Netgear 2004 Annual Report Download - page 46

Download and view the complete annual report

Please find page 46 of the 2004 Netgear annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 110

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110

Table of Contents
our products are manufactured by a single contract manufacturer. We do not have any long-term contracts with any of our third-party
contract manufacturers. Some of these third-party contract manufacturers produce products for our competitors. The loss of the
services of any of our primary third-party contract manufacturers could cause a significant disruption in operations and delays in
product shipments. Qualifying a new contract manufacturer and commencing volume production is expensive and time consuming.
Our reliance on third-party contract manufacturers also exposes us to the following risks over which we have limited control:
•
unexpected increases in manufacturing and repair costs;
•
inability to control the quality of finished products;
•
inability to control delivery schedules;and
•
potential lack of adequate capacity to manufacture all or a part of the products we require.
All of our products must satisfy safety and regulatory standards and some of our products must also receive government
certifications. Our ODM and OEM contract manufacturers are primarily responsible for obtaining most regulatory approvals for our
products. If our ODMs and OEMs fail to obtain timely domestic or foreign regulatory approvals or certificates, we would be unable to
sell our products and our sales and profitability could be reduced, our relationships with our sales channel could be harmed, and our
reputation and brand would suffer.
If we are unable to provide our third-party contract manufacturers an accurate forecast of our component and material requirements,
we may experience delays in the manufacturing of our products and the costs of our products may increase.
We provide our third-party contract manufacturers with a rolling forecast of demand, which they use to determine our material and
component requirements. Lead times for ordering materials and components vary significantly and depend on various factors, such as
the specific supplier, contract terms and demand and supply for a component at a given time. Some of our components have long lead
times, such as wireless local area network chipsets, switching fabric chips, physical layer transceivers, connector jacks and metal and
plastic enclosures. If our forecasts are less than our actual requirements, our contract manufacturers may be unable to manufacture
products in a timely manner. If our forecasts are too high, our contract manufacturers will be unable to use the components they have
purchased on our behalf. The cost of the components used in our products tends to drop rapidly as volumes increase and the
technologies mature. Therefore, if our contract manufacturers are unable to promptly use components purchased on our behalf, our
cost of producing products may be higher than our competitors due to an over supply of higher-priced components. Moreover, if they
are unable to use components ordered at our direction, we will need to reimburse them for any losses they incur.
We obtain several key components from limited or sole sources, and if these sources fail to satisfy our supply requirements, we may
lose sales and experience increased component costs.
Any shortage or delay in the supply of key product components would harm our ability to meet scheduled product deliveries. Many
of the semiconductors used in our products are specifically designed for use in our products and are obtained from sole source
suppliers on a purchase order basis. In addition, some components that are used in all our products are obtained from limited sources.
These components include connector jacks, plastic casings and physical layer transceivers. We also obtain switching fabric
semiconductors, which are used in our Ethernet switches and Internet gateway products, and wireless local area network chipsets,
which are used in all of our wireless products, from a limited number of suppliers. Our contract manufacturers purchase these
components on our behalf on a purchase order basis, and we do not have any contractual commitments or guaranteed supply
arrangements with our suppliers. If demand for a specific component increases, we may not be able to obtain an adequate number of
that component in a timely manner. In addition, if our suppliers experience financial or other difficulties or if worldwide demand for the
components they provide increases significantly, the availability of these components could be limited. It could be difficult, costly and
time-
32
2005. EDGAR Online, Inc.