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Item 1A. Risk Factors

2023-05-02 compared with 2022-11-01 · 270 added, 261 removed, 637 unchanged (45% of the section changed)

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Risk Factors Summary

Our business is subject to numerous risks and uncertainties, including those highlighted in Part I, Item 1A titled “Risk Factors.” These risks include, but are not limited to, the following:

Our business is subject to numerous risks and uncertainties.

These risks include, but are not limited to, the following:

Risks Related to Our Business and Industry

• shipment delays could cause revenue to fall;

• some key components in our products come from sole or limited sources of supply and increases the risk of supply shortages, delays, extended lead times or costs, particularly in the current industry-wide supply constrained environment;

• adverse economic and geopolitical conditions including inflationary pressures, the impact of the Russia-Ukraine conflict and reduced information technology and network infrastructure spending may adversely affect our business;

• the COVID-19 pandemic which has led, among other things, to manufacturing disruptions, prolonged supply chain shortages, increased component and other supply chain costs, and unpredictable product demand and supply, increased lead times, extended demand planning horizons and increased purchase commitments, all of which, in turn, could materially adversely affect our business;

• large purchases by a limited number of customers represent a substantial portion of our revenue;

• the networking market is rapidly evolving;

• failure to successfully pursue new products and services and expand into adjacent markets could adversely affect our business;

• adverse economic and geopolitical conditions and reduced information technology and network infrastructure spending may adversely affect our business;

• shipment delays could cause revenue to fall;

• our revenue and revenue growth may decline;

• our results of operations may vary significantly from period to period;

• our gross margins vary and may be adversely affected by an increase in costs including component, shipping and other product costs;

• the networking market is rapidly evolving;

• failure to successfully pursue new products and services and expand into adjacent markets could adversely affect our business;

• our gross margins vary and may be adversely affected by an increase in costs;

• we face intense competition and industry consolidation;

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• if we are unable to attract new large customers or sell additional products and services to our existing customers, our revenue growth will be adversely affected;

• if we are unable to increase market awareness of our products, our revenue may not continue to grow or may decline;

• some large customers require more favorable terms;

• sales of our switches generate most of our product revenue;

• some large customers require more favorable terms;

• if we are unable to increase market awareness of our products, our revenue may not continue to grow or may decline;

• sales prices of our products and services may decrease;

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• defects, errors or vulnerabilities in our security network products, failure of our products to detect security breaches or incidents, misuse of our products or risks of product liability could harm our business;

• breaches of our cybersecurity systems or other security breaches or incidents could harm our business and our products and result in regulatory fines, required changes to our data handling processes or systems, and liability for damages to affected data subjects.

• breaches of our cybersecurity systems or other security breaches could harm our business and our products and result in regulatory fines, required changes to our data handling processes, and liability for damages to affected data subjects.

Risks Related to Accounting, Compliance, Regulation and Tax

• failure to maintain effective internal control over financial reporting could adversely affect the accuracy and timing of our financial reporting;

• failure to maintain effective internal control over financial reporting could adversely affect our financial reporting;

• if our critical accounting estimates are based on incorrect assumptions, our results of operations could fall below analyst and investor expectations and result in a decline in the market price of our common stock;

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• we are subject to governmental export and import controls that could impair our ability to compete in international markets or subject us to liability for violations.

• failure to comply with anti-bribery and anti-corruption laws and anti-money laundering laws, and similar laws, could subject us to penalties and other adverse consequences.

Risks Related to Ownership of Our Common Stock

• the trading price of our common stock is volatile and the value of your investment could decline;

• any reduction or discontinuance of our stock repurchase programs could cause the market price of our common stock to decline;

• any reduction or discontinuance of our stock repurchase program could cause the market price of our common stock to decline;

• sales of substantial amounts of our common stock could reduce the market price of our common stock;

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Risks Related to Our Business and Industry

We expect large purchases by a limited number of end customers to continue to represent a substantial p ortion of our revenue, and any loss, delay, decline or other change in expected purchases could result in material quarter-to-quarter fluctuations of our revenue or otherwise adversely affect our results of operations.

Historically, large purchases by a relatively limited number of end customers have accounted for a significant portion of our revenue.

We have experienced unpredictability in t he timing of orders from these large end customers primarily due to the time it takes these end customers to evaluate, test, qualify and accept our products, the overall complexity of these large orders and changes in demand patterns specific to these customers, including reductions in capital expenditures by these customers and the impact of cost reduction and other efficiency efforts by these customers.

For example, sales to our end customers Microsoft and Meta Platforms in fiscal 2022 collectively represented 42% of our total revenue, whereas sales to our end customer Microsoft in fiscal 2020 and 2021 amounted to 22% and 15% of our revenue, respectively, with our end customer Meta Platforms representing less than 10% of our revenue in both fiscal 2020 and 2021.

