Risk Factors Summary
The following is a summary of some of the risks and uncertainties as of the date of the filing of this Annual Report on Form 10-K that could materially adversely affect our business, financial condition and results of operations. You should read this summary together with the more detailed description of each risk factor contained below.
Risks Related to our Business, Industry and Operations
We obtain several key components from limited or sole sources and if these sources fail to satisfy our supply requirements or we are unable to properly manage our supply requirements with our third-party manufacturers, we may lose sales and experience increased component costs.
Optimizing our channel partners' inventory levels and product mix within the current environment is challenging, and we have, and may in the future, incur costs associated with excess inventory, or lose sales from having too few products.
To remain competitive and stimulate consumer and business demand, generally and in compliance with newly proposed or future regulations, we must successfully manage new product introductions and transitions of products and services.
Changes in trade policy and regulation in the United States and other countries, including but not limited to the potential imposition of tariffs, may adversely impact our business, results of operations and financial condition.
Investment in new business strategies could disrupt our ongoing business, present risks not originally contemplated and materially adversely affect our business, reputation, results of operations and financial condition.
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Some of our competitors have substantially greater resources than we do, and to be competitive we may be required to lower our prices or increase our sales and marketing expenses, which could result in reduced margins or loss of market share and revenue.
We depend substantially on our sales channels and certain significant customers and loss of and/or failure to maintain and expand our customer sales volume and/or sales channels would result in lower sales and reduced net revenue.
We depend on a limited number of third-party manufacturers for substantially all of our manufacturing needs. If these third-party manufacturers experience any delay, disruption or quality control problems in their operations, we could lose revenue and our brand may suffer.
The average selling prices of our products typically decrease rapidly over the sales cycle of the product, which may negatively affect our net revenue and gross margins.
We expect our operating results to fluctuate on a quarterly and annual basis, which could cause our stock price to fluctuate or decline.
If disruptions in our transportation network continue to occur or our shipping costs substantially increase again in the future, we may be unable to sell or timely deliver our products, and our net revenue and gross margin could decrease.
Expansion of our operations and infrastructure may strain our operations and increase our operating expenses.
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.
Risks Related to Our Products, Technology, Intellectual Property and Data
We rely upon third parties for certain 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.
Product security vulnerabilities, system security risks, data breaches, cyber-attacks, improper use of artificial intelligence (“AI”) tools, and other threats and risks, could disrupt or otherwise compromise our products, services, internal operations or information technology systems, or those of third parties with whom we work. Actual or perceived non-compliance with our privacy and security obligations could lead to regulatory investigations or actions, litigation, fines and penalties, business operation disruption, reputational harm, loss of revenue or profits, loss of customers or sales, and other adverse business consequences.
If we are unable to successfully leverage AI technology to automate and drive efficiencies in our operations and products and services, our business, reputation, results of operations and financial condition 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.
If we are unable to secure and protect our intellectual property rights, our ability to compete could be harmed.
Financial, Legal, Regulatory and Tax Compliance Risks
We are currently involved in several litigation matters in the ordinary course and may in the future become involved in additional litigation which could be costly and subject us to significant liability.
We have been exposed to and may in the future be exposed to adverse currency exchange rate fluctuations in jurisdictions where we transact in local currency, which could harm our financial results and cash flows.
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We are exposed to the credit risk of some of our customers and to credit exposures, including bank failures, in weakened markets, which could result in material losses.
Changes in applicable direct or indirect tax laws, and failure to comply with the same, or exposure to additional income tax liabilities, could result in liability and/or affect our future profitability.
We are subject to, and must remain in compliance with numerous new, existing and changing laws and regulations worldwide concerning our business. Some of our customers also require that we comply with their own unique requirements relating to these matters. Any failure to comply with such laws, regulations and requirements, and any associated unanticipated costs, may adversely affect our business, financial condition and results of operations.
General Risk Factors
If we lose the services of our key personnel, we may not be able to execute our business strategy effectively.
Global economic and geopolitical conditions could materially adversely affect our revenue and results of operations.
Our stock price has experienced recent volatility and may be volatile in the future and your investment in our common stock could suffer a decline in value.
Additional factors that could affect our businesses, results of operations and financial condition are discussed in Forward-Looking Statements in MD&A. However, other factors not discussed below or elsewhere in this Annual Report on Form 10-K could also adversely affect our businesses, results of operations and financial condition. Therefore, the risk factors below should not be considered a complete list of potential risks that we may face.
Any risk factor described in this Annual Report on Form 10-K or in any of our other SEC filings could by itself, or together with other factors, materially adversely affect our liquidity, competitive position, business, reputation, results of operations, capital position or financial condition, including by materially increasing our expenses or decreasing our revenues, which could result in material losses.
Item 1. B usiness
General
We are a global provider of networking technologies for businesses, homes, and service providers. We deliver a wide range of networking hardware, software, and services designed to enable reliable connectivity and security.
Our purpose is to power extraordinary experiences, and our mission is to unleash the full potential of connectivity with intelligent solutions that delight and protect. As part of the ongoing development of our business, we are executing a multi-phase transformation to strengthen execution, reinforce our core businesses, and support long-term growth and margin expansion, while exercising strong operational discipline. The first phase of this transformation, which began in 2024, has been completed and focused on establishing foundational capabilities, including organizational alignment, capital allocation priorities, and operational processes. The second phase, which we are now entering, is focused on strengthening our core businesses through improved execution across product development, go-to-market activities, and cost structure. Subject to market conditions and business performance, a subsequent phase is expected to focus on accelerating growth initiatives, including selective inorganic opportunities.
In the first quarter of 2025, we realigned our business structure by separating the previously disclosed Connected Home segment into two reportable segments: Home Networking and Mobile. Effective January 1, 2025, we operated and reported in three segments for the first three fiscal quarters of 2025: NETGEAR for Business, Home Networking, and Mobile. Beginning on the first day of the fourth fiscal quarter of 2025, we streamlined our operating and reporting structure and returned to two reportable segments: Enterprise (formerly NETGEAR for Business) and Consumer (formerly Connected Home), with Consumer comprising the former Home Networking and Mobile businesses. These realignments align our financial reporting more closely with our then and go-forward business strategy and customer focus. Refer to the Note 12, Segment Information, in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for additional information. The Enterprise segment focuses on small and medium
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enterprises and provides solutions for audio and video over Ethernet for AV applications, enterprise networking solutions, including wireless local area network (“LAN”) and cloud-managed networking capabilities, software platforms for deployment and remote management, and security offerings, including firewall and secure access service edge (“SASE”) functionality, designed to address the networking, security, and manageability requirements of organizations seeking reliable and cost-effective connectivity solutions. The Consumer segment focuses on consumers and provides high-performance, dependable and easy-to-use WiFi internet networking solutions such as multi-band WiFi 7 mesh systems and routers, subscription services offering performance, security, privacy and support, and 4G/5G mobile products, including WiFi 7 and WiFi 6/6E-enabled portable mobile hotspots and mobile routers, designed to address the demand for reliable, high-speed connectivity at home and on the go. We conduct business across three geographic territories: Americas; Europe, Middle East and Africa (“EMEA”); and Asia Pacific (“APAC”).
In the years ended December 31, 2025, 2024, and 2023, we generated net revenue of $699.6 million, $673.8 million, and $740.8 million, respectively.
Markets
Our mission is to unleash the full potential of connectivity with intelligent solutions that delight and help protect businesses, consumers, and service providers. Demand for networking solutions continues to be driven by the need for reliable, high-speed connectivity, increasing device density, and growing requirements for security and manageability across a broad range of environments.
The professional audio and video (“AV”) market continues to expand as organizations increase the use of digital displays, video walls, conferencing systems, and other video-intensive applications. As video formats evolve to higher resolutions and greater pixel density, AV deployments require increased network capacity, reliability, and predictable performance. The AV industry is also transitioning from legacy, matrix-based switching architectures to IP-based networking solutions, which offer greater scalability, flexibility, and cost efficiency. While AV systems are increasingly built on IP infrastructure, we design our solutions to simplify IP network setup for AV integrator partners. As a result, networking has become a critical component of modern AV system design, increasing demand for solutions that simplify deployment and support the timing-sensitive requirements of AV traffic.
Small and medium enterprises (“SMEs”) rely on their networks to support mission-critical operations across environments such as education, hospitality, multi-dwelling units, and distributed business locations. These organizations face increasing network complexity driven by growing numbers of connected devices, new applications, and evolving usage patterns, while often operating with limited internal IT resources and constrained budgets. As a result, many SMEs depend on managed service providers for networking and security support. Consequently, demand continues to grow for networking and security solutions that balance reliability, security, ease of deployment, and cost effectiveness, including wireless and wired networking upgrades, cloud-managed networking capabilities, and security solutions such as firewall and SASE functionality.
Our Enterprise segment focuses on addressing the networking and security needs of small and medium enterprises. Our growth priorities for this segment include supporting the transition to IP-based networking for professional AV applications, expanding adoption of cloud-managed networking, and addressing increasing security requirements through solutions such as firewall and SASE functionality. The Enterprise segment also emphasizes solutions that support managed service provider (“MSP”) led deployments and the needs of organizations with limited internal IT resources.
Consumers continue to increase their reliance on networking and mobile connectivity as device density grows and broadband connectivity becomes more central to daily activities. The Consumer market is shaped by connectivity needs across home, smart home, gaming, hybrid work, and mobile use cases through tiered product offerings. Growth drivers include increasing device density, evolving cybersecurity risks, and demand for higher-performance WiFi and related services. Demand is also influenced by adoption of newer WiFi standards and the need for integrated performance, security, and manageability in increasingly connected home environments. Mobile connectivity solutions support use cases that extend beyond the home, including environments where wired broadband access may be limited or unavailable. As network complexity increases, ease of deployment and simplified operation remain important considerations for consumers. Across the Consumer market, reliability, usability, security, and performance are key considerations in the selection of networking products and services. Our Consumer segment prioritizes
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addressing these requirements while supporting growth opportunities across home networking, mobile connectivity, smart home related capabilities, and cybersecurity.
Our Consumer segment focuses on addressing connectivity needs in home and mobile environments. Our growth priorities for this segment include supporting increasingly device-dense home networks, expanding mobile connectivity use cases, and addressing rising security and privacy requirements through cybersecurity and subscription-based services. The Consumer segment also prioritizes smart home related capabilities that emphasize interoperability, ease of use, and reliable performance as home networking environments continue to evolve.
Sales Channels
We sell our products through multiple sales channels worldwide, including wholesale distributors, traditional and online retailers, direct market resellers (“DMRs”), MSP, broadband service providers, and through our direct online store at www.netgear.com .
Wholesale Distributors. Our distribution channel supplies our products to retailers, e-commerce resellers, DMRs, MSPs and broadband service providers. We sell directly to our distributors, the largest of which are TD SYNNEX, Ingram Micro, Inc., and D&H Distributing Company.
Retailers. Our retail channel primarily supplies products sold into the consumer market, and increasingly selected products designed for businesses. We sell directly to, or enter into consignment arrangements with, a number of our traditional retailers, increasingly leveraging their online presence in addition to their in-store space and online retailers. The remaining traditional retailers, as well as our online retailers, are fulfilled through wholesale distributors. We work directly with our retail channels on market development activities, such as co-advertising, online promotions and video demonstrations, instant rebate programs, event sponsorship and sales associate training. Our largest retailers include Amazon.com, Inc, Best Buy Co., Inc., Wal-Mart Inc. and their respective affiliates.
DMRs and MSPs. We sell into the business marketplace through an extensive network of DMRs and MSPs. Our DMRs include companies such as CDW Corporation and Insight Corporation, and our MSPs include members of our registered NETGEAR Solution Partner program. These partners provide sales and deployment support for our networking and security solutions in the small and medium enterprise market, with MSPs typically responsible for solution design, deployment, and management, and DMRs primarily supporting product sourcing and deployment. DMRs and MSPs may receive sales incentives, marketing support, and other program benefits from us. Our DMRs and MSPs generally purchase our products through our wholesale distributors and audio-visual manufacturers that purchase our switches to include in their complete solutions.
Broadband Service Providers. We supply products directly to broadband service providers in the United States and internationally providing WiFi, and 4G/5G mobile broadband products. Service providers supply our products to their business and home subscribers. Our largest broadband service providers include AT&T.
Direct Online Store. We sell directly online at www.netgear.com in the United States and internationally to enterprises and consumers. Through our direct online store, we provide high-performance and premium networking and internet connected products and subscription services, some of which are only available at www.netgear.com . The direct online store also allows us to deliver curated rich content to supplement the purchase journey of customers, in addition to establishing a direct relationship with our customers. NETGEAR.com is a destination where we deliver to early tech adopters and inexperienced audiences alike a premium and comprehensive product and brand experience.
The largest portion of our net revenues was derived from the Americas, representing approximately 68% of net revenue in the years ended December 31, 2025, 2024 and 2023. We have continuously committed resources to our international operations and sales channels. Accordingly, we are subject to a number of risks related to international operations such as macroeconomic and microeconomic conditions, geopolitical developments, regulatory requirements, preference for locally branded products, exchange rate fluctuations, increased difficulty in managing inventory, challenges of staffing and managing foreign operations, the effect of international sales on our tax structure, and changes in local tax laws. For further information regarding these risks, refer to Item 1A, Risk Factors, of Part I of this Annual Report on Form 10-K.
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For information regarding our significant customers, refer to Note 12, Segment Information, in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K.
Product Offerings
Our goal is to power extraordinary experiences where people collaborate and connect to a world of information and innovation. Our products and services are delivered through integrated platforms that combine hardware, software, and services. Our connected solutions range from switching and wireless products that support AV over Ethernet for Pro AV applications and business networks to WiFi networking solutions, security and support services for enterprise and home networks. We continually invest in research and development to create new technologies and services and to address technological trends such as AV over Ethernet, multi-Gigabit connectivity, WiFi 7, eSIM and future technologies. Our product line enables the creation and extension of wired and wireless networks and includes services that complement and enhance our hardware offerings. These products are available in multiple configurations to address the changing needs of our customers across geographic regions.
Enterprise. The products and services are sold into the business marketplace through an extensive network of DMRs and MSPs, NETGEAR.com, and through brick-and-mortar retail and e-commerce channels and include:
Pro AV Solutions: networking solutions that include Ethernet switches, routers, and WiFi access points designed to support AV over IP deployments for both commercial and high-end residential installations; and
NETGEAR Engage Controller: software that provides centralized, profile-based configuration and unified management of AV networking devices for audio and video over IP deployments, supporting auto-discovery, rapid setup, and interoperability with third-party AV end point manufactures.
Enterprise
Pro Routers: devices that provide the internet gateway for businesses and combine with access points, Ethernet switches, and our Insight cloud management software to create a complete suite for small and medium enterprises;
Wireless Networking: enterprise-grade, cloud-managed or standalone WiFi access points that provide wide coverage areas, fast wireless connectivity, and secure WiFi access for businesses of varying sizes;
NETGEAR Insight Remote Management: cloud-based platform that enables remote deployment, monitoring, management, and troubleshooting of WiFi, switching, routing, cellular, and security solutions, and provides MSP-centric capabilities, such as workflow application programming interfaces (“APIs”) and flexible licensing; and
NETGEAR Exium Security Solutions: security software that provides on-premises next-generation firewall and cloud-based SASE capabilities and includes a centralized, cloud-based management portal integrated with MSP tools for small and medium enterprises and MSPs.
Unmanaged and Easy Smart Ethernet Switches
General purpose Ethernet switches (in a wide range of sizes): used to connect equipment, devices, or WiFi access points to the network for exchanging information.
Consumer. The products and services are sold primarily via our direct online store as well as traditional retailers, increasingly leveraging their online presence, in addition to their brick-and-mortar stores, and service provider channels and include:
WiFi Mesh Systems: devices with one main Wi-Fi router and multiple additional Wi-Fi nodes that work together, i.e. a LAN, to provide extensive coverage under a unified network;
WiFi routers: devices that connect to a modem to enable wireless Internet connectivity;
Broadband modems: devices that convert the broadband signals into Ethernet data that feeds internet into homes and small businesses;
WiFi Gateways: WiFi routers with an integrated broadband modem, for broadband internet access;
Mobile Hotspots: portable battery-powered Wi-Fi access points that allow users to connect their devices to the internet using a cellular connection;
Network accessories: WiFi range extenders, which extend the range of an existing WiFi network to
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eliminate WiFi dead spots; Powerline adapters, which extend wired and WiFi internet connections to any AC outlet using existing electrical wiring; and WiFi network adapters, which enable computing devices to be connected to the network via WiFi; and
Value-added service offerings such as security and privacy, technical support, and parental controls for consumers.
Our products and services are designed to meet the specific needs of the business, consumer, and service provider markets. We tailor various elements of the software interface, product design, including component specification, physical characteristics such as casing, design and coloration, and specific user interface features to meet the needs of these markets. We also leverage many of our technological developments, high volume manufacturing, technical support and engineering infrastructure across our markets to maximize business efficiencies.
Our products that target the business market are generally designed with an industrial appearance, including metal cases and, for some product categories, the ability to mount the product within standard data networking racks as well as alternative mounting solutions for other uses. These products typically include higher port counts, higher data transfer rates and other performance characteristics designed to meet the needs of a modern business. For example, our business products provide data transfer rates up to 100 gigabits per second to meet higher capacity requirements. Our Power over Ethernet (“PoE”) switches, including cloud managed and unmanaged switches, provide elevated power budgets and reliable PoE power for businesses of all sizes to address the growing need for deployment of multiple PoE devices with higher power requirements, driven by widespread adoption of IP communication, security cameras, WiFi access points, proximity sensors, and various other applications. Some of these products are also designed to support transmission modes such as fiber optic cabling, which is common in more sophisticated business environments. We continue to see a shift from traditional AV applications utilizing HDMI technology to Ethernet switching driven by a transition from the 1080p to 4K to 8K resolution video, and broadcast moving towards multicast streaming. IP provides an economical path to building high performance, scalable AV networks. As work patterns continue to evolve, there continues to be a shift in demand and use cases for Enterprise products as more small businesses now run out of homes or remote offices. This shift has contributed to growing the market for lower port count switches and our Enterprise wireless offerings.
Security requirements within our products for business broadband access include firewall and VPN capabilities to aid in securing interactions between remote offices and business headquarters locations over the internet. Our connectivity product offerings for the business market include enhanced security features and remote configurability often required in a business setting.
Our vision for the Enterprise segment is to be a trusted partner for networking and security solutions that support the evolving needs of Pro AV and SME environments. We aim to support the continued convergence of AV and IT through integrated networking, security, hardware, and software solutions, while strengthening partner engagement, professional services, and subscription-based offerings. The Enterprise segment focuses on growth opportunities in Pro AV, enterprise networking and security, and services that support increasingly complex and mission-critical deployments.
