Netgear 2010 Annual Report Download - page 22

Table of Contents
preferred product placement, such as product placement on an online retailer’s Internet home page. Expanding our presence in the VAR channel
may be difficult and expensive. We compete with established companies that have longer operating histories and longstanding relationships with
VARs that we would find highly desirable as sales channel partners. We also sell products to broadband service providers. Competition for
selling to broadband service providers is intense. Penetrating service provider accounts typically involves a long sales cycle and the challenge of
displacing incumbent suppliers with established relationships and field-deployed products. If we were unable to maintain and expand our sales
channels, our growth would be limited and our business would be harmed.
We must also continuously monitor and evaluate emerging sales channels. If we fail to establish a presence in an important developing
sales channel, our business could be harmed.
We depend on a limited number of third-party manufacturers for substantially all of our manufacturing needs. If these third-party
manufacturers experience any delay, disruption or quality control problems in their operations, we could lose market share and our
brand may suffer.
All of our products are manufactured, assembled, tested and generally packaged by a limited number of original design manufacturers
(“ODMs”) and original equipment manufacturers (“OEMs”). We rely on our manufacturers to procure components and, in some cases,
subcontract engineering work. Some of our products are manufactured by a single manufacturer. We do not have any long-term contracts with
any of our third-party manufacturers. Some of these third-party manufacturers produce products for our competitors. Due to weak economic
conditions, the viability of some of these third-party manufacturers may be at risk. The loss of the services of any of our primary third-party
manufacturers could cause a significant disruption in operations and delays in product shipments. Qualifying a new manufacturer and
commencing volume production is expensive and time consuming. As we contemplate moving manufacturing into different jurisdictions, we
will be subject to additional significant challenges in ensuring that quality, processes and costs, among other issues, are consistent with our
expectations.
Our reliance on third-party manufacturers also exposes us to the following risks over which we have limited control:
All of our products must satisfy safety and regulatory standards and some of our products must also receive government certifications. Our
ODMs and OEMs 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.
Specifically, substantially all of our manufacturing occurs in mainland China and any disruptions from natural disasters, health epidemics
and political, social and economic instability would affect the ability of our ODMs to manufacture our products. In addition, our ODM’s in
China have continued to increase our costs of production, particularly in the recent year. These increased costs have affected our margins and
ability to lower prices for our products to stay competitive. Recent labor unrest in China may also affect our ODMs as workers may strike and
cause production delays. If our manufacturers or warehousing facilities are disrupted or destroyed, we would have no other readily available
alternatives for manufacturing our products and our business would be significantly harmed. Further, if the ODMs and OEMs fail to maintain
good relations with their employees or contractors, and production and manufacturing of our products is affected, then we may be subject to
shortages of products and quality of products delivered may be affected.
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unexpected increases in manufacturing and repair costs;
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inability to control the quality of finished products;
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inability to control delivery schedules;
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potential lack of adequate capacity to manufacture all or a part of the products we require; and
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potential labor unrest affecting the ability of the third
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party manufacturers to produce our products.