This variability in customer concentration has been linked to the timing of new product deployments and spending cycles with these customers, and we expect continued variability in our customer concentration and timing of sales on a quarterly and annual basis.

I n addition, we typically provide pricing discounts to large end customers, which reduces gross margins for the period in which such sales occur.

As a consequence of the concentrated nature of our customer base and their purchasing behavior, our quarterly revenue and results of operations have fluctuated from quarter to quarter and are difficult to estimate.

customers, capital resources and expenditures or purchasing behavior and deceleration in spending of our key end customers could significantly decrease our sale s to such end customers or could lead to delays, reductions or cancellations of planned purchases of our products or services.

For example, some of our large customers have announced various cost reduction measures intended to optimize and increase efficiency in their capital expenditures.

In some instances, such measures have had, or may have, an impact on certain current or future projects, and have reduced our visibility to customer demand, which may result in reductions in future demand and negatively impact our revenue, financial condition, business or prospects.

Moreover, because our sales are based prim arily on purchase orders, our customers may cancel, delay, reduce or otherwise modify their purchase commitments with little or no notice to us.

For example, due to manufacturing and supply chain disruptions and increased product lead ti mes, end customers may have been placing orders in advance of demand to ensure supply.

End customers may decide to delay or cancel such orders for any reason including if economic conditions worsen or their financial performance, condition or prospects deteriorate.

This limited visibility regarding our end customers’ product needs or changes in those needs, the timing and quantity of which could vary significantly, requires us to rely on estimated demand forecasts to determine how much material to purchase and product to manufacture.

Our failure to accurately forecast demand can lead to product shortages which could lead to delays in fulfilling current and future purchase orders that can impede production by our customers and harm our customer relationships.

And, in the event of any cancellations or reductions of orders, or any reductions in future demand, we may not have enough time to reduce operating expenses to mitigate the effect of the lost revenue on our business, and in addition, could incur increased excess and obsolete inventory charges, all of which could materially affect our operating results.

We may be unable to sustain or increase our revenue from our large end customers, grow revenue with new or other existing end customers at the rate we anticipate or at all, or offset the decline or discontinuation of concentrated purchases by our larger end customers with purchases by new or existing end customers.

These customers could reduce their spending levels or otherwise could choose to divert all or a portion of their business with us to one of our competitors, re-assign spending allocations, increase their adoption of "white box" solutions and open source network operating systems, demand pricing concessions for our services, or require us to provide enhanced services that increase our costs.

If these factors drive some of our large customers to cancel all or a portion of their business relationships with us, the growth in our business and the ability to meet our current and long-term financial forecasts may be materially impacted.

We expect that such concentrated purchases will continue to contribute materially to our revenue for the foreseeable future and that our results of operations may fluctuate materially as a result of such larger end customers’ buying patterns.

In addition, we may see consolidation of our customer base, such as among Internet companies and cloud service providers, which could result in loss of end customers.

The loss of such end customers, or a significant delay or reduction in their purchases, including reductions or delays due to customer departures from recent buying patterns, or an unfavorable change in competitive conditions could materially harm our business, financial condition, results of operations and prospects.

Adverse economic conditions, continuing uncertain economic conditions or reduced information technology and network infrastructure spending may adversely affect our business, financial condition, results of operations and prospects.

Our business depends on the overall demand for information technology, network connectivity and access to data and applications.

Weak domestic or global economic conditions and continuing economic uncertainty, fear or anticipation of such conditions, a recession, international trade disputes, global pandemics such as the COVID-19 pandemic, or a reduction in information technology and network infrastructure spending or a deterioration of the financial performance, condition or prospects of our customers even if economic conditions improve, could adversely affect our business, financial condition, results of operations and prospects in a number of ways, including longer sales cycles, lower prices for our products and services, higher default rates among our distributors, reduced unit sales and lower or no growth.

In addition, the global macroeconomic environment has been negatively affected by, among other things, the collapse of Silicon Valley Bank (“SVB”) and other financial institutions, epidemics, instability in global economic markets, increased U.S.

trade tariffs and trade disputes between the U.S., China and other countries, inflationary pressures, higher interest rates, instability in the global credit markets, the impact and uncertainty regarding global central bank monetary policy, instability in the geopolitical environment, the Russia-Ukraine conflict, political tensions between Taiwan and China, political demonstrations, and foreign governmental debt concerns which have caused, and are likely to continue to cause, uncertainty and instability in local economies and in global financial markets.

A government shutdown or the U.S.

government’s failure to raise the debt ceiling, which increases the possibility of a default by the U.S.

government on its debt obligations, or related credit-rating downgrades could also have adverse effects on the broader global economy and contribute to, or worsen, an economic recession.

