Netgear 2013 Annual Report Download - page 29

Table of Contents
systems security. If we are unable to successfully prevent breaches of security relating to our VueZone service or customer private information,
including customer videos and customer personal identification information, management would need to spend increasing amounts of time and effort in
this area, and our business would be harmed.
Our business depends on our continued ability to license necessary third-
party technology, which we may not be able to do on commercially
reasonable terms, if at all.
We license technology from third parties for the development of our products. We have licensed from third parties software, patents and other
intellectual property for use in our products and from time to time we may elect or be required to license additional intellectual property. There can be
no assurance that we will be able to maintain our third-
party licenses or that these licenses or the technologies that are the subject of these licenses will
not be the subject of dispute or litigation, or that additional third-
party licenses will be available to us on commercially reasonable terms, if at all. The
inability to maintain or obtain third-
party licenses required for our products or to develop new products and product enhancements could require us to
seek to obtain substitute technology of lower quality or performance standards, if such exists, or at greater cost, which could seriously harm our
competitive position, revenue and prospects.
The marketability of our AirCard products may suffer if wireless telecommunications operators do not deliver acceptable wireless services.
The success of the AirCard product line depends, in part, on the capacity, affordability, reliability and prevalence of wireless data networks
provided by wireless telecommunications operators and on which our AirCard products operate. Currently, various wireless telecommunications
operators, either individually or jointly with us, sell our products in connection with the sale of their wireless data services to their customers. Growth in
demand for wireless data access may be limited if, for example, wireless telecommunications operators cease or materially curtail operations, fail to
offer services that customers consider valuable at acceptable prices, fail to maintain sufficient capacity to meet demand for wireless data access, delay
the expansion of their wireless networks and services, fail to offer and maintain reliable wireless network services or fail to market their services
effectively.
In addition, the future growth of our AirCard product line depends on the successful deployment of next generation wireless data networks
provided by third parties, including those networks for which we are currently developing products. If these next generation networks are not deployed
or widely accepted, or if deployment is delayed, there will be no market for the AirCard products we are developing to operate on these networks. If any
of these events occurs, or if for any other reason the demand for wireless data access fails to grow, sales of our products will decline or remain stagnant
and our business could be harmed.
If our products contain defects or errors, we could incur significant unexpected expenses, experience product returns and lost sales, experience
product recalls, suffer damage to our brand and reputation, and be subject to product liability or other claims.
Our products are complex and may contain defects, errors or failures, particularly when first introduced or when new versions are released. The
industry standards upon which many of our products are based are also complex, experience change over time and may be interpreted in different
manners. Some errors and defects may be discovered only after a product has been installed and used by the end-
user. For example, in January 2008, we
announced a voluntary recall of a Powerline Ethernet Adapter made for Europe and other countries as a result of a component failure under certain
operating conditions.
In addition, epidemic failure clauses are found in certain of our customer contracts, especially contracts with service providers. If invoked, these
clauses may entitle the customer to return for replacement or obtain credits for products and inventory, as well as assess liquidated damage penalties and
terminate an existing contract and cancel future or then current purchase orders. In such instances, we may also be obligated to cover significant costs
incurred by the customer associated with the consequences of such epidemic failure, including freight and transportation required for product
replacement and out-of-
pocket costs for truck rolls to end user sites to collect the defective products. Costs or payments we make in connection with an
epidemic failure may materially adversely affect our results of operations and financial condition. If our products contain defects or errors, or are found
to be noncompliant with industry standards, we could experience decreased sales and increased product returns, loss of customers and market share, and
increased service, warranty and insurance costs. In addition, our reputation and brand could be damaged, and we could face legal claims regarding our
products. A product liability or other claim could result in negative publicity and harm to our reputation, resulting in unexpected expenses and adversely
impacting our operating results. For instance, if a third party were able to successfully overcome the security measures in our products, such a person or
entity could misappropriate customer data, third party data stored by our customers and other information, including intellectual property. In addition,
the operations of our end-user customers may be interrupted. If that happens, affected end-
users or others may file actions against us alleging product
liability, tort, or breach of warranty claims.
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