natural disasters, fire, power shortages, terrorist attacks,
and other hostile acts, labor disputes, public health issues, and other events beyond our control. For example, labor disputes at manufacturing facilities in
China occurred in 2010 and have led to workers going on strike. The recent trend of labor unrest could materially affect our third-
party manufacturers'
abilities to manufacture our products. In addition, all of our major direct and indirect suppliers of hard disk drives have been affected by record flooding
in Thailand in the third fiscal quarter of 2011, and they informed us that our supply chain would be constrained for an indefinite amount of time, up to
six months in some cases. Some therefore declared a force majeure event and have stated that, in addition to and because of the supply constraints,
pricing for hard disk drives would increase significantly until they were able to stabilize the situation. As a result, we experienced increased prices in the
cost of hard disk drives and ceased accepting any orders containing ReadyNAS products with hard disk drives. In addition, all sales and marketing
promotions involving ReadyNAS products were terminated temporarily. Further, we declared the existence of a force majeure event under our contracts
with certain customers. Accordingly, our business was harmed. Furthermore, earthquakes and resultant nuclear threats and tsunamis in Japan
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