We believe that any extended or renewed economic disruptions or deterioration in the global economy could have an adverse impact to our liquidity or to our current and projected business operations, financial condition or results of operations.

For example, if other banks and financial institutions with whom we have banking relationships or whose corporate bonds are held in our marketable securities investment portfolio, enter receivership or become insolvent in the future, we may be unable to access, and we may lose some of our existing cash, cash equivalents and investments to the extent those funds are not insured or otherwise protected by the

In addition, in such circumstances we might not be able to timely pay key vendors and others.

We regularly maintain cash balances that are not insured or are in excess of the FDIC’s insurance limit.

Any delay in our ability to access our cash, cash equivalents and investments (or the loss of such funds) or to timely pay key vendors and others could have a material adverse effect on our operations and cause us to need to seek additional capital sooner than planned.

In addition, business disruptions and supply chain and manufacturing disruptions may result in customers delaying or canceling capital expenditures on information technology and network infrastructure, which may affect the overall demand for our products.

End customers may also be placing orders in advance of demand to ensure supply.

We believe that our customers continue to grapple with the impact of these macroeconomic factors on their businesses and future investment plans, resulting in business uncertainty and a more constrained approach to forecasts and orders.

Continuing or worsening economic instability or the deterioration of the financial performance, condition or prospects of our customers could result in a cancellation of such orders or otherwise adversely affect spending for IT, network infrastructure, systems and tools, and limit our ability to forecast future demand for our products, which could reduce expected revenue or result in a write-down of excess or obsolete inventory.

A downturn or a recession may also significantly affect financing markets, the availability of capital and the terms and conditions of any financing arrangements, including the overall cost of financing as well as the financial health or creditworthiness of our end customers.

Circumstances may arise in which we need, or desire, to raise additional capital, and such capital may not be available on commercially reasonable terms, or at all.

Interruptions or delays in shipments could cause our revenue for the applicable period to fall below expected levels.

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Consequently, this has hindered and may continue to hinder our ability to forecast component supply, manufacturing capacity and timing of inventory receipts.

A significant interruption in these critical functions has resulted and could continue to result in delayed order fulfillment, which may adversely affect our business, financial condition, results of operations and prospects and result in a decline in the market price of our common stock.

Because some of the components in our products come from sole or limited sources of supply, we have increased our purchase commitments and are susceptible to supply shortages, extended lead times or supply changes, which could disrupt or delay our scheduled product deliveries to our end customers and may result in the loss of sales and end customers.

Our products rely on components, including merchant silicon chips, integrated circuit components, printed circuit boards, connectors, custom-tooled sheet metal and power supplies that we purchase or our contract manufacturers purchase on our behalf from a limited number of suppliers, including certain sole source providers.

A significant interruption in these critical functions has resulted and could continue to result in delayed order fulfillment or cancellation of orders, which may negatively impact our relationships with our customers, reduce future sales or otherwise adversely affect our business, financial condition, results of operations and prospects and result in a decline in the market price of our common stock.

Because some of the components in our products come from sole or limited sour ces of supply, we have entered into significant purchase commitments and are susceptible to supply shortages, extended lead times or supply changes, which could disrupt or delay our scheduled product deliveries to our end customers and may result in the loss of sales and end customers.

Our products rely on components, including merchant silicon chips, integrated circu it components, printed circuit boards, connectors, custom-tooled sheet metal and power supplies that we purchase or our contract manufacturers purchase on our behalf from a limited number of suppliers, including certain sole source providers.

Generally, we do not have guaranteed supply contracts with our component suppliers, and our suppliers have suffered and could continue to suffer shortages, longer lead times, delay shipments, prioritize shipments to other vendors, decommit orders, increase prices or cease manufacturing such products or selling them to us at any time.

Supply of these components world-wide are being adversely affected by the COVID-19 pandemic as well as industry consolidation and geopolitical conditions such as international trade wars like the U.S.

Supply of these components worldwide have been adversely affected by the COVID-19 pandemic as well as industry consolidation and geopolitical conditions such as international trade wars like the U.S.

trade war with China, Russia-Ukraine conflict and increased political tensions in Russia, Europe or Asia.

Such shortages, increased component lead times, reduced allocations of components and decommitments of orders have resulted in and may continue to result in increased component prices, fewer sourcing options, unpredictability of supply, prolonged manufacturing disruptions and increased product lead times.

In the past, we have also experienced shortages in inventory for dynamic random access memory integrated circuits, semiconductors and delayed releases of the next generation of chipset, which delayed our production and/or the release of our new products.

