Netgear 2009 Annual Report Download - page 20

Table of Contents
announced a voluntary recall of the XE103 Powerline Ethernet Adapter made for Europe and other countries using 220-240 volt power sources
and sold individually or in a bundled kit. In addition, certain of our contracts include epidemic failure clauses. If invoked, these clauses may
entitle the customer to return for replacement or obtain credits for products and inventory, as well as terminate an existing contract and cancel
future purchase orders. In such instances, we may also be obligated to cover significant costs incurred by the customer associated with the
consequences of such epidemic failure, including freight and transportation required for product replacement. Costs or payments we make in
connection with an epidemic failure may materially adversely affect our results of operations and financial condition. If our products contain
defects or errors, or are found to be noncompliant with industry standards, we could experience decreased sales and increased product returns,
loss of customers and market share, and increased service, warranty and insurance costs. In addition, our reputation and brand could be damaged,
and we could face legal claims regarding our products. A product liability or other claim could result in negative publicity and harm our
reputation, resulting in unexpected expenses and adversely impact our operating results. For instance, if a third party were able to successfully
overcome the security measures in our products, such a person or entity could misappropriate customer data, third party data stored by our
customers and other information, including intellectual property. In addition, the operations of our end-
user customers may be interrupted. If that
happens, affected end-users or others may file actions against us alleging product liability, tort, or breach of warranty claims.
If we fail to continue to introduce new products that achieve broad market acceptance on a timely basis, we will not be able to compete
effectively and we will be unable to increase or maintain net revenue and gross margins.
We operate in a highly competitive, quickly changing environment, and our future success depends on our ability to develop and introduce
new products that achieve broad market acceptance in the small business and home markets. Our future success will depend in large part upon
our ability to identify demand trends in the small business and home markets and quickly develop, manufacture and sell products that satisfy
these demands in a cost effective manner. Successfully predicting demand trends is difficult, and it is very difficult to predict the effect
introducing a new product will have on existing product sales. We will also need to respond effectively to new product announcements by our
competitors by quickly introducing competitive products.
We have experienced delays and quality issues in releasing new products in the past, which resulted in lower quarterly net revenue than
expected. In addition, we have experienced, and may in the future experience, product introductions that fall short of our projected rates of
market adoption. Any future delays in product development and introduction or product introductions that do not meet broad market acceptance
could result in:
We depend substantially on our sales channels, and our failure to maintain and expand our sales channels would result in lower sales
and reduced net revenue.
To maintain and grow our market share, net revenue and brand, we must maintain and expand our sales channels. We sell our products
through our sales channels, which consists of traditional retailers, online retailers, DMRs, VARs, and broadband service providers. Some of
these entities purchase our products through our wholesale distributors. We generally have no minimum purchase commitments or long-term
contracts with any of these third parties.
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loss of or delay in revenue and loss of market share;
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negative publicity and damage to our reputation and brand;
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a decline in the average selling price of our products;
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adverse reactions in our sales channels, such as reduced shelf space, reduced online product visibility, or loss of sales channel; and
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increased levels of product returns.