Netgear 2011 Annual Report Download - page 32

Table of Contents
In the second fiscal quarter of 2011, in connection with our reorganization into three specific business units (retail, commercial, and service
provider), we allocated goodwill to each business unit and evaluated those allocations for potential impairment. No impairment existed as of the
end of the second fiscal quarter of 2011. In the fourth fiscal quarter of 2011, we completed our annual impairment test of goodwill and
determined no impairment existed as of December 31, 2011. We will continue to test goodwill for impairment at least annually at the business
unit level. The allocation of goodwill may have greater impact for certain of the business segments, as compared to the other segments.
Accordingly, the performance of a business unit may be adversely affected by the allocation of goodwill.
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 into certain markets may be lower for potential or existing competitors than if we owned exclusive rights to
the technology that we license and use. Moreover, 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 that 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. In addition, these licenses
often require royalty payments or other consideration to the third party licensor. Our success will depend, in part, on our continued ability to
access these technologies, and we do not know whether these third-party technologies will continue to be licensed to us on commercially
acceptable terms, if 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, which 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, as 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-party
licensors fail, then
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