Although we have increased our purchase commitments to support long-term customer demand, if we are unable to obtain sufficient quantities of any of these components on commercially reasonable terms or in a timely manner, or if we are unable to obtain alternative sources for these components, shipments of our products could be delayed or halted entirely or we may be required to redesign our products.

Although we have entered into significant purchase commitments to support long-term customer demand, if we are unable to obtain sufficient quantities of any of these components on commercially reasonable terms or in a timely manner, or if we are unable to obtain alternative sources for these components, shipments of our products could be delayed or halted entirely or we may be required to redesign our products.

Any of these events could result in a cancellation of orders, lost sales, reduced gross margins or damage to our end customer relationships, which would adversely impact our business, financial condition, results of operations and prospects.

Additionally, if our suppliers do not meet their commitments or actual demand does not directly match with our demand forecasts, it could result in excess or obsolete inventory, which we would be required to write down to its estimated realizable value, which in turn could result in lower gross margins.

Additionally, if our suppliers do not meet their commitments, customers cancel orders or actual demand is less than our demand forecasts, it could result in excess or obsolete inventory, which we would be required to write down to its estimated realizable value, which in turn could result in lower gross margins and operating income.

Our operating cash flows have also been and may continue to be negatively impacted by increased component inventories on hand or at our contract manufacturers, awaiting supply of a limited number of scarce components necessary to build and ship the completed product.

Our reliance on component suppliers also yields the potential for the infringement or misappropriation of third-party intellectual property rights due to the incorporation of such components into our products.

We may not be indemnified by such component suppliers for such infringement or misappropriation claims.

We may not be indemnified by such

component suppliers for such infringement or misappropriation claims.

Any litigation for which we do not receive indemnification could require us to incur significant legal expenses in defending against such claims or require us to pay substantial royalty payments or settlement amounts that would not be reimbursed by our component suppliers.

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As we develop our product roadmap, we select specific merchant silicon from these vendors for each new product.

It is critical that we work in tandem with these vendors to ensure that their silicon

includes improved features, that our products take advantage of such improved features, and that such vendors are able to supply us with sufficient quantities on commercially reasonable term to meet customer demand.

It is critical that w e work in tandem with these vendors to ensure that their silicon includes improved features, that our products take advantage of such improved features, and that such vendors are able to supply us with sufficient quantities on commercially reasonable term to meet customer demand.

Reliance on these relationships allows us to focus our research and development resources on our software core competencies while leveraging their investments and expertise.

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Further, long-term supply and maintenance obligations to end customers increase the duration for which specific components are required, which may increase the risk of component shortages or the cost of carrying inventory.

In addition, our component suppliers change their selling prices frequently in response to market trends, including industry-wide increases in demand, and because we do not have contracts with these suppliers or guaranteed pricing, we are susceptible to availability or price fluctuations related to raw materials and components.

In addition, our component suppliers change their selling prices frequently in response to market trends, including industry-wide increases in demand, and because we do not have contracts wit h these suppliers or guaranteed pricing, we are susceptible to availability or price fluctuations related to raw materials and components.

If we are unable to pass component price increases along to our end customers or maintain stable pricing, our gross margins could be adversely affected and our business, financial condition, results of operations and prospects could suffer.

Our business depends on the overall demand for information technology, network connectivity and access to data and applications.

Weak domestic or global economic conditions and continuing economic uncertainty, fear or anticipation of such conditions, a recession, international trade disputes, global pandemics, or a reduction in information technology and network infrastructure spending even if economic conditions improve, could adversely affect our business, financial condition, results of operations and prospects in a number of ways, including longer sales cycles, lower prices for our products and services, higher default rates among our distributors, reduced unit sales and lower or no growth.

For example, the global macroeconomic environment could be negatively affected by, among other things, epidemics, instability in global economic markets, increased U.S.

Such challenges have caused, and are likely to continue to cause, uncertainty and instability in local economies and in global financial markets.

End customers may also be placing orders in advance of demand to ensure supply.

Continuing or worsening economic instability could result in a cancellation of such orders or otherwise adversely affect spending for IT, network infrastructure, systems and tools, and limit our ability to forecast future demand for our products, which could reduce expected revenues or result in a write-down of excess or obsolete inventory.

A downturn or a recession may also significantly affect financing markets, the availability of capital and the terms and conditions of financing arrangements, including the overall cost of financing as well as the financial health or creditworthiness of our end customers.

Circumstances may arise in which we need, or desire, to raise additional capital, and such capital may not be available on commercially reasonable terms, or at all.

The COVID-19 pandemic, which has led, among other things, to manufacturing disruptions, prolonged supply chain shortages, increased component and supply chain costs and unpredictable product demand and supply, extended demand planning horizons and increased purchase commitments, could materially adversely affect our business, financial condition, results of operations and prospects.