Our vision for the Consumer segment is to be a trusted partner for connectivity wherever consumers are. We aim to deliver a seamless and integrated connectivity experience through a range of “good, better, best” networking and mobile products, building on our foundation of in-home connectivity and extending to mobile and on-the-go use cases as demands on home and personal networks continue to increase. The Consumer business focuses on growth opportunities across home networking, mobile connectivity, smart home–related capabilities, and cybersecurity, supported by subscription-based services and software that enhance performance, security, privacy, and customer experience.
Competition
The enterprise, consumer, and service provider markets are intensely competitive and subject to rapid technological change. We expect competition to continue to intensify. Our principal competitors include:
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within the enterprise markets, companies such as Allied Telesis, Arista, Barracuda (owned by KKR), Buffalo, Cisco Systems, Dell, D-Link, Extreme, Fortinet, Huawei, Hewlett-Packard Enterprise ("HPE") Aruba, Juniper Networks Mist (part of HPE), Mellanox (owned by Nvidia), Palo Alto Networks, QNAP Systems, Ruckus Networks (formerly CommScope; Vistance Networks portfolio), SonicWall, Snap One (formerly SnapAV; owned by Resideo), Synology, TP- Link, TRENDnet, Ubiquiti, and WatchGuard;
within the consumer markets, companies such as Aracknis, ARRIS (owned by Vantiva), ASUS, AVM, Devolo, D-Link, Eero (owned by Amazon), GlocalMe, Linksys (owned by Foxconn), Motorola, Google Nest, RoamFi, Samsung, and TP- Link; and
within the service provider markets, companies such as Actiontec, Airties, Arcadyan, ARRIS, ASUS, AVM, Compal Broadband, D-Link, Eero (owned by Amazon), Franklin, Google, Hitron, Huawei, Inseego, Nokia, Orbic, Plume, Sagem, Sercomm, Sonim, SMC Networks, TP-Link, Ubee, Vantiva (formerly Technicolor), ZTE and Zyxel. Other competitors include numerous local vendors such as Xiaomi in China, AVM in Germany and Buffalo in Japan.
Our potential competitors include other consumer electronics vendors, including Apple, Gen Digital (formerly NortonLifelock), LG Electronics, McAfee, Microsoft, Panasonic, Sony, Toshiba and Vizio, who could integrate networking and streaming capabilities into their line of products, such as televisions, set top boxes and gaming consoles, and our channel customers who may decide to offer self-branded networking products. We also face competition from ISPs who may bundle a free networking device with their broadband service offering, which would reduce our sales if we were not the supplier of choice to those service providers. In the service provider space, we also face significant and increased competition from original design manufacturers (“ODMs”) and contract manufacturers (“CMs”) who are selling and attempting to sell their products directly to service providers around the world.
Many of our existing and potential competitors have longer operating histories, greater name recognition and substantially greater financial, technical, sales, marketing and other resources. As a result, they may have more advanced technology, larger distribution channels, stronger brand names, better customer service and access to more customers than we do. For example, Hewlett-Packard Enterprise has significant brand name recognition and has an advertising presence substantially greater than ours. Similarly, Cisco Systems is well recognized as a leader in providing networking products to businesses, while Amazon competes in the consumer WiFi product market, and has substantially greater financial resources than we do. Several of our competitors, such as TP-Link, offer a range of products that directly compete with most of our product offerings. Several of our other competitors compete in a more limited manner. For example, Dell sells networking products primarily targeted at larger businesses or enterprises while Amazon primarily only sells WiFi mesh systems. The competitive environment in which we operate changes rapidly due to technological reasons and other factors outside of our control, such as new entrants to the market and the ability of market participants to adapt to changing environments. Other companies with significant resources could also become direct competitors, either through acquiring a competitor or through internal efforts.
The principal competitive factors in the business, consumer, and service provider markets for networking products include product breadth, price points, brand name, security and privacy, performance, features, functionality and reliability, product availability, timeliness of new product introductions, size and scope of the sales channel, ease-of-installation, maintenance and use, and customer service and support. We seek to differentiate our offerings through integrated hardware and software solutions, partner relationships, centralized management capabilities, and services. To remain competitive, we focus on investing in differentiated connectivity solutions across a range of performance tiers, complemented by subscription-based services, expanding and supporting our sales channels, strengthening engagement with customers and partners, and maintaining a high level of customer satisfaction. Our investments align with our strategic priorities, including investments in enterprise and Pro AV initiatives and selective acquisitions intended to enhance software and security capabilities.
Research and Development
Our success depends on our ability to develop products that address evolving customer needs and changes in technology in a timely and cost-effective manner. Accordingly, we invest in research and development activities to evaluate and integrate third-party technologies, enhance existing and develop new in-house technologies, and design, develop and test new products and services. Our research and development employees work closely with our technology and manufacturing partners to bring high quality new products and services to market in a timely and
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cost-efficient manner. Research and development efforts increasingly focus on software, security, and capabilities that support subscription-based services and margin improvement.
We identify, qualify and advance new technologies to develop products through a combination of ODM and in-house development approaches. Under both ODM and in-house development, we develop portions of the software on certain products, including embedded firmware or components of firmware, mobile applications, and cloud software that support management and service experiences. As part of our ongoing transformation, we are expanding in-house software development capabilities while continuing to leverage third-party development partners where appropriate. We selectively apply advanced software techniques, including artificial intelligence (“AI”), to enhance product performance, customer support, and operational efficiency.
ODM. Under the ODM methodology, we define the product concept and specifications and recommend the technology selection. We then coordinate with our technology suppliers as they develop the product, meeting our specifications, while our internal software engineering team typically works with our service partners to develop the software services that run on these devices. On certain new products, one or more subsystems of the design can be done in-house and then integrated with the remaining design pieces from the ODM. Once prototypes are completed, we work with our partners to complete the debugging and systems integration and testing. After completion of the final tests, agency approvals and product documentation, the product is released for production and shipment.
In-House Development. Under the in-house development model, one or more subsystems of the product are designed and developed utilizing the NETGEAR engineering team. Under this model, some of the primary technology is developed in-house. We then work closely with either an ODM or a Joint Development Manufacturer (“JDM”) to complete the development of the entire design, perform the necessary testing, and obtain regulatory approvals before the product is released for production and shipment.
Manufacturing
Our primary manufacturers are Cloud Network Technology (more commonly known as Hon Hai Precision or Foxconn Corporation), Delta Electronics Incorporated, Senao Networks, Inc., and Pegatron Corporation, all of which are headquartered in Taiwan. We also manufacture in Haiphong, Vietnam at a facility owned by Shenzhen Gongjin Electronics Co., Ltd. (more commonly known as T&W), which is headquartered in China. We distribute our manufacturing among a limited number of key suppliers and seek to avoid excessive concentration with any one single supplier. Any disruptions from natural disasters, health epidemics and political, social and economic instability would affect the ability of our manufacturers to manufacture our products. If our manufacturing or warehousing facilities are disrupted or destroyed, we would not have readily available alternatives for manufacturing our products and our business would be significantly impacted. In addition to their responsibility for the manufacturing of our products, our manufacturers typically purchase all necessary parts and materials to produce finished goods. Our own product quality organization based in Singapore and Taiwan is responsible for auditing and inspecting product quality on the premises of our ODMs to maintain quality standards for our suppliers.
We obtain several key components from limited or sole sources. These include many of the semiconductors used in our products, which are designed specifically for the products and obtained from sole source suppliers on a purchase order basis like switching fabric semiconductors used in our Ethernet switches and internet gateway products; wireless local area network chipsets used in our wireless products and mobile network chipsets which are used in our wireless gateways and hotspots. We also have limited sources for components including connector jacks, plastic casings and physical layer transceivers. Our third-party manufacturers generally purchase these components on our behalf on a purchase order basis. If these sources fail to satisfy our supply requirements or component lead times deviate from expectations, our ability to meet scheduled product deliveries would be harmed and we may lose sales and experience increased costs to procure supply. Additionally, as the demand for Artificial Intelligence chips increases, semiconductor production capacity may be shifted to these specific components thereby constraining supply of or increasing cost on chips used in our products.
We currently outsource warehousing and distribution logistics to four main third-party providers who are responsible for warehousing, distribution logistics and order fulfillment. In addition, these parties are also responsible for some configuration and re-packaging of our products including bundling components to form kits, inserting appropriate documentation, and adding power adapters. APL Logistics Americas, Ltd. in City of Industry, California
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serves the Americas region, Kerry Logistics Ltd. in Singapore serves the Asia Pacific / Australia New Zealand region, and DSV Solutions B.V. Netherlands serves the EMEA region.
Sales and Marketing
We sell our products through multiple sales channels worldwide. We work directly with our retail partners and MSPs on market development activities, such as co-advertising, online promotions and video demonstrations, live and virtual event sponsorships and sales associate training. We also participate in major industry trade shows and marketing events alone and alongside many of our AV and Broadcast manufacturing partners.
Our marketing organization operates through two distinct marketing teams aligned to our Enterprise and Consumer business units. Each organization is accountable for integrated go-to-market strategy, demand creation, brand stewardship and customer lifecycle engagement within its respective segment
Enterprise Marketing
Our Enterprise marketing organization supports our commercial and AV business, including SME customers and those served through MSPs, VARs and distribution partners. This team is responsible for enterprise brand positioning, thought leadership, account-based and partner-led demand generation, field and industry events, public relations and analyst engagement, digital and performance media, social media strategy, and channel marketing programs.
Enterprise marketing works closely with sales to drive pipeline development, partner enablement and revenue growth through coordinated campaigns, co-marketing initiatives and vertical market programs. The team also leads product and solutions messaging, competitive positioning, new product introductions, and go-to-market execution in collaboration with sales, finance and research and development. Lifecycle marketing programs support customer expansion, retention and recurring revenue, including subscription-based services.
Consumer Marketing
Our Consumer marketing organization supports our home networking and mobile businesses. This team is responsible for global brand management, creative development, integrated campaigns, performance media and demand generation, retail and e-commerce marketing, social media and influencer engagement, public relations and communications, and customer lifecycle and subscription growth marketing.
Consumer marketing drives awareness, consideration, conversion and loyalty across paid, earned and owned channels. Responsibilities include digital acquisition programs, retail and e-tail merchandising support, global content strategy, community engagement, sponsorships and events, and management of our corporate and regional websites and digital platforms. The team also leads installed base and in-app marketing programs to drive subscription attach, renewals and long-term customer value.
Shared Brand Governance
While aligned to separate business units, both marketing organizations operate under a unified corporate brand framework. Centralized brand governance ensures consistent brand standards, messaging architecture, creative excellence and corporate reputation management across all regions and product categories.
Our product marketing group focuses on product and service messaging, new product introductions, product lifecycle management, demand assessment, and competitive analysis. The group works closely with our sales, finance and research and development teams to align our product development roadmap to meet customer technology demands from a strategic perspective. The group also ensures that product and services development activities, product and services launches, and ongoing demand and supply planning for our products occur in a well-managed, timely manner in coordination with our development, manufacturing, and sales groups, as well as our ODM and sales channel partners.
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We conduct most of our international sales and marketing operations through wholly owned subsidiaries, which operate via regional sales and marketing teams and branch offices worldwide, aligned to our Enterprise and Consumer structures.
We are executing a go-to-market transformation aligned to our Enterprise and Consumer segments. This includes modernizing our marketing and digital engagement capabilities; expanding performance media, demand generation and account-based marketing programs; strengthening partner and channel marketing models; simplifying pricing and packaging; enhancing subscription and lifecycle growth initiatives; and leveraging data, marketing technology and automation to improve customer acquisition, engagement and retention across global markets.
Customer Support
We design our products with ease-of-use top of mind. We respond globally to customer inquiries through a variety of channels including phone, chat, community, social media, and email. Customers can also get self-help service through the comprehensive knowledge base, AI chatbot and user forums on our website, and apply AI to optimize support searches. Customer support is provided through a combination of a limited number of permanent employees and use of outsourced agents. Our permanent employees design our technical support model and process and are responsible for training and managing our vendors and their agents. They also handle escalations from the outsourced agents. We utilize the information gained from customer interactions to enhance our product offerings, including further simplifying the installation process.
Intellectual Property
We believe that our continued success will depend primarily on the technical expertise, speed of technology implementation, creative skills and management abilities of our officers and key employees, plus ownership of a limited but important set of copyrights, trademarks, trade secrets and patents. We primarily rely on a combination of copyright, trademark, trade secret, and patent laws, nondisclosure agreements with employees, consultants and suppliers and other contractual provisions to establish, maintain and protect our proprietary rights. We hold approximately 139 issued United States patents that expire between years 2026 and 2044 and 17 foreign patents that expire between 2026 and 2035. No single patent is solely responsible for protecting the Company's products and services. In addition, we currently have approximately 15 pending United States and foreign patent applications related to technology and products offered by us. We also rely on third-party licensors for patented hardware and software license rights in technology that are incorporated into and are necessary for the operation and functionality of our products. Our success will depend in part on our continued ability to have access to these technologies.
We have trade secret rights for our products, consisting mainly of product design, technical product documentation and software. We also own, or have applied for registration of trademarks, in connection with our products in the United States and internationally, including NETGEAR, NETGEAR Armor, NETGEAR Insight, NPG, NPG logo, Orbi, Nighthawk, FASTLANE3, Meural, Trueart, Digital Canvas, and ProSafe.
We have registered a number of internet domain names that we use for electronic interaction with our customers including dissemination of product information, marketing programs, product registration, sales activities, and other commercial uses.
Seasonal Business
We have historically experienced increased net sales in our third and fourth fiscal quarters compared to the first and second quarters in our fiscal year, primarily due to seasonal demand in consumer markets related to the beginning of the school year and the holiday season. In recent years, this seasonal pattern has been less pronounced, reflecting a shift in our business mix toward enterprise-oriented products and services, which are subject to different purchasing cycles than the consumer market.
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Governmental Regulations
Environmental Laws
Our products and manufacturing process are subject to numerous governmental regulations, which cover both the use of various materials as well as environmental concerns. Environmental issues such as pollution and climate change have had significant legislative and regulatory effects on a global basis, and there are expected to be additional changes to the regulations in these areas. These changes could directly increase the cost of energy, which may have an impact on the way we manufacture products or utilize energy to produce our products. In addition, any new regulations or laws in the environmental area might increase the cost of raw materials we use in our products and the cost of compliance. Other regulations in the environmental area may require us to continue to monitor and ensure proper disposal or recycling of our products. To the best of our knowledge, we maintain compliance with all current government regulations concerning our production processes and product disposal in the locations where we operate and sell. Since we operate on a global basis, this is a complex process that requires continual monitoring of regulations and compliance efforts to ensure that we, and our suppliers, are in compliance with all existing regulations.
Other Regulations
As a company with global operations, we are subject to complex foreign and U.S. laws and regulations, including trade regulations, tariffs, import and export regulations and licensing requirements, anti-bribery and corruption laws, antitrust or competition laws, data privacy laws, such as the EU General Data Protection Regulation (the “GDPR”), and environmental regulations, among others. These laws are evolving rapidly. We have policies and procedures in place to track and promote compliance with these laws and regulations. To date, our compliance actions and costs relating to these laws, rules and regulations have not resulted in a material cost or effect on our capital expenditures, earnings or competitive position. Government regulations are subject to change, and accordingly we are unable to assess the possible effect of compliance with future requirements or whether our compliance with such regulations will materially impact our business in the future. In addition, new laws and/or regulations could be subject to unforeseen interpretation to the detriment of our business. For further discussion of how government regulations may affect our business, see the related discussion in “Risk Factors – Financial, Legal, Regulatory and Tax Compliance Risks, Including Recent Charges.”
Human Capital
As of December 31, 2025, we had 784 full-time employees, with 235 in sales, marketing and technical support, 346 in research and development, 77 in operations, and 126 in finance, information systems and administration. We also utilize a number of temporary staff to supplement our workforce. At NETGEAR, we believe in the power of open communication up, down and across the organization and consider our relationship with our employees to be good. We have not experienced any labor disputes. Some of our key human capital management programs are summarized below.
Culture and Engagement
At NETGEAR, our talent philosophy provides a guiding framework for the talent management practices that drive the achievement of our business strategy. It is rooted in the belief that our capacity to win is directly linked to the capabilities, experience and ideas that our people bring to bear on behalf of the Company. By fostering an environment where performance and behaviors are of equal importance, we aim to transform our business and achieve exceptional results. Our approach is multi-faceted, with core principles focusing on performance differentiation, values –aligned behaviors, transparency, accountability, capability and development.
A high-performance culture, fueled by sustained impactful performance at every level across the organization is a key focus. We believe that every team member has the potential to contribute significantly to our company's success, and we set exceptionally high standards of performance, making it the baseline expectation. To enable impactful performance, we have established clear performance metrics and objectives that align with our strategic
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goals. By setting high standards, which increase in line with level in the organization, and providing the necessary support, we empower our employees to excel and drive the business forward.
Our company Values are Dare to Transform, Connect and Delight, Communicate Courageously, and Win It Together. These values form the foundation of our company culture. By embodying these principles, we strive to create an environment that fosters innovation, collaboration, open and transparent communication and a relentless focus on customer satisfaction. We believe that our commitment to these values enables us to navigate the ever-changing landscape of technology and consistently deliver exceptional products and services to our customers.
We expect our employees to embody our core values in their daily actions and decisions. This values alignment ensures employees understand the types of actions that drive our purpose and mission, and that we maintain a cohesive and positive workplace culture which is essential for achieving our long-term objectives. A demonstrated commitment to our Company values has a meaningful impact on employees’ performance ratings, progression and rewards. By recognizing and rewarding values-aligned behaviors, we reinforce their importance within our organization.
In addition, we are focused on creating clarity and opportunities for our employees to grow and develop. With talent programs that include standardized job levels and expectations, regular feedback and coaching, dual career tracks, competency-based career frameworks, leadership development, skill building and training support, we strive to create a high-performance culture and an environment where employees can grow, develop and build a great career.
Compensation and Benefits
Our compensation philosophy is critical to fostering a performance-driven culture and is based on pay for performance. We strive to provide our employees with compensation and rewards that are market-competitive, and incentivize and reward high performance. We offer a wide variety of benefits for employees around the world and invest in tools and resources that are designed to support our employees’ individual growth and development.
Talent Acquisition and Development
Our global Talent Acquisition strategy focuses on attracting top talent through a variety of channels including direct recruiting via our internal team, leveraging technology and tools, employee referral programs and university partnerships. Strategic skill-based hiring based on core competencies as well as culture-add & values alignment assessment are key elements in ensuring that we attract the right people for the right roles at the right time.
