Netgear 2012 Annual Report Download - page 39

Table of Contents
You should read the following discussion of our financial condition and results of operations together with the audited consolidated financial
statements and notes to the financial statements included elsewhere in this Form 10-K. This discussion contains forward-
looking statements that
involve risks and uncertainties. The forward-
looking statements are not historical facts, but rather are based on current expectations, estimates,
assumptions and projections about our industry, business and future financial results. Our actual results could differ materially from the results
contemplated by these forward-looking statements due to a number of factors, including those discussed under “Risk Factors”
in Part I, Item 1A
above.
Business and Executive Overview
We are a global networking company that delivers innovative products to consumers, businesses and service providers. Our products are built
on a variety of proven technologies such as wireless, Ethernet and powerline, with a focus on reliability and ease-of-
use. Our product line consists of
wired and wireless devices that enable networking, broadband access and network connectivity. These products are available in multiple
configurations to address the needs of our end-users in each geographic region in which our products are sold.
We operate in three specific business segments: retail, commercial, and service provider. The retail business unit consists of high performance,
dependable and easy-to-
use home networking, home monitoring, storage and digital media products to connect consumers with the Internet and their
content and devices. The commercial business unit consists of business networking, storage and security solutions without the cost and complexity of
Big IT. The service provider business unit consists of made-to-
order and retail proven, whole home networking solutions sold to service providers for
sale to their customers. We conduct business across three geographic regions: Americas, Europe, Middle-East and Africa (“EMEA”)
and Asia Pacific
(“APAC”).
We sell our networking products through multiple sales channels worldwide, including traditional retailers, online retailers, wholesale
distributors, direct market resellers (“DMRs”), value-added resellers (“VARs”),
and broadband service providers. Our retail channel includes
traditional retail locations domestically and internationally, such as Apple Stores, Best Buy, Costco, Fry’s Electronics, K-
mart, MicroSoft Stores,
Radio Shack, Sears, Staples, Target, Wal-
Mart, Argos (U.K.), Dixons (U.K.), PC World (U.K.), MediaMarkt (Germany, Austria), Dick Smith
(Australia), JB HiFi (Australia) and Elkjop (Norway). Online retailers include Amazon.com, Dell, Newegg.com and Buy.com. Our DMRs include
CDW Corporation, Insight Corporation and PC Connection in domestic markets and Misco throughout Europe. In addition, we also sell our products
through broadband service providers, such as multiple system operators (“MSOs”),
DSL, and other broadband technology operators domestically and
internationally. Some of these retailers and broadband service providers purchase directly from us, while others are fulfilled through wholesale
distributors around the world. A substantial portion of our net revenue to date has been derived from a limited number of wholesale distributors and
retailers, including Ingram Micro and Best Buy. We expect that these wholesale distributors and retailers will continue to contribute a significant
percentage of our net revenue for the foreseeable future.
We experienced revenue growth of 7.7%
during fiscal 2012. On a geographic basis, the increase was led by net revenue growth in the Americas
and APAC regions; however, the EMEA region continued to see macroeconomic weakness in the European market, with net revenues decreasing by
4.2% year-over-
year. On a segment basis, our service provider business unit continued to drive revenue growth, largely driven by demand for our
Docsis 3.0 products. Net revenues also increased in our retail business unit, driven by increased sales of home wireless products. However, we
experienced a decrease in net revenues from our commercial business unit, as the business unit was affected by the European macroeconomic
environment.
In 2012, we continued to grow the business, completing the acquisition of AVAAK Inc. ("AVAAK"), a privately-
held company that developed
wire-
free video networking products, and acquiring certain intellectual property of Firetide, Inc. ("Firetide"). We believe the acquisition of AVAAK
will bolster our retail business unit product offerings and expand our presence into the smart home market, and the acquisition of Firetide will bolster
our wireless product offerings in our commercial business unit and strengthen our market position in the small to medium size campus wireless LAN
market. Furthermore, we increased our investment in research and development, particularly software development, increasing research and
development expense to 4.8% of net revenues for the year ended December 31, 2012, as compared to 4.1%
for the year ended December 31, 2011.
We believe this investment in software development will enable us to provide powerful differentiation against our competition and also provide us
with possible entries into new product categories in the future.
Our service provider business has grown substantially and it is difficult to ascertain a seasonal pattern given that the business is less predictable
than our other core businesses. The commercial business, consumer, and broadband service provider markets are intensely competitive and subject to
rapid technological change. We believe that the principal competitive factors in the retail, commercial, and service provider markets for networking
products include product breadth, size and scope of the sales channel,
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations