Netgear 2013 Annual Report Download - page 22

Table of Contents
business. 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. While we believe that we have mitigated
some of the business execution and business continuity risk with our recent reorganization into three business units, the loss of any key personnel would
still be disruptive and harm our business, especially given that our business is leanly staffed and relies on the expertise and high performance of our key
personnel. 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 have been and will be investing increased additional in-
house resources on software research and development, which could disrupt our
ongoing business and present distinct risks from our historically hardware-centric business.
We plan to continue to evolve our historically hardware-
centric business model towards a model that includes more sophisticated software
offerings. As such, we will further evolve the focus of our organization towards the delivery of more integrated hardware and software solutions for our
customers. While we have invested in software development in the past, we will be expending additional resources in this area in the future. Such
endeavors may involve significant risks and uncertainties, including distraction of management from current operations, insufficient revenue to offset
liabilities assumed and expenses associated with the strategy, inadequate return on capital, and unidentified issues not discovered in our due diligence.
Software development is inherently risky for a company such as ours with a historically hardware-
centric business model, and accordingly, our efforts in
software development may not be successful. Any increased investment in software research and development may materially adversely affect our
financial condition and operating results.
We may spend a proportionately greater amount on software research and development in the future. If we cannot proportionately decrease our
cost structure in response to competitive price pressures, our gross margin and, therefore, our profitability could be adversely affected. In addition, if our
software solutions, pricing and other factors are not sufficiently competitive, or if there is an adverse reaction to our product decisions, we may lose
market share in certain areas, which could adversely affect our revenue and prospects.
Software research and development is complex. We must make long-
term investments, develop or obtain appropriate intellectual property and
commit significant resources before knowing whether our predictions will accurately reflect customer demand for our products and services. We must
accurately forecast mixes of software solutions and configurations that meet customer requirements, and we may not succeed at doing so within a given
product's life cycle or at all. Any delay in the development, production or marketing of a new software solution could result in us not being among the
first to market, which could further harm our competitive position. In addition, our regular testing and quality control efforts may not be effective in
controlling or detecting all quality issues and defects. We may be unable to determine the cause, find an appropriate solution or offer a temporary fix to
address defects. Finding solutions to quality issues or defects can be expensive and may result in additional warranty, replacement and other costs,
adversely affecting our profits. If new or existing customers have difficulty with our software solutions or are dissatisfied with our services, our
operating margins could be adversely affected, and we could face possible claims if we fail to meet our customers' expectations. In addition, quality
issues can impair our relationships with new or existing customers and adversely affect our brand and reputation, which could adversely affect our
operating results.
As part of growing our business, we have made and expect to continue to make acquisitions. If we fail to successfully select, execute or integrate
our acquisitions, then our business and operating results could be harmed and our stock price could decline.
From time to time, we will undertake acquisitions to add new product lines and technologies, gain new sales channels or enter into new sales
territories. For example, in June 2012 and June 2013 we acquired select assets of two separate engineering operations in India to enhance our wireless
product offerings in our commercial business unit. Additionally in July 2012, we closed the acquisition of privately held AVAAK, Inc., creators of the
VueZone®
home video monitoring system, and in April 2013, we closed the acquisition of the AirCard business of Sierra Wireless, Inc. The AirCard
acquisition represents our largest acquisition, both in terms of consideration and headcount. Acquisitions involve numerous risks and challenges,
including but not limited to the following:
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integrating the companies, assets, systems, products, sales channels and personnel that we acquire;
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higher than anticipated acquisition and integration costs and expenses;
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reliance on third parties to provide transition services for a period of time after closing to ensure an orderly transition of the business;