In addition to the elements already outlined, our Learning and Development strategy is focused on implementing learning solutions that address key challenges and deliver quantifiable value and impact to help drive our organization strategy and goals.
Safety, Health and Wellbeing
We strive to safeguard the safety, health and well-being of all members of our team. In addition to healthcare benefits, we provide a variety of wellness resources and programs designed to help employees achieve good physical, financial, emotional, intellectual and social well-being.
We monitor our workplace to maintain a clean and safe environment, identify hazards, minimize injury and illness, promote industrial hygiene, provide ergonomic training and equipment, machine safeguarding and more.
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Available Information
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are filed with the Securities Exchange Commission (the “SEC”).
Our website address is www.netgear.com . Our website provides a link to our SEC filings, which are available free of charge on the same day such filings are made. The specific location on the website where these reports can be found is http://investor.netgear.com/sec.cfm. Our website also provides a link to Section 16 filings which are available free of charge on the same day as such filings are made. Information contained on these websites is not a part of this Annual Report on Form 10-K.
Information About Our Executive Officers
The following table sets forth the names, ages and positions of our executive officers as of February 6, 2026.
Name
Age
Position
Charles (CJ) Prober
Chief Executive Officer
Bryan D. Murray
Chief Financial Officer
Pramod Badjate
President and General Manager, Enterprise
Jonathan Oakes
Senior Vice President, Consumer
Charles (CJ) Prober has served as our Chief Executive Officer and a member of the board of directors since January 2024. Prior to joining the Company, Mr. Prober served as President of Life360, Inc. ("Life360"), a technology platform company, from January 2022 to July 2023. He joined Life360 via the acquisition of Tile, Inc. ("Tile"), a technology company, in January 2022 and served as the Chief Executive Officer of Tile from September 2018 to January 2022. Mr. Prober also previously served as a member of Tile’s board of directors from February 2018 to January 2022, including as its Executive Chairman from February 2018 to September 2018. Before then, he served as the Chief Operating Officer of GoPro, Inc. from January 2017 to February 2018 and its Senior Vice President of Software and Services from June 2014 to December 2016. Prior thereto, Mr. Prober held executive leadership roles at Electronic Arts Inc., and prior to his executive leadership roles, Mr. Prober was a consultant with McKinsey & Company and a corporate attorney with Wilson Sonsini Goodrich & Rosati. Mr. Prober currently serves on the boards of directors of Life360 and Glorious Gaming, a private company. Mr. Prober received his Bachelor of Commerce from the University of Manitoba and a Bachelor of Laws from McGill University.
Bryan D. Murray has served as our Chief Financial Officer since August 2018. He has been with NETGEAR since November 2001, serving in various management roles within the finance organization. Prior to assuming the role of CFO, he served as NETGEAR’s Vice President of Finance and Corporate Controller since June 2011. Before joining NETGEAR in 2001, he worked in public accounting at Deloitte and Touche LLP. He holds a B.A. from the University of California, Santa Barbara, and is licensed as a Certified Public Accountant (inactive).
Pramod Badjate has served as our President and General Manager of Enterprise (formerly NETGEAR for Business) since July 2024. Before joining NETGEAR, from December 2023 to June 2024, Mr. Badjate was an EIR (Entrepreneur in Residence) at Storm Ventures, a venture capital firm. From October 2021 to December 2023, he was the Group Vice President and General Manager for the Cognitive Campus business at Arista Networks, a computer networking company. Prior to that, Mr. Badjate served in various engineering and business roles at Ruckus Networks, a networking equipment and software company, from October 2013 to October 2021. Earlier in his career, Pramod held senior engineering roles at Cisco, a leader in enterprise WiFi. He holds a bachelor's degree in engineering from the National Institute of Technology, Karnataka, and a master's in computer science and an MBA from Arizona State University.
Jonathan Oakes has served as our Senior Vice President of Consumer since June 2025. Before joining NETGEAR, Mr. Oakes was a Senior Vice President Product Management at Axon Enterprise, Inc., a technology company focused on public safety, from January 2025 to June 2025. From November 2016 to June 2024, Mr. Oakes was with Fitbit, Inc., which was acquired by Google LLC in January 2021, and served in various leadership roles, including Vice President of Product management and UX. Prior to that, Mr. Oakes held product leadership roles at Amazon.com, Inc. Mr. Oakes holds a B.A. from Skidmore College and an M.B.A. from Harvard Business School.
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Item 1A. Ri sk Factors
Investing in our common stock involves a high degree of risk. The risks described below are not exhaustive of the risks that might affect our business. Other risks, including those we currently deem immaterial, may also impact our business. Any of the following risks could materially adversely affect our business operations, results of operations and financial condition and could result in a significant decline in our stock price. Before deciding to purchase, hold or sell our common stock, you should carefully consider the risks described in this section. This section should be read in conjunction with the consolidated financial statements and accompanying notes thereto, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Annual Report on Form 10-K.
Risks Related to our Business, Industry and Operations
We obtain several key components from limited or sole sources, and if these sources fail to satisfy our supply requirements or we are unable to properly manage our supply requirements with our third-party manufacturers, we may lose sales and experience increased component costs.
Shortages or delay in the supply of key product components, or sudden, unforeseen price increases for such components, such as current uncertainty regarding memory semiconductors and related components, could harm our ability to meet product deliveries as scheduled or as budgeted. Many of the semiconductors used in our products are obtained from sole source suppliers on a purchase order basis. In addition, some components that are used in all our products are obtained from limited sources. We also obtain switching fabric semiconductors, which are used in our Ethernet switches and Internet gateway products, and WiFi chipsets, which are used in all of our wireless products, from a limited number of suppliers. We also use Cable Modem chipsets and Mobile chipsets in our cable and mobile products. Semiconductor suppliers have experienced and continue to experience component shortages themselves, such as with lead-frames and substrates used in manufacturing chipsets, which in turn adversely impact our ability to procure semiconductors from them in sufficient quantities and in a timely manner. For example, we had previously experienced certain chipset shortages for some of our switching products from two of our semiconductor suppliers who did not have enough wafer capacity to our demand, and this continued for several quarters. Our third-party manufacturers generally purchase these components on our behalf on a purchase order basis, and we do not have any guaranteed supply arrangements with our suppliers. If demand for a specific component increases, we may not be to obtain an adequate number of that component in a timely manner, and prices to obtain such components may increase. In addition, if worldwide demand for the components increases significantly, the availability of these components could be limited and prices for such components may increase. For example, as the demand for Artificial Intelligence chips increases, semiconductor production capacity may be shifted to these specific components thereby constraining supply of or increasing cost on chips used in our products. Further, dependence on a sole source for certain key components of our products may allow such sole source suppliers to command increased leverage in negotiating prices and other terms of sale, which could affect our . As a result, we may be left with little choice but to accept such higher prices or other fees for key components in order to ensure continuity of supply. This could affect our or if we choose to push back more terms, could lead to supply, which could materially affect our business. Our suppliers may also experience financial or other as a result of uncertain and worldwide economic, geopolitical conditions, trade or public health issues. Other factors which may affect our suppliers’ ability or willingness to supply components to us include internal management product allocation decisions or reorganizational issues, such as roll-out of new equipment or to information infrastructure or power transmission or navigation which may or supply of previously forecasted components, or industry consolidation and , which may result in changed business and product priorities among certain suppliers. It could be , and time consuming to obtain alternative sources for components we currently procure, or to change product designs to make use of alternative components. In addition, in transitioning from an existing supplier to a new supplier could create in component availability that would have a significant impact on our ability to fulfill orders for our products.
We provide our third-party manufacturers with a rolling forecast of demand and purchase orders, 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 WiFi chipsets, switching fabric
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chips, physical layer transceivers, and logic, power, analog and RF chipsets. 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. Historically, 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, which could be material.
If we are unable to obtain a sufficient supply of components due to factors including but not limited to increased demand due to trade policy or regulatory requirements, or if we experience any interruption in the supply of components, our product shipments could be reduced or delayed or our cost of obtaining these components may increase. Component shortages and delays affect our ability to meet scheduled product deliveries, damage our brand and reputation in the market, and cause us to lose sales and market share. At times we have elected to purchase components on the spot market or to use more expensive transportation methods, such as air freight, to make up for manufacturing delays caused by component shortages, which reduces our margins.
Optimizing our channel partners' inventory levels and product mix within the current environment is challenging, and we have, and may in the future, incur costs associated with excess inventory, or lose sales from having too few products.
If we are unable to properly monitor and optimize our channel partners' inventory levels and maintain an appropriate level and mix of products with our retail partners and wholesale distributors and within our sales channels, we may incur increased and unexpected costs associated with this inventory. In 2022 and the first half of 2023, many of our retail and service provider partners began significantly reducing their target inventory levels which adversely affected our results of operations. While we believe our channel partners' current inventory targets are at reasonable levels, the uncertain macroeconomic and geopolitical environment and high inflation and interest rates could change our partners' desired inventory targets. In the past, we have experienced lower revenue as a result of our channel partners lowering their inventory levels and higher cost of carrying excess channel inventory. On the other hand, low channel inventory levels increase the likelihood that our sales channel customers may not be able to fulfill end user demand, leading to delayed or lost sales, unhappy customers and potential impacts to our brand and reputation. stock levels could also our ability to fulfill large orders or take of demand spikes, thereby limiting revenue growth . Moreover, reductions in target inventory levels put pressure on our ability to accurately forecast customer demand and inventory requirements and increases the likelihood that the accuracy of such forecasts would be lower. We determine production levels based on our forecasts of demand for our products. Actual demand for our products depends on many factors, which makes it to forecast. We have experienced differences between our actual and our forecasted demand in the past and expect differences to arise in the future. If we forecast demand for our products and channel inventory levels, we could end up with too many products and be to sell the excess inventory in a timely manner, if at all, or, alternatively we could end up with too few products and not be to demand. This is because we attempt to closely match inventory levels with product demand leaving limited margin for . Also, during the transition from an existing product to a new replacement product, we must accurately predict the demand for the existing and the new product. If we forecast demand for our products and channel inventory levels, we could incur increased expenses associated with writing off or inventory, sales, incur for delivery or have to ship products by air freight to meet immediate demand incurring incremental freight costs above the sea freight costs and a corresponding in gross margins. For example, when demand for our products turns out to be lower than we previously forecasted, it results in our revenue for our products to come in lower than expected, as our channel partners in the U.S. replenish inventory than they sell through to end users to right size their inventory carrying position based on the lower demand levels than previously expected. In addition, we generally allow wholesale distributors and traditional retailers to return a limited amount of our products in exchange for other products. Under our price protection policy, if we reduce the list price of a product, we are often required to issue a credit in an amount equal to the reduction for each of the products held in inventory by our wholesale distributors and retailers. If our wholesale distributors and retailers are to sell their inventory in a timely manner, we might lower the price of the products, or these parties may exchange the products for newer products or decrease their purchases of our products in subsequent periods, which would affect our revenue and results of operations.
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To remain competitive and stimulate consumer and business demand, generally and in compliance with newly proposed or future regulations, we must successfully manage new product introductions and transitions of products and services, services, including with increasing investments in security features and sourcing of critical components from sources to enhance the security features of our products as well as regulatory compliance readiness.
We operate in a highly competitive, quickly changing environment, and our future success depends on our ability to develop or acquire and introduce new products and services, enhance existing products and services, effectively stimulate customer and business demand for new and upgraded products and services, and successfully manage the transition to these new and upgraded products and services. Our future success will depend in large part upon our ability to identify demand trends in the consumer, business and service provider markets, and to quickly develop or acquire, manufacture and market and sell products and services that satisfy these demands in a cost-effective manner. In order to differentiate our products from our competitors’ products, we must continue to increase our focus and capital investment in research and development and marketing and sales, including software development for our products and complementary services and applications. For example, we previously made a strategic shift to focus on premium, higher margin products and have committed a substantial amount of resources to the development, manufacture, branding, marketing and sale of our Nighthawk mobile hotspot products, Orbi WiFi systems and Pro AV managed switches, and to introducing additional and models and services in these lines. In the third quarter of 2023, we launched our first WiFi 7 products, namely the Orbi 97X mesh system and the Nighthawk RS700 router, and will continue to invest in a pipeline of WiFi 7 introductions in 2024 across all our major product lines. To get ahead of the rapidly evolving regulatory compliance landscape, and given the importance of cyber security in the networking space, we have also invested in cybersecurity, security features and procuring internet-connected components from sources outside of nations deemed foreign by the US government, which the Company’s compliance and cyber security posture, but also comes at cost. The of new products and services depends on a number of factors, including timely and development either through rapid or acquisition, market acceptance, our ability to manage the risks and costs, such as investment costs and marketing costs, associated with development and introduction of new products and services, the management of purchase commitments and channel inventory levels in line with anticipated product demand, availability of products in appropriate quantities and at expected costs to meet anticipated demand, the risk that new products and services may have , quality or other or and our ability to effectively manage marketing and reviews of our products and services.
In addition, we have acquired companies and technologies in the past and as a result, have introduced new product lines in new markets. We may not be able to successfully manage integration of the new product lines with our existing products. Selling new product lines in new markets will require our management to learn different strategies in order to be successful. We may be unsuccessful in launching a newly acquired product line in new markets which requires management of new suppliers, potential new customers and new business models. Our management may not have the experience of selling in these new markets and we may not be able to grow our business as planned. If we are unable to effectively and successfully further develop these new product lines, we may not be able to increase or maintain our sales and our gross margins may be adversely affected.
Accordingly, if we cannot properly drive customer and business demand, manage future introductions and transitions of products and services, this could result in:
loss of or delay in revenue and loss of market share;
negative publicity and damage to our reputation and brand;
a decline in the average selling price of our products;
adverse reactions in our sales channels, such as reduced shelf space, reduced channel inventory levels, reduced online product visibility, or loss of sales channels; and
increased levels of product returns.
In addition, if we are unable to successfully introduce or acquire new products with higher gross margins, or enhance and improve our services and subscription offerings for customer retention or service revenue growth, or if
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we are unable to improve the margins on our previously introduced and rapidly growing product and services lines, our net revenue and overall gross margin would likely decline.
Changes in trade policy and regulation in the United States and other countries, including but not limited to the imposition of tariffs, may adversely impact our business, results of operations and financial condition.
International trade disputes, geopolitical tensions, and military conflicts have led, and continue to lead, to new and increasing export restrictions, import restrictions, trade barriers, tariffs, and other trade measures that can increase our manufacturing and transportation costs, limit our ability to sell to certain customers or markets, limit our ability to procure, or increase our costs for, components or raw materials, impede or slow the movement of our goods across borders, or otherwise restrict our ability to conduct operations. Increasing protectionism, economic nationalism, and national security concerns may also lead to further changes in trade policy. For example, when the U.S. government engaged in extended trade negotiations with China, which resulted in the implementation of tariffs on a significant number of products manufactured in China and imported into the United States, we worked closely with our manufacturing partners to implement ways to mitigate the impact of these tariffs on our supply chain as promptly and reasonably as practicable, ultimately leading to the successful shift of our manufacturing entirely outside of China.
Additionally, the U.S. has announced substantial new tariffs affecting a wide range of products and jurisdictions and has indicated an intention to continue developing new trade policies. In response, certain foreign governments have announced or implemented retaliatory tariffs and other protectionist measures. These developments have created a dynamic and unpredictable trade landscape. Retaliatory trade policies or anti-U.S. sentiment in certain regions whether driven by trade tensions, political disagreements, or regulatory concerns may make customers, governments and investors more hesitant to engage with, purchase from or invest in U.S. firms. This may lead to increased preference for local competitors, changes to government procurement policies, heightened regulatory scrutiny, decreased intellectual property protections, delays in regulatory approvals or other retaliatory regulatory non-tariff policies, which may result in heightened international legal and operational risks and difficulties in attracting and retaining non-U.S. customers, suppliers, employees, partners and investors. While the tariffs as currently implemented do not have a material impact on our business, future tariff policy changes could impact our business. For example, we manufacture our products overseas in Thailand, Vietnam, Indonesia and Taiwan. If additional tariffs are announced or otherwise implemented in a manner that apply to our products imported to the United States from those countries, our margins could be affected. However, given the and uncertainty regarding the scope and duration of such tariffs and other aspects of U.S. and foreign government trade policies, the ultimate impact on our operations and financial results remains uncertain but could be significant. The complexity of announced or future tariffs and potential additional trade policy and regulation may also increase the risk that we or our customers or suppliers may be subject to enforcement actions in the U.S. or foreign jurisdictions related to compliance with trade regulations. The evolving trade environment may also broader macroeconomic and financial market , including decreased consumer spending, inflationary pressures affecting interest rates, exchange rate , and financing due to market , which may result in decreased customer demand, purchases, limited expansion with customers, increased operational costs, and attracting capital. Ongoing tariff, trade policy and regulations and macroeconomic uncertainty may also contribute to in the price of our common stock.
We cannot predict what further actions may be taken with respect to export regulations, import regulations, tariffs or other trade regulations between the United States and other countries, what products or companies may be subject to such actions, or what actions may be taken by other countries in retaliation. In addition, actions to mitigate the effect of new regulations could be disruptive to our operations, may not be completely successful and may result in higher long-term manufacturing costs. Moreover, there is no certainty that countries to which we have shifted our manufacturing operations will not be subject to similar tariffs in the future. As a result, the potential exists that we may need to raise our prices on certain products, which could result in the loss of customers and harm to our revenue, market share, competitive position and operating performance.
Additionally, the imposition of tariffs is dependent upon the classification of items under the Harmonized Tariff System (“HTS”) and the country of origin of the item. Determination of the HTS and the origin of the item is a technical matter that can be subjective in nature. Accordingly, although we believe our classifications of both HTS and origin are appropriate, there is no certainty that the U.S. government will agree with us. If the U.S. government
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does not agree with our determinations, we could be required to pay additional amounts, including potential penalties, and our profitability would be adversely impacted.
While we continue to monitor trade developments, the ultimate impact of these risks remains uncertain and any prolonged economic downturn, escalation in trade tensions, or deterioration in international perception of U.S.-based companies could materially and adversely affect our business, results of operations, financial condition and prospects. In addition, tariffs and other trade developments have and may continue to heighten the risks related to the other risk factors described elsewhere in this report.
Investment in new business strategies could disrupt our ongoing business, present risks not originally contemplated and materially adversely affect our business, reputation, results of operations and financial condition.