The COVID-19 pandemic has had and could continue to have an adverse impact on the business operations of our company and our customers, partners, manufacturers, suppliers, distribution fulfillment centers and service depots.

We have experienced, and may continue to experience, manufacturing and supply chain disruptions, components shortages, increased component lead times, unpredictability of supply, logistic challenges and increased costs.

Our contract manufacturers, direct fulfillment centers and service depots are impacted by the pandemic and have experienced shelter in place orders, workforce disruptions, delays and increased costs for production, transit and the import and export of products, which has negatively impacted the staffing and product output of our contract manufacturers.

Our contract manufacturers’ activities are further limited by supply constraints caused by prolonged disruptions in the manufacturing activities of our suppliers.

As a result of manufacturing disruptions, the lead times for our products have increased and our component and other supply chain costs have increased which has and may continue to adversely impact our gross margins.

In addition, we have had to increase our demand planning horizon to address supply chain shortages, combined with increased component lead times and unpredictability of supply, resulting in significant increases to our purchase commitments and component buffer inventories.

There is however no guarantee that suppliers will meet their commitments or that customers' actual demand will directly match our demand forecasts and this has increased the risk of future excess and obsolete inventory and could have a negative impact on our gross margins.

As the COVID-19 pandemic continues, we have experienced and may continue to experience additional risks including:

• more manufacturing disruptions and supply shortages, including shortages in semiconductors;

• increased lead times for our products including longer lead times for component parts incorporated into our products which, in turn, can increase the risk of order cancellations;

• shortages in component parts have resulted in increased component prices;

• reduced capacity and output at factories and factory closures, particularly in China;

• disruptions in logistics which impact the movement of components and finished products;

• overall increased demand for materials which could result in a limited or unpredictable supply, or increased costs, of materials and components that are incorporated in our products;

• delays in product shipments and limits on our ability to provide in-person support services to customers;

• increased risk of future excess and obsolete inventory as we extend our demand planning horizon and increase our purchase commitments and our inventory buffers.

The COVID-19 pandemic could limit our ability to add new customers and cause sales disruptions, order cancellations, longer upgrade cycles by customers for network equipment and overall lower demand for our products and services.

Customers may purchase products in advance of their internal demand which could result in lower purchases in subsequent quarters.

In addition, given supply chain constraints, customers may give us more optimistic indications about prospective purchases which could result in lower than expected orders or cancellations of orders.

We could also face increased risk of customer defaults and delays in payment.

In addition, the COVID-19 pandemic has adversely affected, and may continue to adversely affect, the global economy and financial markets, which may result in an extended economic slowdown or a global recession that could adversely impact our business.

Due to the uncertainty around the duration of the pandemic, the impact of new variants of COVID-19, the availability, distribution and effectiveness of vaccines and treatments for COVID-19 around the world, the imposition of public safety measures, the impact of the pandemic on the global economy and the impact of COVID-19 on our customers, partners, contract manufacturers and supply chain, we are unable to predict the full impact of the COVID-19 pandemic on our business operations and financial performance.

In addition, the COVID-19 pandemic and the various responses to it, may also have the effect of heightening many of the other risks discussed in this “Risk Factors” section.

We expect large purchases by a limited number of end customers to continue to represent a substantial portion of our revenue, and any loss, delay, decline or other change in expected purchases could result in material quarter-to-quarter fluctuations of our revenue or otherwise adversely affect our results of operations.

Historically, large purchases by a relatively limited number of end customers have accounted for a significant portion of our revenue.

We have experienced unpredictability in the timing of orders from these large end customers primarily due to changes in demand patterns specific to these customers, the time it takes these end customers to evaluate, test, qualify and accept our products, and the overall complexity of these large orders.

We expect continued variability in our customer concentration and timing of sales on a quarterly and annual basis.

For example, sales to our end customers Microsoft and Meta Platforms in fiscal 2019 collectively represented 40% of our total revenue, whereas sales to our end customer Microsoft in fiscal 2020 and 2021 amounted to 21.5% and 15.0% of our revenues, respectively, with our end customer Meta Platforms representing less than 10% of our revenues in both fiscal 2020 and 2021.

This variability in customer concentration has been linked to the timing of new product deployments and spending cycles with these customers, and we expect their contributions to return to more elevated levels during fiscal 2022.

In addition, we typically provide pricing discounts to large end customers, which may result in lower margins for the period in which such sales occur.

As a consequence of the concentrated nature of our customer base and their purchasing behavior, our quarterly revenue and results of operations may fluctuate from quarter to quarter and are difficult to estimate.

