Netgear 2013 Annual Report Download - page 30

Table of Contents
If disruptions in our transportation network occur or our shipping costs substantially increase, we may be unable to sell or timely deliver our
products and our operating expenses could increase.
We are highly dependent upon the transportation systems we use to ship our products, including surface and air freight. Our attempts to closely
match our inventory levels to our product demand intensify the need for our transportation systems to function effectively and without delay. On a
quarterly basis, our shipping volume also tends to steadily increase as the quarter progresses, which means that any disruption in
our transportation
network in the latter half of a quarter will likely have a more material effect on our business than at the beginning of a quarter.
The transportation network is subject to disruption or congestion from a variety of causes, including labor disputes or port strikes, acts of war or
terrorism, natural disasters and congestion resulting from higher shipping volumes. For example, in June 2013, a ship carrying containers of our
products among its cargo sank, and the shipment was lost. Although covered by insurance, this loss led to delays in delivery and our receipt of payment.
Labor disputes among freight carriers and at ports of entry are common, particularly in Europe, and we expect labor unrest and its effects on shipping
our products to be a continuing challenge for us. Our international freight is regularly subjected to inspection by governmental entities. If our delivery
times increase unexpectedly for these or any other reasons, our ability to deliver products on time would be materially adversely affected and result in
delayed or lost revenue as well as customer imposed penalties. In addition, if increases in fuel prices occur, our transportation costs would likely
increase. Moreover, the cost of shipping our products by air freight is greater than other methods. From time to time in the past, we have shipped
products using extensive air freight to meet unexpected spikes in demand, shifts in demand between product categories, to bring new product
introductions to market quickly and to timely ship products previously ordered. If we rely more heavily upon air freight to deliver our products, our
overall shipping costs will increase. A prolonged transportation disruption or a significant increase in the cost of freight could severely disrupt our
business and harm our operating results.
We are exposed to the credit risk of some of our customers and to credit exposures in weakened markets, which could result in material losses.
A substantial portion of our sales are on an open credit basis, with typical payment terms of 30 to 60 days in the United States and, because of local
customs or conditions, longer in some markets outside the United States. We monitor individual customer financial viability in granting such open credit
arrangements, seek to limit such open credit to amounts we believe the customers can pay, and maintain reserves we believe are adequate to cover
exposure for doubtful accounts.
In the past, there have been bankruptcies amongst our customer base. Although any resulting loss has not been material to date, future losses, if
incurred, could harm our business and have a material adverse effect on our operating results and financial condition. To the degree that the recent
turmoil in the credit markets makes it more difficult for some customers to obtain financing, our customers' ability to pay could be adversely impacted,
which in turn could have a material adverse impact on our business, operating results, and financial condition.
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