We have invested, and in the future may invest, in new business strategies and adjust existing business strategies, including but not limited to investments in cybersecurity, security features and the procurement of internet-connected components from sources to ensure the security of our products and regulatory readiness. Such endeavors may involve significant risks and uncertainties, including distraction of management from current operations, greater-than-expected liabilities and expenses, economic, legal and regulatory challenges, inadequate return on capital, potential impairment of tangible and intangible assets, and significant write-offs. Changes in business strategies are inherently risky and may not be successful. The failure of any significant investment could materially adversely affect our business, reputation, results of operations and financial condition. For example, as mentioned in the risk factor above “ To remain competitive and stimulate consumer and business demand, we must successfully manage new product introductions and transitions of products and services ”, we previously made a strategic shift to focus on premium, higher margin products and services and we continue to make changes in our business strategies, including pursuing new, adjacent markets. Changes in business strategy would require us to hire in key areas and make certain investments, including marketing; however, such investments may not prove to be . Additionally, a significant part of our business strategy and culture is to focus on long-term growth and as a result, our may be lower than it would be if our strategy were to maximize short-term financial results. If we are ultimately to at the level or during the time frame anticipated by securities or industry analysts and our stockholders, the trading price of our common stock may . If we to develop and execute on our business strategies, our business, financial condition, results of operations and reputation could be materially affected.
We rely on a limited number of traditional and online retailers, wholesale distributors and service provider customers for a substantial portion of our sales, and our net revenue could decline if they refuse to pay our requested prices or reduce their level of purchases, if there are unforeseen disruptions in their businesses, or if there is significant consolidation in our customer base that results in fewer customers for our products.
We sell a substantial portion of our products through traditional and online retailers, including Best Buy Co., Inc., Amazon.com, Inc. and their affiliates, wholesale distributors, including Ingram Micro, Inc. and TD Synnex, and service providers, such as AT&T. We expect that a significant portion of our net revenue will continue to come from sales to a small number of customers for the foreseeable future. In addition, because our accounts receivable are often concentrated with a small group of purchasers, the failure of any of them to pay on a timely basis, or at all, would reduce our cash flow. We are also exposed to increased credit risk if any one of these limited numbers of customers fails or becomes insolvent. We generally have no minimum purchase commitments or long-term contracts with any of these customers. These purchasers could decide at any time to discontinue, decrease or delay their purchases of our products. If our customers increase the size of their product orders without sufficient lead-time for us to process the order, our ability to fulfill product demands would be compromised. These customers have a variety of suppliers to choose from and therefore can make substantial demands on us, including demands on product pricing and on contractual terms, which often results in the allocation of risk to us as the supplier. Accordingly, the prices that they pay for our products are subject to negotiation and could change at any time. For example, as mentioned below in the risk factors “ If in our transportation network continue to occur or our shipping costs substantially increase again in the future, we may be to sell or timely deliver our products, and net revenue and our gross margin could decrease ” and “ We obtain several key components from limited or sole sources, and if these sources to our supply requirements or we are to properly manage our supply requirements with our third-party manufacturers, we may sales and experience increased component costs, ” we had previously experienced high freight costs and component costs and had issued price increases to our customers. Our ability to maintain
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relationships with our principal customers is essential to our future performance. If any of our major customers reduce their level of purchases or refuse to pay the prices that we set for our products, our net revenue and operating results could be harmed.
Furthermore, some of our customers are also our competitors in certain product categories, which could negatively influence their purchasing decisions. For example, Amazon owns Eero, one of our competitors in the mesh WiFi systems product category. Our traditional retail customers have faced increased and significant competition from online retailers, and some of these traditional retail customers have increasingly become a smaller portion of our business. If key retail customers continue to reduce their level of purchases, our business could be harmed. Similarly, we sell products and services directly to consumers from our own e-commerce platforms and expect these revenues to grow proportionate to overall revenue. Some of our customers, such as Amazon and Best Buy, may consider this to be competitive with their own businesses, which could negatively influence their purchasing decisions with respect to our products. Furthermore, we have experienced a shift towards products being bought and sold online. If we are unable to adjust to this shift and effectively manage our business and inventory requirements amongst our online customers and traditional retail customers, this may lead to lower market share and lower revenues for us, and our net revenue and operating results could be harmed.
In addition, adverse changes in economic conditions or unforeseen disruptions in the businesses of any of our key customers could adversely impact the sale of our products to end users and the quantity of products our customers decide to purchase from us. For example, as mentioned above in the risk factor “ Optimizing our channel partners' inventory levels and product mix within the current environment is challenging, and we have, and may in the future, incur costs associated with excess inventory, or lose sales from having too few products, ” many of our retail and service provider customers have reduced and continue to reduce their target inventory levels. This shift may have a longer-term impact on the inventory levels our customers choose to carry.
Additionally, concentration and consolidation among our customer base may allow certain customers to command increased leverage in negotiating prices and other terms of sale, which could adversely affect our profitability. If, as a result of increased leverage, customer pressures require us to reduce our pricing such that our gross margins are diminished, we could decide not to sell our products to a particular customer, which could result in a decrease in our revenue. Consolidation among our customer base may also lead to reduced demand for our products, elimination of sales opportunities, replacement of our products with those of our competitors and cancellations of orders, each of which would harm our operating results. Consolidation among our service provider customers worldwide may also make it more difficult to grow our service provider business, given the fierce competition for the already limited number of service providers worldwide and the long sales cycles to close deals. If consolidation among our customer base becomes more prevalent, our operating results may be harmed.
Some of our competitors have substantially greater resources than we do, and to be competitive we may be required to lower our prices or increase our sales and marketing expenses, which could result in reduced margins or loss of market share and revenue.
We compete in a rapidly evolving and fiercely competitive market, and we expect competition to continue to be intense, including price competition. Our principal competitors in the consumer market include ARRIS, ASUS, D-Link, Eero (owned by Amazon), and TP-Link. Our principal competitors in the business market include Arista, Cisco Systems, D-Link, Extreme Networks, Fortinet, Haiwei, Hewlett-Packard Enterprise, Ruckus Networks, TP-Link, and Ubiquiti. Our principal competitors in the service provider market include Compal, Franklin, Huawei, Inseego, Nokia, Orbic, Sonim, TP-Link, and ZTE. Other competitors include numerous local vendors such as Xiaomi in China, AVM in Germany and Buffalo in Japan. In addition, these local vendors may target markets outside of their local regions and may increasingly compete with us in other regions worldwide. Our potential competitors also include other consumer electronics vendors, including Apple, LG Electronics, Microsoft, Panasonic, Sony, Toshiba and Vizio, who could integrate networking and streaming capabilities into their line of products, such as televisions, set top boxes and gaming consoles, and our channel customers who may decide to offer self-branded networking products. We also face competition from service providers who may bundle a free networking device with their broadband service offering, which would reduce our sales if we were not the supplier of choice to those service providers. In the service provider space, we also face significant and increased competition from original design manufacturers, or ODMs, and contract manufacturers who sell and attempt to sell their products directly to service providers around the world.
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Many of our existing and potential competitors have longer operating histories, greater name recognition and substantially greater financial, technical, sales, marketing and other resources. These competitors may, among other things, undertake more extensive marketing campaigns, adopt more aggressive pricing policies, obtain more favorable pricing from suppliers and manufacturers, and exert more influence on sales channels than we can. Certain of our significant competitors also serve as key sales and marketing channels for our products, potentially giving these competitors a marketplace advantage based on their knowledge of our business activities and/or their ability to negatively influence our sales opportunities. For example, Amazon provides an important sales channel for our products, but it also competes with us in the mesh WiFi systems product category through its subsidiary Eero. In addition, certain competitors may have different business models, such as integrated manufacturing capabilities, that may allow them to achieve cost savings and to compete on the basis of price. Other competitors may have fewer resources but may be more nimble in developing new or disruptive technology or in entering new markets. We anticipate that current and potential competitors will also intensify their efforts to penetrate our target markets. For example, in the past certain network security companies such as Symantec have introduced security routers for the home consumer market to compete with us and we believe that other network security companies may also seek to do the same. Also, due to our recent in the audio visual over IP market, some of our competitors may seek to enter this market as well. Price competition is intense in our industry in certain geographical regions and product categories. Many of our competitors in the service provider and retail spaces price their products significantly below our product costs in order to market share. Certain substantial competitors have business models that are more focused on customer acquisition and access to customer data rather than on financial return from product sales, and these competitors have the ability to provide sustained price competition to many of our products in the market. Average sales prices have in the past and may again in the future. These competitors may have more advanced technology, more extensive distribution channels, brand names, access to shelf space in retail locations, bigger promotional budgets and larger customer bases than we do. In addition, many of these competitors leverage a broader product portfolio and offer lower pricing as part of a more comprehensive end-to-end solution which we may not have. These companies could devote more capital resources to develop, manufacture and market competing products than we could. Our competitors may acquire other companies in the market and leverage combined resources to market share. In some instances, our competitors may be acquired by larger companies with additional formidable resources, such as the purchase of ARRIS by CommScope and Eero by Amazon. Additionally, in the case of Linksys, Foxconn is one of our main third-party manufacturing partners, which presents an additional risk if Foxconn decides to prioritize its interest in Linksys over its relationship with us. If any of these companies are in competing us, our sales could , our margins could be impacted and we could market share, any of which could our business and results of operations.
We depend substantially on our sales channels and certain significant customers and loss of and/or failure to maintain and expand our customer sales volume and/or sales channels would result in lower sales and reduced net revenue.
To maintain and grow our market share, net revenue and brand, we must maintain and expand our sales channels. Our sales channels consist of traditional retailers, online retailers, DMRs, MSPs, and broadband service providers. Some of these entities purchase our products through our wholesale distributor customers. We generally have no minimum purchase commitments or long-term contracts with any of these third parties.
Traditional retailers have limited shelf space and promotional budgets, and competition is intense for these resources. If the networking sector does not experience sufficient growth, retailers may choose to allocate more shelf space to other consumer product sectors and may choose to reduce their inventory levels. A competitor with more extensive product lines and stronger brand identity may have greater bargaining power with these retailers. Any reduction in available shelf space or inventory levels or increased competition for such shelf space would require us to increase our marketing expenditures simply to maintain current levels of retail shelf space and inventory levels, which would harm our operating margin. In addition, reduction in inventory levels puts pressure on our ability to accurately forecast customer demand. A failure to accurately predict high demand for a product could result in lost sales or higher product costs if we meet demand by paying higher costs for materials, production and delivery. We could also frustrate our customers and lose further shelf space and market share. A failure to predict low demand for a product could result in excess inventory, further reductions in target inventory levels, lower cash flows and lower margins if we are required to reduce product prices in order to reduce inventories.
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Our traditional retail customers have faced increased and significant competition from online retailers. Further, we have experienced the shift to a greater percentage of purchases taking place online versus traditional retail customers. If we cannot effectively manage our business and inventory requirements amongst our online customers and traditional retail customers, our business would be harmed. The recent trend in the consolidation of online retailers and DMR channels has resulted in intensified competition for preferred product placement, such as product placement on an online retailer’s Internet home page. Expanding our presence in the MSP channel may be difficult and expensive. We compete with established companies that have longer operating histories and longstanding relationships with MSPs that we would find highly desirable as sales channel partners. In addition, our efforts to realign or consolidate our sales channels may cause temporary disruptions in our product sales and revenue, and these changes may not result in the expected longer-term benefits. We also sell products and services directly to consumers from our own e-commerce platforms. This requires material investment in capital, time and resources and carries the risk that it may not achieve the expected return on investment that we are expecting, and that it may affect our relationships with our existing channel partners, which ultimately may materially and affect our results of operations.
We also sell products to broadband service providers. Competition for selling to broadband service providers is fierce and intense. Penetrating service provider accounts typically involves a long sales cycle and the challenge of displacing incumbent suppliers with established relationships and field-deployed products. If we are unable to maintain and expand our sales channels, our growth would be limited and our business would be harmed.
We must also continuously monitor and evaluate emerging sales channels. If we fail to establish a presence in an important developing sales channel, such as sales directly to consumers from our own e-commerce platforms, our business could be harmed.
We depend on a limited number of third-party manufacturers for substantially all of our manufacturing needs. If these third-party manufacturers experience any delay, disruption or quality control problems in their operations, we could lose revenue and our brand may suffer.
All of our products are manufactured, assembled, tested and generally packaged by a limited number of third-party manufacturers, including original design manufacturers, or ODMs, as well as their sub-contract manufacturers. In most cases, we rely on these manufacturers to procure approved components and, in some cases, subcontract engineering work. Some of our products are manufactured by a single manufacturer. We do not have any long-term contracts with any of our third-party manufacturers. Some of these third-party manufacturers produce products for our competitors or are themselves competitors in certain product categories. Due to uncertain and changing economic and geopolitical conditions, the viability of some of these third-party manufacturers may be at risk. The loss of the services of any of our primary third-party manufacturers could cause a significant disruption in operations and delays in product shipments. Qualifying a new manufacturer and commencing volume production is expensive and time consuming. Ensuring that a manufacturer is qualified to manufacture our products to our standards is time consuming. In addition, there is no assurance that a manufacturer can produce our products at the appropriate volumes and in the quality that we require. In addition, as we recently have transitioned a substantial portion of our manufacturing facilities to different regions, we are subject to additional significant challenges in ensuring that quality, processes and costs, among other issues, are consistent with our expectations. For example, while we expect our manufacturers to be responsible for assessed on us because of of the products, there is no assurance that we will be to collect such reimbursements from these manufacturers, which causes us to take on additional risk for potential of our products.
Our reliance on third-party manufacturers also exposes us to the following risks over which we have limited control:
unexpected increases in manufacturing and repair costs;
inability to control the quality and reliability of finished products;
inability to control delivery schedules;
potential liability for expenses incurred by third-party manufacturers in reliance on our forecasts that later prove to be inaccurate, including the cost of components purchased by third-party manufacturers on our behalf, which may be material;
potential lack of adequate capacity to manufacture all or a part of the products we require; and
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potential labor unrest affecting the ability of the third-party manufacturers to produce our products.
All of our products must satisfy safety and regulatory standards and some of our products must also receive government certifications. Our third-party manufacturers are primarily responsible for conducting the tests that support our applications for most regulatory approvals for our products. If our third-party manufacturers fail to timely and accurately conduct these tests, we would be unable to obtain the necessary domestic or foreign regulatory approvals or certificates to sell our products in certain jurisdictions. As a result, we would be unable to sell our products and our sales and profitability could be reduced, our relationships with our sales channel could be harmed, and our reputation and brand would suffer.
Specifically, substantially all of our manufacturing and assembly occurs in the Asia Pacific region, and any disruptions due to natural disasters, climate change, health epidemics and political, social and economic instability in the region would affect the ability of our third-party manufacturers to manufacture our products. Furthermore, if the cost of production charged by our third-party manufacturers increases, it may affect our margins and ability to lower prices for our products to stay competitive. Labor or geopolitical unrest in locations where components and our products are manufactured may also affect our third-party manufacturers as workers may strike and cause production delays. If our third-party manufacturers fail to maintain good relations with their employees or contractors, and production and manufacturing of our products is affected, then we may be subject to shortages of products and quality of products delivered may be affected. Further, if our manufacturers or warehousing facilities are disrupted or destroyed, we would have no other readily available alternatives for manufacturing and assembling our products and our business would be significantly .
In our typical ODM arrangement, our ODMs are generally responsible for sourcing the components of the products and warranting that the products will work against a product’s specification, including any software specifications. If we needed to move to a contract manufacturing arrangement, we would take on much more, if not all, of the responsibility around these areas, including increased costs and personnel expertise. If we are unable to properly manage these risks, our products may be more susceptible to defects and our business would be harmed.
Our sales and operations in international markets have exposed us to and may in the future expose us to operational, financial and regulatory risks.
International sales comprise a significant amount of our overall net revenue. International sales were approximately 34% of overall net revenue in fiscal 2025 and fiscal 2024, respectively. We continue to be committed to growing our international sales, and while we have committed resources to expanding our international operations and sales channels, these efforts may not be successful. For example, in fiscal 2022 we experienced the strengthening of the U.S. dollar, which had a meaningful negative impact on our international revenue and our profitability.
International operations are subject to a number of other risks, including:
exchange rate fluctuations and inflation;
tariffs, the threat of new or increased tariffs, and escalating trade tensions;
geopolitical and economic tensions and international terrorism and anti-American sentiment, particularly in emerging markets;
potential for violations of anti-corruption laws and regulations, such as those related to bribery and fraud;
preference for locally branded products, and laws and business practices favoring local competition;
changes in local tax and customs duty laws or changes in the enforcement, application or interpretation of such laws (including potential responses to the higher U.S. tariffs on certain imported products implemented by the U.S.);
increased difficulty in managing inventory and reduced inventory level targets;
delayed revenue recognition;
unpredictable judicial systems, which may unfairly favor domestic plaintiffs over foreign corporations, or which may more easily impose harsher penalties such as import injunctions;
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less effective protection of intellectual property;
stringent consumer protection and product compliance regulations, including but not limited to the Restriction of Hazardous Substances directive, the Waste Electrical and Electronic Equipment directive and the European Ecodesign directive, or EuP, that are costly to comply with and may vary from country to country;
difficulties and costs of staffing and managing foreign operations; and
business difficulties, including potential bankruptcy or liquidation, of any of our worldwide third-party logistics providers.
While we believe we generally have good relations with our employees, employees in certain jurisdictions have rights which give them certain collective rights. If management must expend significant resources and effort to address and comply with these rights, our business may be harmed. We are also required to comply with local environmental legislation and our customers rely on this compliance in order to sell our products. If our customers do not agree with our interpretations and requirements of new legislation, they may cease to order our products and our revenue would be harmed.
We depend on large, recurring purchases from certain significant customers, and a loss, cancellation or delay in purchases by these customers could negatively affect our revenue.
The loss of recurring orders from any of our more significant customers could cause our revenue and profitability to suffer. Our ability to attract new customers will depend on a variety of factors, including the cost-effectiveness, reliability, scalability, breadth and depth of our products. In addition, a change in the mix of our customers, or a change in the mix of direct and indirect sales, could adversely affect our revenue and gross margins.
Although our financial performance may depend on large, recurring orders from certain customers and resellers, we do not generally have binding commitments from them. For example:
our reseller agreements generally do not require substantial minimum purchases;
our customers can stop purchasing and our resellers can stop marketing our products at any time; and
our reseller agreements generally are not exclusive.
Further, our revenue may be impacted by significant one-time purchases which are not contemplated to be repeatable. While such purchases are reflected in our financial statements, we do not rely on and do not forecast for continued significant one-time purchases. As a result, lack of repeatable one-time purchases will adversely affect our revenue.