Changes in the business requirements or focus, upgrade cycles, vendor selection, project prioritization, manner in which spending allocations are assigned among multiple vendors based upon specific network roles or projects, financial prospects, lack of growth of our customers, capital resources and expenditures or purchasing behavior and deceleration in spending of our key end customers could significantly decrease our sales to such end customers or could lead to delays, reductions or cancellations of planned purchases of our products or services.

Moreover, because our sales are based primarily on purchase orders, our customers may cancel, delay, reduce or otherwise modify their purchase commitments with little or no notice to us.

For example, due to manufacturing and supply chain disruptions and increased product lead times, end customers may be placing orders in advance of demand to ensure supply.

End customers may decide to delay or cancel such orders for any reason including if economic conditions worsen.

This limited visibility regarding our end customers’ product needs, the timing and quantity of which could vary significantly, requires us to rely on estimated demand forecasts to determine how much material to purchase and product to manufacture.

And, in the event of a cancellation or reduction of an order, we may not have enough time to reduce operating expenses to mitigate the effect of the lost revenue on our business, and in addition, could incur increased excess and obsolete inventory charges, all of which could materially affect our operating results.

We may be unable to sustain or increase our revenue from our large end customers, grow revenues with new or other existing end customers at the rate we anticipate or at all, or offset the decline or discontinuation of concentrated purchases by our larger end customers with purchases by new or existing end customers.

These customers could choose to divert all or a portion of their business with us to one of our competitors, re-assign spending allocations, increase their adoption of "white box" solutions and open source network operating systems, demand pricing concessions for our services, require us to provide enhanced services that increase our costs, or reduce their spending levels.

If these factors drove some of our large customers to cancel all or a portion of their business relationships with us, the growth in our business and the ability to meet our current and long-term financial forecasts may be materially impacted.

In addition, we may see consolidation of our customer base, such as among Internet companies and cloud service providers, which could result in loss of end customers.

The networking market is rapidly evolving.

If this market does not evolve as we anticipate or our target end customers do not adopt our networking solutions, we may not be able to compete effectively, and our ability to generate revenue will suffer.

A substantial portion of our business and revenue depends on the growth and evolution of the networking market.

The market demand for networking solutions has increased in recent years as end customers have deployed larger, more sophisticated networks and have increased the use of virtualization and cloud computing.

The continued growth of this market will be dependent upon many factors including but not limited to the adoption of and demand for our end customers’ products and services, the expansion, evolution and build out of our end customers’ networks, the capacity utilization of existing network infrastructures, changes in the technological requirements for the products and services to be deployed in these networks, the amount and mix of capital spending by our end customers, the development of network switches and cloud service solutions by our large end customers for internal use, the financial performance and prospects of our end customers, the availability of capital resources to our end customers, changes in government regulation that could impact networking business models including those regulations related to cybersecurity, privacy, data protection and net neutrality, our ability to provide networking solutions that address the needs of end customers more effectively and economically than those of other competitors or existing technologies and general economic conditions.

If the networking solutions market does not develop in the way we anticipate or otherwise experiences a slow-down, if our solutions do not offer benefits compared to competing networking products or if end customers do not recognize the benefits that our solutions provide, then our business, financial condition, results of operations and prospects could be materially adversely affected.

We pursue new product and service offerings and expand into adjacent markets, and if we fail to successfully carry out these initiatives, our business, financial condition, or results of operations could be adversely impacted.

We have made substantial investments to develop new products and services and enhancements to existing products through our acquisitions and internal research and development efforts to expand our product offerings and maintain our

revenue growth.

If we are unable to anticipate technological changes in our industry by introducing new or enhanced products and services in a timely and cost-effective manner or if we fail to introduce products and services that meet market demand, we may lose our competitive position, our products may become obsolete, and our business, financial condition or results of operations could be adversely affected.

For example, as we introduce our 400 GbE and 800 GbE products, our ability to continue to maintain our competitive position with our customers will depend on our ability to deliver these new products in a timely manner and our customers' acceptance of these products.

In addition, the evaluation, testing and qualification of our new products by our customers may be lengthy and may require contractual acceptance clauses, which could delay our revenue recognition and impact our revenue and deferred revenue balances.

Additionally, from time to time, we invest in expansion into adjacent markets, including campus switching, WiFi networking and network security markets.

Although we believe these solutions are complementary to our current offerings, we have less experience and a more limited operating history in these markets, and our efforts in this area may not be successful.

Expanding our services in existing and new markets and increasing the depth and breadth of our presence imposes significant burdens on our marketing, compliance, and other administrative and managerial resources.

Our plan to expand and deepen our market share in our existing markets and possibly expand into additional markets is subject to a variety of risks and challenges.

Our success in these new markets depends on a variety of factors, including but not limited to our ability to develop new products, new product features and services that address the customer requirements for these markets, attract a customer base in markets in which we have less experience, compete with new and existing competitors in these adjacent markets, and gain market acceptance of our new products.

