Netgear 2010 Annual Report Download - page 21

Table of Contents
Because our expenses are based on our revenue forecasts, a substantial reduction or delay in sales of our products to, or unexpected returns
from, customers and resellers, or the loss of any significant customer or reseller, could harm or otherwise disrupt our business. Although our
largest customers may vary from period to period, we anticipate that our operating results for any given period will continue to depend on large
orders from a small number of customers.
We are currently involved in numerous litigation matters and may in the future become involved in additional litigation, including
litigation regarding intellectual property rights, which could be costly and subject us to significant liability.
The networking industry is characterized by the existence of a large number of patents and frequent claims and related litigation regarding
infringement of patents, trade secrets and other intellectual property rights. In particular, leading companies in the data communications markets,
some of which are competitors, have extensive patent portfolios with respect to networking technology. From time to time, third parties,
including these leading companies, have asserted and may continue to assert exclusive patent, copyright, trademark and other intellectual
property rights against us demanding license or royalty payments or seeking payment for damages, injunctive relief and other available legal
remedies through litigation. These also include third-party non-practicing entities who claim to own patents or other intellectual property that
cover industry standards that our products comply with. If we are unable to resolve these matters or obtain licenses on acceptable or
commercially reasonable terms, we could be sued or we may be forced to initiate litigation to protect our rights. The cost of any necessary
licenses could significantly harm our business, operating results and financial condition. Also, at any time, any of these companies, or any other
third-party could initiate litigation against us, or we may be forced to initiate litigation against them, which could divert management attention,
be costly to defend or prosecute, prevent us from using or selling the challenged technology, require us to design around the challenged
technology and cause the price of our stock to decline. In addition, third parties, some of whom are potential competitors, have initiated and may
continue to initiate litigation against our manufacturers, suppliers, members of our sales channels or our service provider customers, alleging
infringement of their proprietary rights with respect to existing or future products. In the event successful claims of infringement are brought by
third parties, and we are unable to obtain licenses or independently develop alternative technology on a timely basis, we may be subject to
indemnification obligations, be unable to offer competitive products, or be subject to increased expenses. Finally, consumer class-
action lawsuits
related to the marketing and performance of our home networking products have been asserted and may in the future be asserted against us. For
additional information regarding certain of the lawsuits in which we are involved, see the information set forth under Note 9 of the Notes to
Consolidated Financial Statements in Part II Item 8 of this report, which information is incorporated into this Item 1A by reference. If we do not
resolve these claims on a favorable basis, our business, operating results and financial condition could be significantly harmed.
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.
Traditional retailers have limited shelf space and promotional budgets, and competition is intense for these resources. If the networking
sector does not experience sufficient growth, retailers may choose to allocate more shelf space to other consumer product sectors. A competitor
with more extensive product lines and stronger brand identity, such as Cisco Systems, may have greater bargaining power with these retailers.
Any reduction in available shelf space or increased competition for such shelf space would require us to increase our marketing expenditures
simply to maintain current levels of retail shelf space, which would harm our operating margin. The recent trend in the consolidation of online
retailers and DMR channels has resulted in intensified competition for
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