Because our expenses are based on our revenue forecasts, a substantial reduction or delay in sales of our products to, or unexpected returns from, customers and resellers, or the loss of any significant customer or reseller, could harm or otherwise have a negative impact to our operating results. Although our largest customers may vary from period to period, we anticipate that our operating results for any given period will continue to depend on large orders from a small number of customers. This customer concentration increases the risk of quarterly fluctuations in our operating results and our sensitivity to any material, adverse developments experienced by our customers.
The average selling prices of our products typically decrease rapidly over the sales cycle of the product, which may negatively affect our net revenue and gross margins.
Our products typically experience price erosion, a fairly rapid reduction in the average unit selling prices over their respective sales cycles. In order to sell products that have a falling average unit selling price and maintain margins at the same time, we need to continually reduce product and manufacturing costs. To manage manufacturing costs, we must collaborate with our third-party manufacturers to engineer the most cost-effective design for our products. In addition, we must carefully manage the price paid for components used in our products. We must also successfully manage our freight and inventory costs to reduce overall product costs. We also need to continually introduce new products with higher sales prices and gross margins in order to maintain our overall gross margins. If we are unable
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to manage the cost of older products or successfully introduce new products with higher gross margins, our net revenue and overall gross margin would likely decline.
If we fail to overcome the challenges associated with managing our broadband service provider sales channel, our net revenue and gross profit will be negatively impacted.
We sell a significant number of products through broadband service providers worldwide. However, the service provider sales channel is challenging and exceptionally competitive. Difficulties and challenges in selling to service providers include a longer sales cycle, more stringent product testing and validation requirements, a higher level of customization demands, requirements that suppliers take on a larger share of the risk with respect to contractual business terms, competition from established suppliers, pricing pressure resulting in lower gross margins, and irregular and unpredictable ordering habits. For example, rigorous service provider certification processes may delay our sale of new products, or our products ultimately may fail these tests. In either event, we may lose some or all of the amounts we expended in trying to obtain business from the service provider, as well as lose the business opportunity altogether. In addition, even if we have a product which a service provider customer may wish to purchase, we may choose not to supply products to the potential service provider customer if the contract requirements, such as service level requirements, , and liability provisions, are too . Accordingly, our business may be and our revenues may be reduced. We have, in limited circumstances, while still in contract negotiations, shipped products in advance of and subject to agreement on a definitive contract. We do not record revenue from these shipments until a definitive contract exists. There is risk that we do not ultimately close and sign a definitive contract. If this occurs, the timing of revenue recognition is uncertain and our business would be . In addition, we often commence building custom-made products prior to execution of a contract in order to meet the customer’s contemplated launch dates and requirements. Service provider products are generally custom-made for a specific customer and may not be scalable to other customers or in other channels. If we have pre-built custom-made products but do not come to agreement on a definitive contract, we may be to scrap the custom-made products or re-work them at substantial cost and our business would be .
Further, successful engagements with service provider customers requires a constant analysis of technology trends. If we are unable to anticipate technology trends and service provider customer product needs, and to allocate research and development resources to the right projects, we may not be successful in continuing to sell products to service provider customers. In addition, because our service provider customers command significant resources, including for software support, and demand extremely competitive pricing, certain ODMs have declined to develop service provider products on an ODM basis. Accordingly, as our ODMs increasingly limit development of our service provider products, our service provider business will be harmed if we cannot replace this capability with alternative ODMs or in-house development.
Orders from service providers generally tend to be large but sporadic, which causes our revenues from them to fluctuate and challenges our ability to accurately forecast demand from them. In particular, managing inventory, inventory levels and production of our products for our service provider customers is a challenge and may be further exacerbated by current macroeconomic uncertainties and geopolitical instability. Many of our service provider customers have irregular purchasing requirements. These customers may decide to cancel orders for customized products specific to that customer, and we may not be able to reconfigure and sell those products in other channels. These cancellations could lead to substantial write-offs. In addition, these customers may issue unforecasted orders for products which we may not be able to produce in a timely manner and as such, we may not be able to accept and deliver on such unforecasted orders. In certain cases, we may commit to fixed-price, long term purchase orders, with such orders priced in foreign currencies which could value over time in the event of changes in foreign exchange rates. Even if we are selected as a supplier, typically a service provider will also designate a second source supplier, which over time will reduce the aggregate orders that we receive from that service provider. Further, as the technology underlying our products deployed by broadband service providers matures and more competitors offer alternative products with similar technology, we anticipate competing in an extremely price sensitive market and our margins may be affected. If we are to introduce new products with sufficiently advanced technology to attract service provider interest in a timely manner, our service provider customers may then require us to lower our prices, or they may choose to purchase products from our competitors. If this occurs, our business would be and our revenues would be reduced.
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If we were to lose a service provider customer for any reason, we may experience a material and immediate reduction in forecasted revenue that may cause us to be below our net revenue and operating margin expectations for a particular period of time and therefore adversely affect our stock price. For example, many of our competitors in the service provider space aggressively price their products in order to gain market share. We may not be able to match the lower prices offered by our competitors, and we may choose to forgo lower-margin business opportunities. Many of the service provider customers will seek to purchase from the lowest cost provider, notwithstanding that our products may be higher quality or that our products were previously validated for use on their proprietary network. Accordingly, we may lose customers who have lower, more aggressive pricing, and our revenues may be reduced. In addition, service providers may choose to prioritize the implementation of other technologies or the roll out of other services than home networking. Weakness in orders from this industry could have a material adverse effect on our business, operating results, and financial condition. We have seen in capital expenditures by certain of our service provider customers in the past and believe there may be potential for similar in the future. Any in the general economy, over supply, consolidation among service providers, regulatory developments and constraint on capital expenditures could result in reduced demand from service providers and therefore affect our sales to them. If we do not these , we will not be to manage our service provider sales channel and our financial results will be .
We expect our operating results to fluctuate on a quarterly and annual basis, which could cause our stock price to fluctuate or decline.
Our operating results are difficult to predict and may fluctuate substantially from quarter-to-quarter or year-to-year for a variety of reasons, many of which are beyond our control. If our actual results were to fall below our estimates or the expectations of public market analysts or investors, our quarterly and annual results would be negatively impacted and the price of our stock could decline. Other factors that could affect our quarterly and annual operating results include those listed in the risk factors section of this report and others such as:
operational disruptions, such as transportation delays or failure of our order processing system, particularly if they occur at the end of a fiscal quarter;
component supply constraints, including specialized WiFi 7 or WiFi 6 chipsets, or sudden, unforeseen price increases from our manufacturers, suppliers and vendors;
unanticipated increases in costs, including air and ocean freight, associated with shipping and delivery of our products;
the inability to maintain stable operations by our suppliers, distribution centers and other parties with which we have commercial relationships;
seasonal shifts in end market demand for our products, particularly in our Consumer segment;
our inability to accurately forecast product demand or optimal product mix such as the proportion of lower-priced products versus premium products resulting in increased inventory exposure and/or lost sales;
unfavorable or compressed level of inventory and turns;
changes in or consolidation of our sales channels and wholesale distributor relationships or failure to manage our sales channel inventory and warehousing requirements;
unanticipated decreases, reduced inventory targets or delays in purchases of our products by our significant traditional and online retail customers;
shift in overall product mix sales from higher to lower gross margin products, from lower-priced products to premium products, or from one business segment to another, that would adversely impact our revenue and gross margins;
an increase in price protection claims, redemptions of marketing rebates, product warranty and stock rotation returns or allowance for doubtful accounts;
delay or failure to fulfill orders for our products on a timely basis;
changes in the pricing policies of or the introduction of new products by us or our competitors;
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unexpected challenges or delays in our ability to further develop services and applications that complement our products and result in meaningful subscriber growth and future recurring revenue;
discovery or exploitation of security vulnerabilities in our products, services or systems, leading to negative publicity, decreased demand or potential liability, including potential breach of our customers’ data privacy or disruption of the continuous operation of our cloud infrastructure and our products;
introductions of new technologies and changes in consumer preferences that result in either unanticipated or unexpectedly rapid product category shifts;
slow or negative growth in the networking product, personal computer, Internet infrastructure, smart home, home electronics and related technology markets;
delays in the introduction of new products by us or market acceptance of these products;
delays in regulatory approvals or consumer adoption of WiFi 7 or WiFi 6E technology in various regions;
increases in expenses related to the development, introduction and marketing of new products that adversely impact our margins;
increases in expenses related to the development and marketing related to the Company’s direct online sales channels that adversely impact our margins;
changes in tax rates or adverse changes in tax laws that expose us to additional income tax liabilities;
changes in U.S. and international trade policy and/or regulations that adversely affect our operations or supply chain, customs, tax or duty rates as well as tariffs, the threat of new or increased tariffs, and escalating trade tensions;
foreign currency exchange rate fluctuations in the jurisdictions where we transact sales and expenditures in local currency;
unanticipated increases in expenses related to periodic restructuring measures undertaken to achieve profitability and other business goals, including the reallocation or relocation of resources;
delay or failure of our service provider customers to purchase at their historic volumes or at the volumes that they or we forecast;
litigation involving alleged patent infringement, consumer class actions, securities class actions or other claims that could negatively impact our reputation, brand, business and financial condition;
disruptions or delays related to our financial and enterprise resource planning systems;
allowance for doubtful accounts exposure with our existing retailers, distributors and other channel partners and new retailers, distributors and other channel partners, particularly as we expand into new international markets;
geopolitical disruption, including sudden changes in immigration policies and economic sanctions, leading to disruption in our workforce or delay or even stoppage of our operations in manufacturing, transportation, technical support and research and development;
terms of our contracts with customers or suppliers that cause us to incur additional expenses or assume additional liabilities;
epidemic or widespread product and/or component failure, performance problems or unanticipated safety issues in one or more of our products that could negatively impact our reputation, brand and business;
any changes in accounting rules;
challenges associated with integrating acquisitions that we make, or with realizing value from our strategic investments in other companies;
failure to effectively manage our third-party customer support partners, which may result in customer complaints and/or harm to our brand;
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our inability to monitor and ensure compliance with our code of ethics, our anti-corruption compliance program and domestic and international anti-corruption laws and regulations, whether in relation to our employees or with our suppliers or customers;
labor unrest at facilities managed by our third-party manufacturers;
workplace or human rights violations in certain countries in which our third-party manufacturers or suppliers operate, which may require quarantine of affected products, affect our brand and negatively affect our products’ acceptance by consumers;
overall performance of the equity markets and the economy as a whole;
unanticipated shifts or declines in profit by geographical region that would adversely impact our tax rate; and
our failure to implement and maintain the appropriate internal controls over financial reporting which may result in restatements of our financial statements.
As a result, period-to-period comparisons of our operating results may not be meaningful, and you should not rely on them as an indication of our future performance.
If disruptions in our transportation network continue to occur or our shipping costs substantially increase again in the future, we may be unable to sell or timely deliver our products, and our net revenue and gross margin could decrease.
The transportation network is subject to disruption or congestion from a variety of causes, including labor disputes or port strikes, acts of war, terrorism or other geopolitical conflicts, like the Middle East conflict, natural disasters, effects of climate change, pandemics like COVID-19 and congestion resulting from higher shipping volumes. 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. For example, at times during the COVID-19 pandemic, we experienced significant limitations on the availability of key transportation resources and significant increases to the cost of air and ocean freight. When these occur, it has impacted our as we seek to transport an increased number of products from manufacturing locations in Asia to other markets around the world as quickly as possible. Moreover, feeder vessels that move containers to key trans-Pacific terminal locations can be subject to similar impacts due to the timing of container transfers and vessel departure dates. In addition, the global effects of climate change can result in increased frequency and of natural that could also our transportation network. Furthermore, labor among freight carriers and at ports of entry are common. A port worker strike, work -down or other transportation in the ports of Singapore, Rotterdam, Los Angeles or Long Beach, California, where we have significant distribution centers, or East coast or Gulf coast of United States due to the volume of imports coming to the U.S. via ports there, could significantly our business. For example, at times, during the course of the COVID-19 pandemic, we had experienced at the ports, due to multiple factors, such as supply and demand , a of warehouse workers, truck drivers, and transport equipment (tractors and trailers), and other causes, and had from heightened congestion, and gridlock, to high transportation . In addition, as mentioned above in the risk factor " Optimizing our channel partners' inventory levels and product mix within the current environment is , and we have, and may in the future, incur costs associated with excess inventory, or sales from having too few products, " many of our retail and service provider customers have and continue to reduce their target inventory levels to more closely match with product demand. This further intensifies the need for our transportation systems to function effectively and without . Significant to the transportation network could lead to significant in our business, in shipments, increased shipping costs, and revenue and which could materially and affect our business and financial results, especially if they were to take place within the last few weeks of any quarter.
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
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adversely affected and would result in delayed or lost revenue as well as customer-imposed penalties. Similarly, transportation network disruptions such as those described in the preceding paragraph, have in the past and may in the future lead to an increase in transportation costs. For example, the cost of shipping our products by ocean freight had previously increased to at least eight times historical levels and had a corresponding impact upon our profitability. 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. Just as ocean freight costs had previously increased due to the aforementioned supply chain and transportation disruptions, the cost of air freight had previously increased, as well, up to five times historical levels. While transportation costs have recently decreased, if the cost of ocean and air freight were to significantly increase again, it would our business and our operating results, and in particular, our .
Expansion of our operations and infrastructure may strain our operations and increase our operating expenses.
We have expanded our operations and are pursuing market opportunities both domestically and internationally in order to grow our sales. This expansion has required enhancements to our existing management information systems, and operational and financial controls. In addition, if we continue to grow, our expenditures would likely be significantly higher than our historical costs. We may not be able to install adequate controls in an efficient and timely manner as our business grows, and our current systems may not be adequate to support our future operations. The difficulties associated with installing and implementing new systems, procedures and controls may place a significant burden on our management, operational and financial resources. In addition, if we grow internationally, we will have to expand and enhance our communications infrastructure. If we fail to continue to improve our management information systems, procedures and financial controls or encounter unexpected difficulties during expansion and reorganization, our business could be .
For example, we have invested, and will continue to invest, significant capital and human resources in the design and enhancement of our financial and enterprise resource planning systems, which may be disruptive to our underlying business. We depend on these systems in order to timely and accurately process and report key components of our results of operations, financial position and cash flows. If the systems fail to operate appropriately or we experience any disruptions or delays in enhancing their functionality to meet current business requirements, our ability to fulfill customer orders, bill and track our customers, fulfill contractual obligations, accurately report our financials and otherwise run our business could be adversely affected. Even if we do not encounter these adverse effects, the enhancement of systems may be much more costly than we anticipated. If we are unable to continue to enhance our information technology systems as planned, our financial position, results of operations and cash flows could be impacted.
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. Acquisitions involve numerous risks and challenges, including but not limited to the following:
integrating the companies, assets, systems, products, sales channels and personnel that we acquire;
higher than anticipated acquisition and integration costs and expenses;
reliance on third parties to provide transition services for a period of time after closing to ensure an orderly transition of the business;
growing or maintaining revenues to justify the purchase price and the increased expenses associated with acquisitions;
entering into territories or markets with which we have limited or no prior experience;
establishing or maintaining business relationships with customers, vendors and suppliers who may be new to us;
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overcoming the employee, customer, vendor and supplier turnover that may occur as a result of the acquisition;
disruption of, and demands on, our ongoing business as a result of integration activities including diversion of management’s time and attention from running the day-to-day operations of our business;
inability to implement uniform standards, disclosure controls and procedures, internal controls over financial reporting and other procedures and policies in a timely manner;
inability to realize the anticipated benefits of or successfully integrate with our existing business the businesses, products, technologies or personnel that we acquire; and
potential post-closing disputes.
As part of undertaking an acquisition, we may also significantly revise our capital structure or operational budget, such as issuing common stock that would dilute the ownership percentage of our stockholders, assuming liabilities or debt, utilizing a substantial portion of our cash resources to pay for the acquisition or significantly increasing operating expenses. Our acquisitions have resulted and may in the future result in charges being taken in an individual quarter as well as future periods, which results in variability in our quarterly earnings. In addition, our effective tax rate in any particular quarter may also be impacted by acquisitions. Following the closing of an acquisition, we may also have disputes with the seller regarding contractual requirements and covenants. Any such disputes may be time consuming and distract management from other aspects of our business. In addition, if we increase the pace or size of acquisitions, we will have to expend significant management time and effort into the transactions and the integrations and we may not have the proper human resources bandwidth to ensure successful integrations and accordingly, our business could be harmed.
As part of the terms of acquisition, we may commit to pay additional contingent consideration if certain revenue or other performance milestones are met. We are required to evaluate the fair value of such commitments at each reporting date and adjust the amount recorded if there are changes to the fair value. Additionally, future or past business transactions (such as acquisitions or integrations) could also expose us to additional cybersecurity risks and vulnerabilities, as our systems or products could be negatively affected by vulnerabilities present in acquired or integrated entities’ systems and technologies and our diligence may not have discovered such security issues.
We cannot ensure that we will be successful in selecting, executing and integrating acquisitions. Failure to manage and successfully integrate acquisitions could materially harm our business and operating results. In addition, if stock market analysts or our stockholders do not support or believe in the value of the acquisitions that we choose to undertake, our stock price may decline.
We invest in companies primarily for strategic reasons but may not realize a return on our investments.
We have made investments in companies around the world to further our strategic objectives and support our key business initiatives. These investments have included equity or debt instruments of public or private companies, and may be non-marketable at the time of our initial investment. If any company in which we invest fails, we could lose all or part of our investment in that company. If we determine that an other-than-temporary decline in the fair value exists for an equity or debt investment in a public or private company in which we have invested, we will have to write down the investment to its fair value and recognize the related write-down as an investment loss. The performance of any of these investments could result in significant impairment charges and gains (losses) on investments. We must also analyze accounting and legal issues when making these investments. If we do not structure these investments properly, we may be subject to certain adverse accounting issues, such as potential consolidation of financial results.
Furthermore, if the strategic objectives of an investment have been achieved, or if the investment or business diverges from our strategic objectives, we may seek to dispose of the investment. Our non-marketable equity investments in private companies are not liquid, and we may not be able to dispose of these investments on favorable terms or at all. The occurrence of any of these events could harm our results. Gains or losses from equity securities could vary from expectations depending on gains or losses realized on the sale or exchange of securities and impairment charges related to debt instruments as well as equity and other investments.
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Risks Related to Our Products, Technology, Intellectual Property and Data
We rely upon third parties for certain 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 to license the necessary technology, we may be to acquire or develop alternative technology of lower quality or performance standards, which would limit and our ability to offer new or competitive products and increase our costs of production. As a result, our revenue, margins, market share, and operating results could be significantly .