Developing our products is expensive, and the investment in product development may involve a long payback cycle.

We expect to continue to invest heavily in software development in order to expand the capabilities of our cloud networking platform and introduce new products and features.

We expect that our results of operations will be impacted by the timing and size of these investments.

These investments may take several years to generate positive returns, if ever.

Additionally, future market share gains may take longer than planned and cause us to incur significant costs.

If we are unable to attract new large end customers or to sell additional products and services to our existing end customers, our revenue growth will be adversely affected and our revenue could decrease.

Difficulties in any of our new product development efforts or our efforts to enter adjacent markets could adversely affect our operating results and financial condition.

Our revenue and our revenue growth rates are volatile and may decline.

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We have experienced annual revenue growth rates of 48.6%, 27.2%, -3.9%, and 12.1% in 2022, 2021, 2020, and 2019, respectively.

In the future, our revenue growth rates may continue to be volatile as we become more penetrated in our existing customer base and product markets, and as we look to enter and expand into new markets.

In addition, given the current uncertain supply chain environment and industry wide supply constraints, we have experienced and could continue to experience manufacturing and shipment delays, which have and could continue to impact the timing of revenue recognition.

These disruptions, if unresolved, could also result in the cancellation of orders by customers, reduced demand from existing customers in future periods, and increased difficulty in adding new customers.

Other factors may also contribute to declines in our growth rates, including changes in demand for our products and services, particularly from our large end customers, changes in capital spending by our large end customers, increased competition, price sensitivities from our customers to increases in our pricing, our ability to successfully manage our expansion or continue to capitalize on growth opportunities, the maturation of our business, the Russia-Ukraine conflict, a potential global economic downturn or recession, and other general economic and international trade conditions, and our ability to be successful in adjacent markets, such as campus switching, WiFi networking markets and network security markets.

For example, we have experienced volatility in demand from certain of our large end customers.

Overall demand from larger customers may decline in future periods, which would impact our future revenue growth.

In the future, our revenue growth rates will continue to be volatile due to cyclical trends in our business, and as we become more penetrated in our existing customer base and product markets and look to enter and expand into new markets.

In addition, we have experienced supply constraints that have resulted in manufacturing and shipment delays, which have negatively affect the timing of revenue recognition.

These manufacturing and supply chain disruptions could also result in the cancellation of orders by customers, reduced demand from existing customers in future periods, and increased difficulty in adding new customers.

Other factors may also contribute to declines in our growth rates, including changes in demand for our products and services, particularly from our large end customers, the deterioration of the financial performance, condition or prospects of our large end customers, changes in capital spending by our large end customers, increased competition, price sensitivities from our customers to increases in our pricing, our ability to successfully manage our expansion or continue to capitalize on growth opportunities, the maturation of our business, the Russia-Ukraine conflict, a potential global economic downturn or recession, the collapse of SVB and other financial institutions and other general economic and international trade conditions such as political tensions between Taiwan and China and international trade wars involving the U.S.

and China and other countries, and our ability to be successful in adjacent markets, such as campus switching, WiFi networking markets and network security markets.

We have experienced volatility in demand from certain of our large end customers, and some of our large customers have recently announced various cost reduction measures that have had, or may have, an impact on certain current or future projects and have reduced our visibility to demand for these customers, which may result in reductions in overall demand from these customers in future periods and negatively impact our revenue, financial condition, business or prospects.

You should not rely on our revenue for any prior quarterly or annual period as an indication of our future revenue or revenue growth.

If we are unable to maintain consistent revenue or revenue growth, our business, financial condition, results of operations and prospects could be materially adversely affected and our stock price could be volatile.

Our results of operations may vary significantly from period to period and be unpredictable and if we fail to meet the expectations of analysts or investors or our previously issued financial guidance, or if any forward-looking financial guidance does not meet the expectation of analysts or investors, the market price of our common stock could decline substantially.

Our results of operations have historically varied from period to period, and we expect that this trend will continue.

Our results of operations have varied significantly from period to period and be unpredictable and if we fail to meet the expectations of analysts or investors or our previously issued financial guidance, or if any forward-looking financial guidance does not meet the expectation of analysts or investors, the market price of our common stock could decline substantially.

Our res ults of operations have historically varied from period to period, and we expect that this trend will continue.

As a result, you should not rely upon our past financial results for any period as indicators of future performance.

Our results of operations in any given period can be influenced by a number of factors, many of which are outside of our control and may be difficult to predict, including:

• disruptions caused by pandemics, such as the COVID-19 pandemic, and the government restrictions in response to the pandemic;

• general economic conditions, both domestically and in foreign markets, and disruptions in our business and the markets due to, among other things, recessionary risks and a global economic downturn, higher interest rates, monetary policy shifts, inflationary pressures, supply chain and labor shortages, the ongoing COVID-19 pandemic, potential disruptions from the Russia-Ukraine conflict, political tensions between Taiwan and China and international trade wars involving the U.S.

