Netgear 2011 Annual Report Download - page 23

Table of Contents
our principal customers is essential to our future performance. If any of our major retailers or wholesale distributors reduce their level of
purchases or refuse to pay the prices that we set for our products, our net revenue and operating results could be harmed. If our retailers or
wholesale distributors increase the size of their product orders without sufficient lead-time for us to process the order, our ability to fulfill
product demands would be compromised.
Additionally, if there is consolidation among our customer base, certain customers may be able to command increased leverage in
negotiating prices and other terms of sale, which could adversely affect our profitability. In addition, if, as a result of increased leverage,
customer pressures require us to reduce our pricing such that our gross margins are diminished, we could decide not to sell our products to a
particular customer, which could result in a decrease in our revenue. Consolidation among our customer base may also lead to reduced demand
for our products, replacement of our products with those of our competitors and cancellations of orders, each of which would harm our operating
results.
We depend on large, recurring purchases from certain significant customers, and a loss, cancellation or delay in purchases by these
customers could negatively affect our revenue.
The loss of recurring orders from any of our more significant customers could cause our revenue and profitability to suffer. Our ability to
attract new customers will depend on a variety of factors, including the cost-effectiveness, reliability, scalability, breadth and depth of our
products. In addition, a change in the mix of our customers, or a change in the mix of direct and indirect sales, could adversely affect our revenue
and gross margins. During the year ended December 31, 2011, sales to Best Buy and its affiliates accounted for approximately 11% of our net
revenue and sales to Ingram Micro and its affiliates accounted for approximately 10% of our net revenue. During the year ended December 31,
2010, sales to Best Buy and its affiliates accounted for approximately 15% of our net revenue and sales to Ingram Micro and its affiliates
accounted for approximately 11% of our net revenue. While these customers each accounted for approximately 10% or greater than 10% of our
net revenue during the year ended December 31, 2011, there is no assurance that either of them will continue to purchase our products at the
same rate for any future periods.
Although our financial performance may depend on large, recurring orders from certain customers and resellers, we do not generally have
binding commitments from them. For example:
Further, our revenue may be impacted by significant one-time purchases which are not contemplated to be repeatable, such as the one-time
approximately $10 million dollar order from a service provider customer in the second fiscal quarter of 2011. While such purchases are reflected
in our financial statements, we do not rely on and do not forecast for continued significant one-time purchases. As a result, lack of repeatable
one-time purchases will adversely affect our revenue.
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 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. Our sales channels
consist of traditional retailers, online retailers, DMRs, VARs, and broadband
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our reseller agreements generally do not require substantial minimum purchases;
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our customers can stop purchasing and our resellers can stop marketing our products at any time; and
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our reseller agreements generally are not exclusive.