We also utilize third-party software development companies to develop, customize, maintain and support software that is incorporated into our products. For example, we license software from Bitdefender for our NETGEAR Armor cybersecurity services offering and we license software from Circle Media Labs, Inc., a wholly owned subsidiary of Aura, for our parental controls service offering. 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 or experience instability, then we may be unable to continue to sell products that incorporate the licensed technologies in addition to being unable to continue to maintain and support these products. We do require escrow arrangements with respect to certain third-party software which entitle us to certain limited rights to the source code, in the event of certain failures by the third party, in order to maintain and support such software. However, there is no guarantee that we would be to fully understand and use the source code, as we may not have the expertise to do so. We are increasingly to these risks as we continue to develop and market more products and services containing third-party software, such as our subscription service offerings related to network security and smart parental controls. If we are to license the necessary technology, we may be to acquire or develop alternative technology, which could be of lower quality or performance standards. The acquisition or development of alternative technology may limit and our ability to offer new or competitive products and services and increase our costs of production. As a result, our business, operating results and financial condition could be materially affected.
Product security vulnerabilities, system security risks, data breaches, cyber-attacks, improper use of artificial intelligence (“AI”) tools, and other threats and risks, could disrupt or otherwise compromise our products, services, internal operations or information technology systems, or those of third parties with whom we work. Actual or perceived non-compliance with our privacy and security obligations could lead to regulatory investigations or actions, litigation, fines and penalties, business operation disruption, reputational harm, loss of revenue or profits, loss of customers or sales, and other adverse business consequences.
We and the third parties with whom we work process personal data and other sensitive information, and we disclose certain such sensitive information to relevant third parties as reasonably necessary to operate our business while maintaining measures designed to protect such information. Among other products and services, we offer comprehensive online cloud management services paired with a number of our products. Our products and services could be compromised due to a variety of evolving threats and security vulnerabilities. We have in the past experienced, and expect to continue to be the target of, cyber attacks (including by highly sophisticated nation-state actors) or other sources of compromise, and given the increasingly sophisticated and evolving threat landscape, we could experience a cyber incident that would materially affect our business operations. We devote considerable time
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and resources to uncovering and remedying these threats and vulnerabilities, using both internal and external resources, but the threats to network and data security are increasingly diverse and sophisticated and we continue to implement additional protections and increase our monitoring and threat intelligence. Despite our efforts and processes to prevent breaches, our systems and products are vulnerable to cybersecurity risks, including cyber-attacks such as viruses and worms, vulnerabilities such as command injection, cross site scripting, credential stuffing attacks, authentication and session management, and stack-based buffer overflow, social-engineering attacks (including through deep fakes, which may be increasingly difficult to identify as fake and phishing attacks), supply-chain attacks, malware (including as a result of advanced persistent threat intrusions), and other sophisticated attacks or . These can come from a variety of sources, including traditional computer “hackers,” actors, “hacktivists,” organized actors, personnel (such as through or ), sophisticated nation states, and nation-state-supported actors. Additionally, our systems and products may be for reasons other than a , such as software bugs, server , software or hardware , of data or other information technology assets, adware, telecommunications , earthquakes, fires, and floods. actors may also access to other networks and systems after a compromise of our networks and systems. For example, actors may use an initial compromise of one part of our environment to access to other parts of our environment, or leverage a compromise of our networks or systems to access to the networks or systems of third parties with whom we work, such as through phishing or supply chain attacks. It is also possible that an attacker could compromise our internal code repository or those of our partners and insert a ‘backdoor’ that would give them access to any of our devices using this code. ransomware attacks are also becoming increasingly prevalent and can lead to significant in our operations, ability to provide our products or services, of sensitive data and income, reputational , and of funds. Further, most of our major offices worldwide operate under a hybrid work model, allowing personnel the flexibility to work remotely and at the workplace. Remote work arrangements present additional cybersecurity risks, including potential increases in malware and phishing attacks, to secure relevant data, and potential service or to key internal business applications and third-party services. Although we have taken measures to address these risks, they present that could impact business operations and could cause recovery times to increase.
We have not in the past and may not in the future successfully discover, get ahead of and/or protect against these threats and vulnerabilities, and if unable to remedy compromises of our products, services or data in a timely manner, or at all, it may impact our brand and reputation and otherwise harm our business. For example, with respect to our making available patches or information for vulnerabilities in our products or services, our customers may be unwilling or unable to deploy such patches and use such information effectively and in a timely manner. In the past, we have experienced attempted exploitation of such vulnerabilities and anticipate continuing to experience similar attempts in the future. Such attacks against and other compromises of us, our customers or third parties with whom we work could lead to material , or of data, access to data, and of consumer confidence. attacks or compromises of us, our customers or third parties with whom we work could materially affect our business, be expensive to remedy, our reputation, result in publicity, affect our brand, decrease demand for our products and services, and otherwise materially affect our operating results and financial condition. Applicable data privacy and security obligations may require us, or we may voluntarily choose to, notify relevant stakeholders, including affected individuals, customers, regulators, investors and others of security . Such disclosures and related actions can be and the disclosure or the to comply with such applicable requirements could lead to consequences. Further, under certain circumstances, we may need to prioritize fixing or responding to security over new product development, which may impact our revenues and affect our business.
With respect to certain of our products and services, we employ a shared responsibility model where our customers are responsible for using, configuring and otherwise implementing security measures related to our products and services in a manner that addresses their information security risks. As part of this shared responsibility security model, we make certain security features available to our customers that can be implemented at our customers’ discretion or identify security areas or measures for which our customers are responsible. For example, customers may choose not to enable two-factor authentication for their NETGEAR account (which would likely increase the risk of compromise) or they could choose to disable automatic updates (which would likely delay or prevent entirely, important security updates). In certain cases, where our customers choose not to implement or incorrectly implement such or similar features or measures, misuse our products or services, continue to use deprecated NETGEAR equipment no longer receiving security updates or otherwise experience their own vulnerabilities or other compromises, even if we are not the cause of a resulting customer security issue or incident, our customer relationships, reputation and revenue could
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be adversely impacted. If our products or services are compromised, a significant number or, in some instances, all of our customers could be simultaneously affected. The potential liability and associated consequences we could suffer as a result of such a large-scale event could result in irreparable harm.
We rely on third-party providers for a number of critical aspects of our cloud services, e-commerce site, software development, manufacturing and customer support, including web hosting services, billing and payment processing, and consequently we do not maintain direct control over the security or stability of the associated systems. Our reliance on third parties exposes us to cybersecurity risks and vulnerabilities if such third parties or their partners are targeted by cyber attack or other sources of compromise.
Maintaining the security of our information systems, communication systems and data is a critical issue for us and our customers. Malicious actors may develop and deploy malware that is designed to manipulate our products and systems, including our internal network, or those of our vendors or customers. Additionally, outside parties may attempt to fraudulently induce our personnel to disclose sensitive information in order to gain access to our information systems, our data or our customers’ data. We have established a crisis management plan, business continuity program, information security incident response plan and Generative AI policy. While we test and update these plans, policies and programs, there can be no assurance that the plans, policies and programs can withstand an actual or serious disruption in our business, including a data protection breach or cyber-attack. For example, much of our order fulfillment process is automated and the order information is stored on our servers. A significant business could result in or and our business. If our information systems become , our ability to recognize revenue may be until we are to utilize back-up systems and continue to process and ship our orders, which could cause our stock price to significantly.
We devote considerable internal and external resources to network security, data encryption and other security measures to protect our information systems and data (including customer data), but our efforts cannot provide an absolute guarantee of security. In addition, U.S. and foreign regulators have increased their focus on cybersecurity (including imposing specific security measures related to the products and services we sell) and data protection and many states, countries and other jurisdictions have laws and regulations that may impose significant penalties and fines for failure to comply with these requirements. Compliance with laws, regulations, industry standards, contracts, policies and other obligations concerning artificial intelligence, privacy, cybersecurity, data governance and data protection is a rigorous and time-intensive process, that continuously evolves and develops, and we have in the past and may in the future be required to put in place additional mechanisms ensuring compliance with such obligations and incur substantial expenditures. Many of these laws are new, in the nascent stages of applicability, untested in terms of scope by applicable courts, regulators and/or administrative bodies, and technically complex. As such, their interpretation remains inherently uncertain. If we fail to properly interpret or otherwise comply with any such obligations, we may face significant fines and that could affect our business, financial condition and results of operations. Furthermore, obligations (including laws and regulations) are not consistent (and may not be interpreted in a consistent manner) and compliance remains .
Actual and potential breaches of our security measures as well as the loss, disclosure, dissemination or other compromise of proprietary information or sensitive or confidential data about us, our personnel or our customers, including the potential loss or disclosure of such information or data as a result of improper use of AI tools, personnel error or other personnel actions, hacking, fraud, social engineering or other forms of deception, could expose us, our customers or the individuals affected to a risk of loss or misuse of this information, result in litigation and potential liability for us, subject us to significant governmental fines and penalties (as well as other enforcement and remediation actions), damage our brand and reputation, or otherwise our business. Security and attendant material consequences may prevent or cause customers to stop using our products and services, new customers from using our products and services, and otherwise impact our ability to grow and operate our business. In particular, because our product and service offerings involve protecting the information or systems of our customers, a security could heighten the impact of these material consequences because of the nature of our business and our customers’ expectations. It may be and/or to detect, , mitigate, contain and remediate security and our efforts to do so may not be . Actions taken by us or third parties with whom we work to detect, , mitigate, contain and remediate a security could result in , data , to our business and otherwise our business. parties may also access to other networks, systems and products after a compromise of our networks, systems, and products. For example, actors (including those sponsored by nation states) have, in the past, attacked or otherwise sought to compromise our
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products and other hardware nearing end of life and/or running on outdated firmware without the latest security updates.
Limitations of liability in our contracts and our insurance coverage may be inadequate to address losses or other expenditures arising out of or related to non-compliance with our obligations or security incidents. A large claim against our insurance coverage may exceed our coverage and otherwise impact our ability to obtain coverage in the future. Our management has spent increasing amounts of time, effort and expense in this area, and in the event of the discovery of significant product or system security vulnerability, or improper use of AI tools or other cybersecurity incidents, we could incur additional substantial expenses and our business and reputation could be harmed. If we or our third-party providers are unable to successfully prevent breaches of security relating to our products, services, systems or customer private information, including customer personal data, or if these third-party systems for other reasons, it could result in and potential liability for us, our brand and reputation, or otherwise our business.
In the United States, federal, state, and local governments have enacted numerous data privacy and security laws, including data breach notification laws, personal data privacy laws, consumer protection laws and other similar laws (such as wiretapping laws). Certain US states have enacted comprehensive consumer privacy laws that impose significant and costly obligations on covered businesses, including providing specific disclosures in privacy notices and affording residents with certain rights concerning their personal data. As applicable, such rights may include the right to access, correct, or delete certain personal data, and to opt-out of certain data processing activities, such as targeted advertising, profiling, and automated decision-making. The exercise of these rights may impact our business and ability to provide our products and services. Certain states also impose stricter requirements for processing certain personal data, including sensitive information, such as conducting data privacy impact assessments. These state laws allow for statutory fines for noncompliance. For example, the California Consumer Privacy Act of 2018 (“CCPA”) applies to personal data of consumers, business representatives, and employees who are California residents, and requires businesses subject to the law to provide specific disclosures in privacy notices and respond to requests of such individuals to exercise certain privacy rights. The CCPA provides for and allows private affected by certain data to recover significant statutory . Outside the United States, an increasing number of laws, regulations and industry standards govern data privacy and security. For example, the European Union’s General Data Protection Regulation (“EU GDPR”) and the United Kingdom’s GDPR (“UK GDPR”) (collectively, “GDPR”), Australia’s Privacy Act, and Canada's Personal Information Protection and Electronic Documents Act (“PIPEDA”) (as well as various related provincial laws) impose strict requirements for processing personal data. For example, under the GDPR, companies may face temporary or definitive on data processing and other corrective actions; of up to 20 million Euros under the EU GDPR, 17.5 million pounds sterling under the UK GDPR or, in each case, 4% of annual global revenue, whichever is ; or private related to processing of personal data brought by classes of data subjects or consumer protection organizations authorized at law to represent their interests. In Europe, the Network and Information Security Directive (“NIS2”) regulates resilience and response capabilities of entities operating in a number of sectors. Non-compliance with NIS2 may lead up to administrative of a maximum of 10 million Euros or up to 2% of the total worldwide revenue of the preceding fiscal year.
We may also become subject to new laws that regulate non-personal data. For example, the European Union’s Data Act imposes certain data and cloud service interoperability and switching obligations to enable users to switch between cloud service providers without undue delay or cost, as well as certain requirements concerning cross-border international transfers of, and governmental access to, non-personal data outside the EEA. Depending on how this Act and any similar laws are implemented and interpreted, we may have to adapt our business practices, contractual arrangements, and products and services to comply with such obligations.
In the ordinary course of business, we transfer personal data from Europe and other jurisdictions to the United States and other countries. Europe and other jurisdictions have enacted laws requiring data to be localized or limiting the transfer of personal data to other countries. These data localization and cross-border data transfer laws have led to additional compliance efforts and non-compliance with such obligations could lead to adverse consequences such as interruption of our operations, increased exposure to regulatory actions, and difficulty transferring data to partners, vendors and other third parties with whom we work.
Additionally, the U.S. Department of Justice issued a rule entitled the Access to U.S. Sensitive Personal Data and Government-Related Data by Countries of Concern or Covered Persons, which places additional restriction on certain
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data transactions involving countries of concern (e.g., China, Russia, Iran) and “covered persons” (as defined by the rule) that impacts certain business activities such as vendor engagements, the sale or sharing of data, employment of certain individuals, and investor agreements. Violations of the rule could lead to significant civil and criminal fines and penalties.
We are also subject to industry standards and bound by contractual obligations in each case related to data privacy and security, and our efforts to comply with such obligations may not be successful. We also publish privacy policies, marketing materials, and other statements, such as statements concerning data privacy, and security and AI. Regulators are increasingly scrutinizing these statements, and if these policies, materials or statements are found to be deficient, lacking in transparency, deceptive, unfair, misleading, or misrepresentative of our practices, we may be subject to investigations and enforcement actions by regulators and experience other adverse consequences.
Preparing for and complying with our data privacy and security obligations requires us to devote significant resources which has in the past and may in the future necessitate changes to our products and services, information systems and practices. At times, we have in the past and may in the future fail in our efforts to comply with our data privacy and security obligations. If we or the third parties with whom we work fail (or are perceived to have failed) to comply with applicable data privacy or security obligations, we could face significant consequences including but not limited to: government enforcement actions (e.g., investigations, fines, penalties, audits, inspections, and similar); litigation (including class action claims and mass arbitration demands); additional reporting requirements and/or oversight; bans or restrictions on processing personal data; or orders to destroy or not use personal data. For example, from time to time we have received and may in the future receive inquiries from government officials regarding data protection efforts, our security measures, cyber , and the cyber risk environment. Any of these events could have a material effect on our reputation, business or financial condition, including but not limited to: of customers; or in our business operations; to process personal data or operate in certain jurisdictions; limited ability to develop or commercialize our products and services; expenditure of time and resources to or inquiries; publicity; or changes to our business model or operations.
If we are unable to successfully leverage AI technology to automate and drive efficiencies in our operations and products and services, our business, reputation, results of operations and financial condition could be harmed.
We have embarked on an AI transformation effort to take full advantage of automation, artificial intelligence, machine learning and other technologies to drive efficiencies and improve productivity within our Company and to develop and improve our products, services and customer experiences. As we increase our investment in technology, software and systems to support this transformation effort, such investments may not increase productivity, result in more efficient operations or deliver better products, services and customer experiences. In addition, the evolution of these technologies may create unforeseen competitive pressures or cause disruption or delays to our operations, which may harm our business. Our competitors may incorporate AI technologies into their products and services more quickly or more successfully than us and could impair our ability to compete effectively and affect our results of operations. Further, the rapid evolution of AI may require the dedication of significant resources to develop, test and maintain AI technologies. If our incorporation of AI technologies does not increase our operational in accordance with our expectations, or if competition increases for the technology and services provided by third parties, our business, results of operations and financial condition may be . While we have established an AI transformation team to coordinate and oversee our approach to AI adoption, the legal and regulatory landscape surrounding generative AI technologies is rapidly evolving and uncertain, including in the areas of intellectual property, discrimination, cybersecurity, privacy and data protection. Compliance with existing, new, and changing laws, regulations, and industry standards relating to AI may limit some uses of AI, impose significant operational costs, and limit our ability to develop, deploy, or use AI technologies. Further, the continued integration of any AI technologies into our products and services may result in new or governmental or regulatory . to appropriately respond to this evolving landscape may result in legal liability, regulatory action, or brand and reputational .
Any sensitive information (including confidential, competitive, proprietary, or personal data) that we input into a third-party generative AI platform could be leaked or disclosed to others or otherwise result in an information- or cyber-security incident, including if sensitive information is used to train the third parties’ AI model. Additionally, where an AI model ingests personal data and makes connections using such data, those technologies may reveal other personal or sensitive information generated by the model. Moreover, AI models may create flawed, incomplete, or
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inaccurate outputs, some of which may appear correct. This may happen if the inputs that the model relied on were inaccurate, incomplete or flawed (including if a bad actor “poisons” the AI with bad inputs or logic), or if the logic of the AI is flawed (a so-called “hallucination”). We may use AI outputs to make certain decisions. Due to these potential inaccuracies or flaws, the model could be biased and could lead us to make decisions that could bias certain individuals (or classes of individuals), and adversely impact their rights, employment, and ability to obtain certain pricing, products, services, or benefits.
Several jurisdictions around the globe, including Europe and certain U.S. states, have proposed, enacted, or are considering laws governing the development and use of AI technologies, such as the EU’s AI Act, the Colorado Artificial Intelligence Act, California Bot Disclosure Law, the Utah Artificial Intelligence Policy Act, and the CCPA regulations on automated decision-making technology. For example, the EU AI Act sets out a risk-based framework, subjecting certain AI technologies to numerous compliance obligations, including transparency, conformity and risk assessment, monitoring and human oversight requirements. Under the EU AI Act, non-compliant companies may be subject to administrative fines of up to 35 million Euros or 7% of a company’s total worldwide annual turnover for the preceding financial year, whichever is the higher. We expect other jurisdictions will adopt similar laws. Additionally, certain privacy laws extend rights to consumers (such as the right to delete certain personal data) and regulate automated decision making, which may be incompatible with our use of AI technologies. These obligations have in the past and may in the future make it harder for us to conduct our business using AI technologies, lead to regulatory fines or penalties, require us to change our business practices, retrain our AI technologies, or prevent or limit our use of AI technologies. For example, the FTC has required other companies to turn over (or ) insights or trainings generated through the use of AI technologies where it has that a non-compliant company has relevant laws. If we cannot use AI technologies or that use is restricted, our business may be less , or we may be at a competitive .
