Netgear 2011 Annual Report Download - page 25

Table of Contents
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 2010 and 2011. 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 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.
Further, 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.
If we lose the services of our Chairman and Chief Executive Officer, Patrick C.S. Lo, or our other key personnel, we may not be able to
execute our business strategy effectively.
Our future success depends in large part upon the continued services of our key technical, sales, marketing, finance and senior management
personnel. In particular, the services of Patrick C.S. Lo, our Chairman and Chief Executive Officer, who has led our company since its inception,
are very important to our business. We do not maintain any key person life insurance policies. The loss of any of our senior management or other
key research, development, sales or marketing personnel, particularly if lost to competitors, could harm our ability to implement our business
strategy and respond to the rapidly changing needs of the commercial business, consumer, and service provider markets. While we have adopted
an emergency succession plan for the short term, we have not formally adopted a long term succession plan. As a result, if we suffer the loss of
services of any key executive, our long term business results may be harmed. In addition, because we do not have a formal long term succession
plan, we may not be able to have the proper personnel in place to effectively execute our long term business strategy if Patrick Lo or other key
personnel retire, resign or are otherwise terminated.
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 our 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. We may also choose to join defensive patent
aggregation services in order to prevent or settle litigation against such non-practicing entities and avoid the associated significant costs and
uncertainties of litigation. These patent aggregation services may obtain, or have previously obtained, licenses for the alleged patent
infringement claims against us and other patent assets that could be used offensively against us. The costs of such defensive patent aggregation
services, while potentially lower than the costs of litigation, may be
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