Netgear 2009 Annual Report Download - page 25

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Table of Contents
If we are unable to provide our third party manufacturers a timely and 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 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
not timely provided or are less than our actual requirements, our third party manufacturers may be unable to manufacture products in a timely
manner. If our forecasts are too high, our third party 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 third party
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 oversupply 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 rely upon third parties for technology that is critical to our products, and if we are unable to continue to use this technology and
future technology, our ability to develop, sell, maintain and support technologically innovative products would be limited.
We rely on third parties to obtain non-exclusive patented hardware and software license rights in technologies that are incorporated into
and necessary for the operation and functionality of most of our products. In these cases, because the intellectual property we license is available
from third parties, barriers to entry may be lower than if we owned exclusive rights to the technology we license and use. On the other hand, if a
competitor or potential competitor enters into an exclusive arrangement with any of our key third party technology providers, or if any of these
providers unilaterally decide not to do business with us for any reason, our ability to develop and sell products containing that technology would
be severely limited. If we are shipping products which contain third party technology that we subsequently lose the right to license, then we will
not be able to continue to offer or support those products. Our licenses often require royalty payments or other consideration to third parties. Our
success will depend in part on our continued ability to have access to these technologies, and we do not know whether these third party
technologies will continue to be licensed to us on commercially acceptable terms or at all. If we are unable to license the necessary technology,
we may be forced to acquire or develop alternative technology of lower quality or performance standards. This would limit and delay our ability
to offer new or competitive products and increase our costs of production. As a result, our margins, market share, and operating results could be
significantly harmed.
We also utilize third party software development companies to develop, customize, maintain and support software that is incorporated into
our products. If these companies fail to timely deliver or continuously maintain and support the software that we require of them, we may
experience delays in releasing new products or difficulties with supporting existing products and customers. In addition, if these third parties
licensors fail, then we may be unable to continue to sell products that incorporate the licensed technologies and we may be unable to continue to
maintain and support these 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.
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