We make substantial investments in software research and development and unsuccessful investments could materially adversely affect our business, financial condition and results of operations.
We continue to evolve our historically hardware-centric business model towards a model that includes more sophisticated software offerings, including subscription services and applications that complement our products and are intended to drive subscriber growth and future recurring revenue. As such, we have evolved the focus of our organization towards the delivery of more integrated hardware and software solutions for our customers, as well as related services, and we have and will continue to expend additional resources in this area in the future, including key new hires. Such endeavors may involve significant risks and uncertainties, including distraction of management from current operations and insufficient revenue to offset expenses associated with this strategy. 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 and could materially adversely affect our financial condition and operating results.
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, services, applications, pricing and other factors are not sufficiently competitive, or if there is an adverse reaction to our product and services decisions, we may lose market share in certain areas, which could adversely affect our revenue, profitability 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 output from these investments will successfully result in meaningful customer demand and retention 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, affecting our profits. If new or existing customers have with our software solutions or are with our services, our operating margins could be
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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.
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. As also noted in the risk factor “ We make substantial investments in software research and development and unsuccessful investments could materially adversely affect our business, financial condition and results of operations ” above, we devote considerable time and resources on testing and quality control efforts to detect quality issues and defects, and any reallocation of resources to fix such quality issues and defects could lead to delays in product introductions, which could further harm our competitive position. Additionally, certain software components in our product and corporate systems can be directly updated by our third-party partners. , or in such updates could impact our customer's experience or cause business .
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 with industry standards, we could experience decreased sales and increased product returns, of customers and market share, and increased service, warranty and insurance costs. In addition, in, or of, certain of our products could cause safety , including the risk of property or personal . If any of these events occurred, our reputation and brand could be , and we could face product liability or other regarding our products, resulting in expenses and impacting our operating results. For instance, if a third party were to the security measures in our products, such a person or entity could customer data, third party data stored by our customers and other information, including intellectual property and personal information. In addition, the operations of our end-user customers may be . If that happens, affected end-users or others may file actions us product liability, tort, or of warranty .
Our user growth, engagement, and monetization of our subscription services on mobile devices depend upon effective operation with mobile operating systems, networks, technologies, products, and standards that we do not control.
The substantial majority of our revenue from our subscription services is generated from use of such services on mobile devices. We are dependent on the interoperability of Armor and our parental controls services and our other products and services with popular mobile operating systems, networks, technologies, products, and standards that we do not control, such as the Android and iOS operating systems and mobile browsers. Any changes, bugs, or technical issues in such systems, or changes in our relationships with mobile operating system partners, handset manufacturers, browser developers, or mobile carriers, or in their terms of service or policies that degrade our products’ functionality, reduce or eliminate our ability to update or distribute our products or services, give preferential treatment to competitive products, or charge fees related to the distribution of our products could adversely affect the usage of our subscription services products or our other products and services on mobile devices. We may not be successful in maintaining or developing relationships with key participants in the mobile ecosystem or in developing products and services that operate effectively with these technologies, products, systems, networks, or standards. In the event that it is more difficult for our users to access and use our subscription services products or our other products on their
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mobile devices, or if our users choose not to access or use our subscription services products or our other products on their mobile devices, our user growth and user engagement and our business could be harmed.
If we are unable to secure and protect our intellectual property rights, our ability to compete could be harmed.
We rely upon third parties for a substantial portion of the intellectual property that we use in our products. At the same time, we rely on a combination of copyright, trademark, patent and trade secret laws, nondisclosure agreements with employees, consultants and suppliers and other contractual provisions to establish, maintain and protect our intellectual property rights and technology. Despite efforts to protect our intellectual property, unauthorized third parties may attempt to design around, copy aspects of our product design or obtain and use technology or other intellectual property associated with our products. For example, one of our primary intellectual property assets is the NETGEAR name, trademark and logo. We may be unable to stop third parties from adopting similar names, trademarks and logos, particularly in those international markets where our intellectual property rights may be less protected. Furthermore, our competitors may independently develop similar technology or design around our intellectual property. In addition, we manufacture and sell our products in many international jurisdictions that offer reduced levels of protection and recourse from intellectual property misuse or theft, as compared to the United States. Our inability to secure and protect our intellectual property rights could significantly our brand and business, operating results and financial condition.
Financial, Legal, Regulatory and Tax Compliance Risks
We are currently involved in several litigation matters in the ordinary course and may in the future become involved in additional litigation which could be costly and subject us to significant liability.
The networking industry is characterized by the existence of a large number of patents and frequent claims and related litigation regarding infringement of patents, trade secrets and other intellectual property rights. In particular, leading companies in the data communications markets, some of which are our competitors, have extensive patent portfolios with respect to networking technology. From time to time, third parties, including these leading companies, have asserted and may continue to assert exclusive patent, copyright, trademark and other intellectual property rights against us demanding license or royalty payments or seeking payment for damages, injunctive relief and other available legal remedies through litigation. These also include third-party non-practicing entities who claim to own patents or other intellectual property that cover industry standards that our products comply with. If we are unable to resolve these matters or obtain licenses on acceptable or commercially reasonable terms, we could be or we may be to initiate to protect our rights. The cost of any necessary licenses or cost to could significantly our business, operating results and financial condition. We may also choose to join patent aggregation services in order to prevent or settle and avoid the associated significant costs and uncertainties of . These patent aggregation services may obtain, or have previously obtained, licenses for the patent us and other patent assets that could be used offensively us. The costs of such patent aggregation services, while potentially lower than the costs of , may be significant as well. At any time, any of these non-practicing entities, or any other third-party could initiate us, or we may be to initiate them, which could management attention, be to or , prevent us from using or selling the technology, require us to design around the technology and cause the price of our stock to . For example, in the past, various third parties have initiated us in Europe, China and the United States that carried the of an on the importation of our products into certain territories, as well as a significant increase in time and resources to . In addition, third parties, some of whom are potential competitors, have initiated and may continue to initiate us, our manufacturers, suppliers, members of our sales channels or our service provider customers or even end user customers, of their proprietary rights with respect to existing or future products. In the event of are brought by third parties, and we are to obtain licenses or independently develop alternative technology on a timely basis, we may be subject to indemnification obligations, be to offer competitive products, or be subject to increased expenses. Consumer class-action lawsuits related to the marketing and performance of our home networking products have been asserted and may in the future be asserted us. Finally, we have been in securities class action lawsuits, and may in the future be named in other similar lawsuits. For additional information regarding certain of the lawsuits in which we are involved, see the information set forth in Note [9], Commitments and Contingencies , in Notes to Consolidated Financial Statements in Item 8 of Part II of this
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Annual Report on Form 10-K. If we do not resolve these claims on a favorable basis, our business, operating results and financial condition could be significantly harmed.
We have been exposed to and may in the future be exposed to adverse currency exchange rate fluctuations in jurisdictions where we transact in local currency, which could harm our financial results and cash flows.
Because a significant portion of our business is conducted outside the United States, we face exposure to adverse movements in foreign currency exchange rates. These exposures may change over time as business practices evolve, and they could have a material adverse impact on our results of operations, financial position and cash flows. Although a portion of our international sales are currently invoiced in United States dollars, we have implemented and continue to implement for certain countries and customers both invoicing and payment in foreign currencies. Our primary exposure to movements in foreign currency exchange rates relates to non-U.S. dollar denominated sales in Europe, Japan and Australia as well as our global operations, and non-U.S. dollar denominated operating expenses and certain assets and liabilities. In addition, weaknesses in foreign currencies for U.S. dollar denominated sales could adversely affect demand for our products. For example, the volatility and strengthening of the U.S. dollar in 2022 had a meaningful negative impact on our international revenue and our profitability. Conversely, a in foreign currencies the U.S. dollar could increase foreign currency denominated costs. As a result, we may attempt to pricing of existing contracts or request payment to be made in U.S. dollars. We cannot be sure that our customers would agree to along these lines. This could result in customers eventually contracts with us or in our decision to certain contracts, which would affect our sales.
We hedge our exposure to fluctuations in foreign currency exchange rates as a response to the risk of changes in the value of foreign currency-denominated assets and liabilities. We may enter into foreign currency forward contracts or other instruments, the majority of which mature within approximately five months. Our foreign currency forward contracts reduce, but do not eliminate, the impact of currency exchange rate movements. For example, we do not execute forward contracts in all currencies in which we conduct business. In addition, we hedge to reduce the impact of volatile exchange rates on net revenue, gross profit and operating profit for limited periods of time. However, the use of these hedging activities may only offset a portion of the adverse financial effect resulting from unfavorable movements in foreign exchange rates.
We are exposed to the credit risk of some of our customers and to credit exposures, including bank failures, 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, and certain of our customers’ businesses face financial challenges that put them at risk of future bankruptcies. Although losses resulting from customer bankruptcies have not been material to date, any future bankruptcies could harm our business and have a material adverse effect on our operating results and financial condition. In addition, recent banking sector troubles and liquidity concerns in the financial services industry have impacted certain of our suppliers. Although such impacts have not resulted in material losses to date, any future bank sector disruptions could harm our business and have a material adverse effect on our operating results and financial condition. Furthermore, to the degree that in the credit markets makes it more for some customers to obtain financing, our customers’ ability to pay could be impacted, which in turn could have a material impact on our business, operating results, and financial condition.
Changes in applicable direct or indirect tax laws, and failure to comply with the same, or exposure to additional income tax liabilities, could result in liability and/or affect our future profitability.
Factors that could materially affect our future effective tax rates include but are not limited to:
changes in tax laws or the regulatory environment;
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changes in accounting and tax standards or practices;
changes in the composition of operating income by tax jurisdiction; and
our operating results before taxes.
We are subject to income taxes in the United States and numerous foreign jurisdictions. Our effective tax rate has fluctuated in the past and may fluctuate in the future. Future effective tax rates could be affected by changes in the composition of earnings in countries with differing tax rates, changes in deferred tax assets and liabilities, or changes in tax laws. Foreign jurisdictions have increased the volume of tax audits of multinational corporations. Further, many countries continue to consider changes in their tax laws by implementing new taxes such as the digital service tax and initiatives such as the Organization for Economic Co-operation and Development’s (OECD) Pillar II global minimum tax. More than 140 countries agreed to enact the Pillar II global minimum tax. While the OECD issued a framework model, many countries have enacted their own laws to incorporate Pillar II while certain countries, most notably the United States have not incorporated Pillar II into law. While Pillar II is a global model, the country by country enactment of different laws to incorporate the framework is complex and there is uncertainty as to how the enactment of these laws will impact the Company. These changes could increase our total tax burden in the future. In addition, the acceleration of employee mobility as a result of the pandemic potentially increases the jurisdictional tax risk of our workforce. Changes in tax laws could affect the distribution of our earnings, result in double taxation and affect our results.
The Tax Cuts and Jobs Act of 2017 included provisions effective for the 2022 tax year that eliminate the option to deduct research and development (R&D) expenditures immediately in the year incurred and required taxpayers to amortize such expenditures over five years for domestic payments and 15 years for payments to foreign parties. These provisions were recently modified under The One Big Beautiful Bill Act (“OB3A”) which was enacted into law on July 4, 2025. Under OB3A U.S. domestic R&D expenses are retroactively deductible as of January 1, 2025. Under prior law, in years where we are profitable, these provisions had a material impact on our cash taxes. While changes to the treatment of domestic R&D expenses is favorable, there is continuing risk that foreign R&D expenses that are still required to be capitalized could have adverse consequences on both cash taxes and tax expense since the company has a full valuation allowance on its US deferred tax assets.
We have been audited by the Italy Tax Authority (“ITA”) for the 2004 through 2012 tax years. The ITA examination included an audit of income, gross receipts and value-added taxes. We have been in litigation with the ITA for the 2004 through 2012 years. This litigation was appealed by the ITA to the Italian Supreme Court. Our hearing on all years at the Italian Supreme Court was held on March 6, 2024. Decisions were issued in the Company’s favor for the 2007 through 2012 tax years. In Q4 2025, the Italian Tax Court upheld the Company’s appeal with respect to the 2004 through 2006 tax years and annulled the related ITA tax assessments. The ITA retains the right to appeal this decision to the Italian Supreme Court and, accordingly, the 2004 through 2006 tax years remain subject to ongoing litigation. If we are unsuccessful in defending our tax positions for the remaining years, our profitability will be reduced.
We are also subject to examination by other tax authorities, including state revenue agencies and other foreign governments. While we regularly assess the likelihood of favorable or unfavorable outcomes resulting from examinations by the IRS and other tax authorities to determine the adequacy of our provision for income taxes, there can be no assurance that the actual outcome resulting from these examinations will not materially adversely affect our financial condition and operating results. Additionally, the IRS and several foreign tax authorities have increasingly focused attention on intercompany transfer pricing with respect to sales of products and services and the use of intangible assets. Tax authorities could disagree with our intercompany charges, cross-jurisdictional transfer pricing or other matters and assess additional taxes. If we do not prevail in any such disagreements, our profitability may be affected.
Historically the computation of our tax provision assumes that we will have sufficient profitability in the respective jurisdictions to continue to record deferred tax assets without a valuation allowance. As of the period ended October 1, 2023, we determined that it was no longer more likely than not that we would have sufficient profitability to realize the U.S. federal and state deferred tax assets. Accordingly, we recorded a full valuation allowance to impair U.S.
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federal and state deferred tax assets. Future benefit of these deferred tax assets will be realized in the period they are utilized.
We are subject to, and must remain in compliance with numerous new, existing and changing laws and regulations worldwide concerning our business. Some of our customers also require that we comply with their own unique requirements relating to these matters. Any failure to comply with such laws, regulations and requirements, and any associated unanticipated costs, may adversely affect our business, financial condition and results of operations.
We are a global company subject to numerous U.S. and foreign laws and regulations. Many of these laws and regulations are continuously evolving and developing, and the interpretations, application or impact of these laws and regulations on us are uncertain and could be interpreted in ways that harm our business. For example, we manufacture and sell products which contain electronic components, and such components may contain materials that are subject to government regulation in both the locations that we manufacture and assemble our products, as well as the locations where we sell our products. Certain regulations also limit the use of lead in electronic components. To our knowledge, we maintain compliance with all applicable current government regulations concerning the materials utilized in our products, for all the locations in which we operate. Since we operate on a global basis, this is a complex process which requires continual monitoring of regulations and an ongoing compliance process to ensure that we and our suppliers are in compliance with all existing regulations. There are areas where new regulations have been enacted which could increase our cost of the components that we utilize or require us to expend additional resources to ensure compliance. For example, the SEC’s “conflict minerals” rules apply to our business, and we expended significant resources to ensure compliance. The implementation of these requirements by government regulators and our partners and/or customers could adversely affect the sourcing, availability, and pricing of minerals used in the manufacture of certain components used in our products. In addition, the supply-chain due diligence required by the minerals rules require expenditures of resources and management attention regardless of the results of the . Additionally, beginning August 1, 2025, products sold in Europe must comply with the Radio Equipment Directive (RED) (Directive 2014/53/EU). If our products do not fully comply with RED requirements on a timely basis, including as a result of the directive being interpreted by authorities in or ways, our ability to sell our products in the Europe will be impacted, which may impact our international revenue and our . If there is an new regulation or new interpretations or applications of existing laws and regulations which significantly impacts our use of various components or requires more expensive components, that regulation would have a material impact on our business, financial condition and results of operations.
One area which has a large number of evolving and developing regulations is environmental compliance. Management of environmental pollution, climate change and other ESG considerations has produced significant legislative and regulatory efforts on a global basis, and we believe this will continue both in scope and the number of countries participating. These changes could directly increase the cost of energy which may have an impact on the way we manufacture products or utilize energy to produce our products. In addition, any new regulations or laws in the environmental area might increase the cost of raw materials we use in our products. Environmental regulations require us to reduce product energy usage, monitor and exclude an expanding list of restricted substances and to participate in required recover and recycling of our products. While future changes in regulations are certain, we are currently unable to predict how any such changes will impact us and if such impacts will be material to our business. If there is a new law or regulation, or a new interpretation and application of existing laws, that significantly increases our costs of manufacturing or causes us to significantly alter the way that we manufacture our products, this would have a material adverse effect on our business, financial condition and results of operations.
Our selling and distribution practices are also regulated in large part by U.S. federal and state as well as foreign antitrust and competition laws and regulations. In general, the objective of these laws is to promote and maintain free competition by prohibiting certain forms of conduct that tend to restrict production, raise prices, or otherwise control the market for goods or services to the detriment of consumers of those goods and services. Potentially prohibited activities under these laws may include unilateral conduct, or conduct undertaken as the result of an agreement with one or more of our suppliers, competitors, or customers. The potential for liability under these laws can be difficult to predict as it often depends on a finding that the challenged conduct resulted in harm to competition, such as higher prices, restricted supply, or a reduction in the quality or variety of products available to consumers. We utilize a number of different distribution channels to deliver our products to the end consumer, and regularly enter agreements with resellers of our products at various levels in the distribution chain that could be subject to scrutiny under these
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laws in the event of private litigation or an investigation by a governmental competition authority. In addition, many of our products are sold to consumers via the Internet. Many of the competition-related laws that govern these Internet sales were adopted prior to the advent of the Internet, and, as a result, do not contemplate or address the unique issues raised by online sales. New interpretations or applications of existing laws and regulations, whether by courts or by the state, federal or foreign governmental authorities charged with the enforcement of those laws and regulations, may also impact our business in ways we are currently unable to predict. Any failure on our part or on the part of our employees, agents, distributors or other business partners to comply with the laws and regulations governing competition can result in negative publicity and diversion of management time and effort and may subject us to significant litigation liabilities and other penalties.
In addition to government regulations, many of our customers require us to comply with their own requirements regarding manufacturing, health and safety matters, corporate social responsibility, employee treatment, anti-corruption, use of materials, environmental concerns and other ESG considerations. Some customers may require us to periodically report on compliance with their unique requirements, and some customers reserve the right to audit our business for compliance. We are increasingly subject to requests for compliance with these customer requirements. For example, there has been significant focus from our customers as well as the press regarding corporate social responsibility policies and other ESG considerations. We regularly audit our manufacturers; however, any deficiencies in compliance by our manufacturers may harm our business and our brand. In addition, we may not have the resources to maintain compliance with these customer requirements and failure to comply may result in decreased sales to these customers, which may have a material adverse effect on our business, financial condition and results of operations.
We must comply with indirect tax laws in multiple jurisdictions, as well as complex customs duty regimes worldwide. Audits of our compliance with these rules may result in additional liabilities for taxes, duties, interest and penalties related to our international operations which would reduce our profitability.
Our operations are routinely subject to audit by tax authorities in various countries. Many countries have indirect tax systems where the sale and purchase of goods and services are subject to tax based on the transaction value. These taxes are commonly referred to as sales and/or use tax, value-added tax ("VAT") or goods and services tax ("GST"). In addition, the distribution of our products subjects us to numerous complex customs regulations, which frequently change over time. Failure to comply with these systems and regulations can result in the assessment of additional taxes, duties, interest and penalties. While we believe we are in compliance with local laws, we cannot assure that tax and customs authorities would agree with our reporting positions and upon audit may assess us additional taxes, duties, interest and penalties.
Additionally, some of our products are subject to U.S. export controls, including the Export Administration Regulations and economic sanctions administered by the Office of Foreign Assets Control. We also incorporate encryption technology into certain of our solutions. These encryption solutions and underlying technology may be exported outside of the United States only with the required export authorizations or exceptions, including by license, a license exception, appropriate classification notification requirement and encryption authorization.
Furthermore, our activities are subject to U.S. economic sanctions laws and regulations that prohibit the shipment of certain products and services without the required export authorizations, including to countries, governments and persons targeted by U.S. embargoes or sanctions. Additionally, the current U.S. administration has been critical of existing trade agreements and may impose more stringent export and import controls. Obtaining the necessary export license or other authorization for a particular sale may be time consuming and may result in delay or loss of sales opportunities even if the export license ultimately is granted. While we take precautions to prevent our solutions from being exported in violation of these laws, including using authorizations or exceptions for our encryption products and implementing IP address blocking and screenings against U.S. government and international lists of restricted and prohibited persons and countries, we have not been able to guarantee, and cannot guarantee that the precautions we take will prevent all of export control and sanctions laws, including if purchasers of our products bring our products and services into sanctioned countries without our knowledge. of U.S. sanctions or export control laws can result in significant or and could be imposed on employees and managers for of these laws.
Also, various countries, in addition to the United States, regulate the import and export of certain encryption and other technology, including import and export licensing requirements, and have enacted laws that could limit our
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ability to distribute our products and services or our end-users’ ability to utilize our solutions in their countries. Changes in our products and services or changes in import and export regulations may create delays in the introduction of our products in international markets.
Adverse action by any government agencies related to indirect tax laws could materially adversely affect our business, operating results and financial condition.
We are exposed to credit risk and fluctuations in the market values of our investment portfolio.
Although we have not recognized any material losses on our cash equivalents and short-term investments, future declines in their market values could have a material adverse effect on our financial condition and operating results. Given the global nature of our business, we have investments with both domestic and international financial institutions. Accordingly, we face exposure to fluctuations in interest rates, which may limit our investment income. If these financial institutions default on their obligations or their credit ratings are negatively impacted by liquidity issues, credit deterioration or losses, financial results, or other factors, the value of our cash equivalents and short-term investments could decline and result in a material impairment, which could have a material adverse effect on our financial condition and operating results.
Governmental regulations of imports or exports affecting Internet security could affect our net revenue.
Any additional governmental regulation of imports or exports or failure to obtain required export approval of our encryption technologies could adversely affect our international and domestic sales. The United States and various foreign governments have imposed controls, export license requirements, and restrictions on the import or export of some technologies, particularly encryption technology. In addition, from time to time, governmental agencies have proposed additional regulation of encryption technology, such as requiring the escrow and governmental recovery of private encryption keys. In response to terrorist activity, governments could enact additional regulation or restriction on the use, import, or export of encryption technology. This additional regulation of encryption technology could delay or prevent the acceptance and use of encryption products and public networks for secure communications, resulting in decreased demand for our products and services. In addition, some foreign competitors are subject to less stringent controls on exporting their encryption technologies. As a result, they may be able to compete more effectively than we can in the United States and the international Internet security market.
If our goodwill becomes impaired, as occurred in 2022, we may be required to record a significant charge to earnings.
Goodwill is required to be tested for impairment at least annually. Factors that may be considered when determining if the carrying value of our goodwill may not be recoverable include a significant decline in our expected future cash flows or a sustained, significant decline in our stock price and market capitalization.
As a result of our acquisitions, we have significant goodwill recorded on our balance sheets. In addition, significant negative industry or economic trends, such as those that have occurred as a result of the recent economic downturn, including reduced estimates of future cash flows or disruptions to our business could indicate that goodwill might be impaired. If, in any period our stock price decreases to the point where our market capitalization is less than our book value, this too could indicate a potential impairment and we may be required to record an impairment charge in that period. Our valuation methodology for assessing impairment requires management to make judgments and assumptions based on projections of future operating performance. The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results and market conditions. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for each reporting unit. For example, in 2022, the market price of our common stock and market capitalization and the U.S. WiFi market contracted, which had a significant impact on our then-Consumer business. As a result, we recognized a goodwill charge in the first quarter of 2022. We have not recognized any charge on our Enterprise reporting unit. However, we operate in highly competitive environments and projections of future operating results and cash flows may vary significantly from actual results. As a result, we may incur substantial charges to earnings in our financial statements should an of our goodwill be determined on our Enterprise reporting unit, resulting in an impact on our results of operations.
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General Risk Factors
If we lose the services of our key personnel, we may not be able to execute our business strategy effectively.
Changes in our management team may disrupt our business, strategic and employee relationships, which may delay or prevent the achievement of our business objectives. During the transition periods, there may be uncertainty among investors, employees and others concerning our future direction and performance. For example, we appointed a new Chief Executive Officer in January 2024 and have made other leadership changes and hires. The failure to successfully transition could adversely affect our results of operations. We do not maintain any key person life insurance policies. Our business model requires extremely skilled and experienced senior management who are able to withstand the rigorous requirements and expectations of our business. Our success depends on senior management being able to execute at a very high level. The loss of our senior management or other key engineering, research, development, sales or marketing personnel, particularly if to competitors, could our ability to implement our business strategy and respond to the rapidly changing needs of our business. Our future also depends on our ability to hire for key functions. The market for talent in the technology industry, especially in the areas of software and subscription services is competitive, and we may not have the resources to compete at the same level as larger companies who are to offer more compelling compensation packages. Therefore, our ability to recruit new talent and retain existing talent may be affected, and as a result our business as a whole may . While we believe that we have mitigated some of the business execution and business continuity risk with our organization into two business segments with separate teams, the of any key personnel would still be and our business, especially given that our business is leanly staffed and relies on the expertise and high performance of our key personnel.
Global economic and geopolitical conditions could materially adversely affect our revenue and results of operations.
Our business has been and may continue to be affected by a number of factors that are beyond our control, such as general geopolitical, economic and business conditions, conditions in the financial markets, and changes in the overall demand for Pro AV, networking and smart home products. A severe and/or prolonged economic downturn could adversely affect our customers’ financial condition and the levels of business activity of our customers. Weakness in, and uncertainty about, global economic conditions may cause businesses to postpone spending in response to tighter credit, negative financial news and/or declines in income or asset values, which could have a material negative effect on the demand for networking products. Adverse changes in economic conditions, including inflation, slower growth or recession, new or increased tariffs and other to trade, changes to fiscal and monetary policy, tighter credit, higher interest rates, high and currency fluctuations could impact the demand and sale of our products to end users and the quantity of products our customers decide to purchase from us (or change the mix of products demanded) and make it more to forecast our operating results and make business decisions.
The uncertainty in global and regional economic conditions have also affected the financial markets and financial institutions on which we rely and have resulted in a number of adverse effects including a low level of liquidity in many financial markets, banking sector disruptions, extreme volatility in credit, equity, currency and fixed income markets, instability in the stock market, high inflation and high unemployment. Macroeconomic weakness and uncertainty also make it more difficult for us to accurately forecast revenue, gross margin and expenses. If we are unable to successfully anticipate changing economic, geopolitical and financial conditions, we may be unable to effectively plan for and respond to those changes which could further disrupt our business or limit our ability to access certain assets and materially adversely affect our business and results of operations.
In addition, availability of our products from third-party manufacturers and our ability to distribute our products into the United States and non-U.S. jurisdictions may be impacted by factors such as an increase in duties, tariffs or other restrictions on trade; raw material shortages or price increases, work stoppages, strikes and political unrest; uncertain economic conditions; economic crises and international disputes or conflicts; changes in leadership and the political climate in countries from which we import products; and failure of the United States to maintain normal trade relations with countries around the world. Any of these occurrences could materially adversely affect our business, operating results and financial condition.
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Furthermore, uncertainty about, or worsening of economic conditions could adversely affect consumer sentiment and demand for our products and services. Consumer confidence and spending could be adversely affected by financial market volatility, negative financial news, conditions in the real estate, mortgage and technology markets, declines in income or asset values, changes to fuel and other energy costs, labor reductions, labor and healthcare costs and other economic factors. This could also impact the quantity of products our customers decide to purchase from us and may have a longer-term impact on the inventory levels these customers choose to carry. Lower demands could also impact manufacturing capacity utilization and contribute to further increased component costs. These and other economic factors could materially and adversely affect our revenue and results of operations.
Political events, war, terrorism, public health issues, climate changes, natural disasters, sudden changes in trade and immigration policies, and other circumstances could materially adversely affect us.
Our corporate headquarters are located in Northern California and one of our warehouses is located in Southern California. Substantially all of our critical enterprise-wide information technology systems, including our main servers, are currently housed in colocation facilities in Arizona and different geographic regions in the United States. The majority of our manufacturing occurs in Southeast Asia. These regions are known for or susceptible to seismic activity and other natural disasters, such as drought, wildfires, storms, sea-level rise, and flooding. Future extreme weather events could cause physical damage or disrupt operations. If our manufacturers or warehousing facilities are disrupted or destroyed, we would be unable to distribute our products on a timely basis, which could harm our business. This could also lead to increased costs and decreased revenues.
In addition, health epidemics, war, terrorism, geopolitical uncertainties, social and economic instability, public health issues, sudden changes in trade and immigration policies, and other business interruptions have caused and could cause damage or disruption to international commerce and the global economy, and thus could have a strong negative effect on us, our suppliers, logistics providers, manufacturing vendors and customers. Our business operations are subject to interruption by natural disasters, fire, power shortages, geopolitical disputes or conflicts, terrorist attacks and other hostile acts, labor disputes, public health issues, and other events beyond our control. In addition, in the past, labor disputes at third-party manufacturing facilities have led to workers going on strike, and labor could materially affect our third-party manufacturers’ abilities to manufacture our products.
Such events could decrease demand for our products, make it difficult, more expensive or impossible for us to make and deliver products to our customers or to receive components from our direct or indirect suppliers, and create delays and inefficiencies in our supply chain. Wars or geopolitical conflicts, major public health issues, including pandemics such as COVID-19, could negatively affect us through more stringent employee travel restrictions, additional limitations in freight services or increase in freight costs, governmental actions limiting the movement of products between regions, delays in production ramps of new products, and disruptions in the operations of our manufacturing vendors and component suppliers.
Our stock price has experienced recent volatility and may be volatile in the future and your investment in our common stock could suffer a decline in value.
There has been significant volatility in the market price and trading volume of securities of companies in the technology industry and the stock market as a whole, which may be unrelated to the financial performance of these companies. These broad market fluctuations may negatively affect the market price of our common stock.
Some specific factors that may have a significant effect on our common stock market price include:
actual or anticipated fluctuations in our operating results or our competitors’ operating results;
actual or anticipated changes in the growth rate of the general networking sector, our growth rates or our competitors’ growth rates;
conditions in the financial markets in general or changes in general economic, political and market conditions, including government efforts to mitigate economic downturns or control inflation;
actual or anticipated changes in governmental regulation, including taxation and tariff policies;
interest rate or currency exchange rate fluctuations;
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our ability to forecast or report accurate financial results; and
changes in stock market analyst recommendations regarding our common stock, other comparable companies or our industry generally.
We are required to evaluate our internal controls under Section 404 of the Sarbanes-Oxley Act of 2002 and any adverse results from such evaluation, including restatements of our issued financial statements, could impact investor confidence in the reliability of our internal controls over financial reporting.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to furnish a report by our management on our internal control over financial reporting. Such report must contain among other matters, an assessment of the effectiveness of our internal control over financial reporting as of the end of our fiscal year, including a statement as to whether or not our internal control over financial reporting is effective. This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management. From time to time, we conduct internal investigations as a result of whistleblower complaints. In some instances, the whistleblower complaint may implicate potential areas of weakness in our internal controls. Although all known material weaknesses have been remediated, we cannot be certain that the measures we have taken ensure that restatements will not occur in the future. Execution of restatements create a significant on our internal resources and could cause in our filing of quarterly or annual financial results, increase our costs and cause management . may also significantly affect our stock price in an manner.
Continued performance of the system and process documentation and evaluation needed to comply with Section 404 is both costly and challenging. During this process, if our management identifies one or more material weaknesses in our internal control over financial reporting, we will be unable to assert such internal control is effective. If we are unable to assert that our internal control over financial reporting is effective as of the end of a fiscal year or if our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, which may have an adverse effect on our stock price.
Item 1B. Unresolv ed Staff Comments
None.
Item 1C. Cybersecurity
Risk management and strategy
We implement and maintain various information security processes designed to identify, assess and manage material risks from cybersecurity threats to our critical computer networks, third party hosted services, communications systems, hardware and software, and our critical data, including intellectual property and confidential information that is proprietary, strategic or competitive in nature (“Information Systems and Data”).
Our cybersecurity functions include representatives from information technology, engineering, information security, legal, impacted business units or products and other departments as applicable (together, the “Cybersecurity Team”) helps identify, assess and manage the Company’s cybersecurity threats and risks. The Cybersecurity Team is responsible for identifying, assessing and managing cybersecurity risks by monitoring and evaluating our threat environment using various methods including, for example manual and automated tools such as vulnerability scans, penetration tests and a public bug bounty program; subscribing to reports and services that identify cybersecurity threats; conducting risk assessments and internal and external audits; using external intelligence feeds; and conducting tabletop incident response exercises.
Depending on the environment, we implement and maintain various technical, physical, and organizational measures, processes, standards and policies designed to manage and mitigate material risks from cybersecurity threats to our Information Systems and Data, including, for example: (1) having an information security incident response plan for incident detection and response; (2) maintaining a disaster recovery plan, business continuity program,
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vulnerability management process and vendor risk management process; (3) conducting periodic risk assessments and employee training on cybersecurity; (4) maintaining security controls intended to address certain recognized industry cyber frameworks; (5) encrypting and segregating data, having network security controls, access controls and physical security, monitoring systems, managing assets (tracking and disposal) and conducting penetration testing; and (6) maintaining cybersecurity insurance.
Our assessment and management of material risks from cybersecurity threats are integrated into the Company’s overall risk management processes. For example, (1) cybersecurity risk is addressed as a component of the Company’s enterprise risk management program; (2) our Cybersecurity Team works with our management team in an effort to prioritize our risk management processes and mitigate cybersecurity threats that are more likely to lead to a material impact to our business; (3) our Cybersecurity Team and management team evaluates material risks from cybersecurity threats against our overall business objectives and reports to the cybersecurity committee chairperson of the board of directors who may then notify the cybersecurity committee and board of directors (as appropriate), to further evaluate our overall enterprise risk.
We use third-party service providers to assist us from time to time in an effort to identify, assess, and manage material risks from cybersecurity threats. For example, these service providers include professional services firms, threat intelligence service providers, managed cybersecurity service providers, penetration testing firms and forensic investigators. We also have a public bug bounty program.
We use third-party service providers to perform a variety of functions throughout our business, such as using application providers for core applications (including finance, HR, CRM, email services, collaboration tools etc.), hosting c ompanies for our websites, contract manufacturing organizations, distributors and supply chain resources for software, hardware, manufacturing and distribution of our products. We have a vendor management process designed to manage cybersecurity risks associated with our use of these providers. This process includes risk assessments, security questionnaires, review of vendor security programs, review of available security assessments, reports, and audits. Depending on the nature of the services provided, the sensitivity of the Information Systems and Data at issue, and the type of provider, our vendor management process may involve different levels of assessment designed to help identify cybersecurity risks associated with a provider and impose contractual obligations related to cybersecurity on the provider.
For a description of the risks from cybersecurity threats that may materially affect the Company and how they may do so, see our risk factors under Part 1. Item 1A. Risk Factors in this Annual Report on Form 10-K, including “ Product security vulnerabilities, system security risks, data protection breaches, cyber-attacks, improper use of artificial intelligence (“AI”) tools, and other threats and risks, could disrupt or otherwise compromise our products, services, internal operations or information technology systems, or those of third parties with whom we work. Actual or perceived non-compliance with our privacy and security obligations could lead to regulatory investigations or actions, litigation, fines and penalties, business operation disruption, reputational harm, loss of revenue or profits, of customers or sales, and other business consequences .”.
Governance
Our board of directors addresses the Company’s cybersecurity risk management as part of its general oversight function. The board of directors’ cybersecurity committee is responsible for overseeing the Company’s cybersecurity risk management processes, including oversight and mitigation of risks from cybersecurity threats.
Our cybersecurity risk assessment and management processes are implemented and maintained by certain Company management, including our General Counsel & Chief Privacy Officer, Head of Corporate Security and Head of Product Security, each of whom have substantial industry expertise, including past experience in cyber security in roles at other public companies.
Our General Counsel & Chief Privacy Officer , who has worked in the privacy and cyber security space since 2008, is responsible for hiring appropriate personnel, helping to integrate cybersecurity risk considerations into the Company’s overall risk management strategy, and communicating key priorities to relevant personnel. She is responsible for approving budgets, helping prepare for cybersecurity incidents, approving cybersecurity processes, and reviewing security assessments and other security-related reports.
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Our information security incident response plan is designed to escalate certain cybersecurity incidents to members of management depending on the circumstances, including the incident response leadership team. The incident response leadership team works with the Company’s incident response team to help the Company mitigate and remediate cybersecurity incidents of which they are notified. In addition, the Company’s information security incident response plan includes reporting to the cybersecurity committee chairperson of the board of directors for certain cybersecurity incidents and, if appropriate, the cybersecurity committee and the board of directors.
The cybersecurity committee receives periodic notices (written and verbal) from the Cybersecurity Team concerning the Company’s significant cybersecurity threats and risk and the processes the Company has implemented that are intended to address them. The cybersecurity committee also receives quarterly reports, summaries or presentations related to the Company's cybersecurity program as it relates to both our corporate systems and products.