Our results of

operations in any given period can be influenced by a number of factors, many of which are outside of our control and may be difficult to predict, including:

• general economic conditions, both domestically and in foreign markets, and disruptions in our business and the markets due to, among other things, recessionary risks and a global economic downturn, higher interest rates, monetary policy shifts, inflationary pressures, supply chain and labor shortages, the recent banking crisis, potential disruptions from the Russia-Ukraine conflict, political tensions between Taiwan and China and international trade wars involving the U.S.

and China and other countries;

• our inability to fulfill our end customers’ orders or the cancellation of orders by our end customers due to the unavailability or unpredictable supply of inventory, supply chain delays, access to key commodities or technologies, manufacturing disruptions or other events that impact our manufacturers or their suppliers;

• deferral, reduction or cancellation of orders from end customers, due to long lead times, announcements by us or other competitors of new products or product enhancements, warranty returns or other factors;

• our inability to fulfill our end customers’ orders, the cancellation of orders, the reduction in future demand for our products by our end customers or increased difficulty in adding new customers due to the unavailability or unpredictable supply of inventory, supply chain delays, access to key commodities or technologies, manufacturing disruptions or other events that impact our manufacturers or their suppliers;

• our ability to increase sales to existing customers and attract new end customers, including large end customers;

• the budgeting, sales, implementation and refresh cycles, purchasing practices and buying patterns of end customers, including large end customers who generally receive lower pricing terms due to volume discounts and who may or may not make large bulk purchases in certain quarters or who may elect to re-assign allocations to multiple vendors based upon specific network roles or projects or who may be placing orders in advance of demand to ensure supply;

• changes in the growth rate of existing or new customers, including large end customers and service providers, changes in end-customer, distributor or reseller requirements or market needs, and changes in growth rates of the networking market;

• the budgeting, sales, implementation and refresh cycles, purcha sing practices and buying patterns of end customers, including large end customers who generally receive lower pricing terms due to volume discounts and who may or may not make large bulk purchases in certain quarters or who may elect to re-assign allocations to multiple vendors based upon specific network roles or projects or who may be placing orders in advance of demand to ensure supply;

• changes in the growth rate of existing or new customers or the deterioration of the financial performance, condition or prospects of existing or new customers, including large end customers and service providers, changes in end-customer, distributor or reseller requirements or market needs, and changes in growth rates of the networking market;

• the cost and potential outcomes of existing and future litigation;

• increased expenses resulting from increases in component, production and logistics costs including as a result of global inflationary pressures and shortages in supply for semiconductors or the tariffs imposed by the U.S.

• increased expenses resulting from increases in component, production and logistics costs resulting from factors such as global inflationary pressures and shortages in supply for semiconductors, or the tariffs imposed by the U.S.

on goods from other countries and tariffs imposed by other countries on U.S.

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• the amount and timing of operating costs and capital expenditures related to the operation and expansion of our business;

• difficulty forecasting, budgeting and planning due to limited visibility beyond the first two quarters into the spending plans of current or prospective customers;

• difficulty forecasting, budgeting and planning due to limited visibility into the spending plans of current or prospective customers;

• excess or obsolete inventory resulting in write-downs;

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• decisions by potential end customers to purchase our networking solutions from larger, more established vendors, white box vendors or their primary network equipment vendors;

• disruptions caused by pandemics, such as the COVID-19 pandemic, and the government restrictions in response to the pandemic;

• insolvency or credit difficulties confronting our end customers, which could adversely affect their ability to purchase or pay for our products and services, or confronting our key suppliers, including our sole source suppliers, which could disrupt our supply chain;

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Any one of the factors above or the cumulative effect of several of the factors described above may result in significant fluctuations in our financial and other results of operations and may cause the market price of our common stock to decline.

This variability and unpredictability could result in our failure to meet our revenue, gross margins, results of operations or other expectations contained in any forward looking financial guidance we have issued or the expectations of securities analysts or investors for a particular period.

investors for a particular period.

If we fail to meet or exceed such guidance or expectations for these or any other reasons, the market price of our common stock could decline substantially, and we could face costly lawsuits, including securities class action suits.

In the past, we have failed to meet investor financial expectations and the market price of our common stock declined.

The networking market is rapidly evolving.

A substantial portion of our business and revenue depends on the growth and evolution of the networking market.

For example, with our recently introduced 400 GbE and 800 GbE products, our ability to continue to maintain our competitive position with our customers will depend on our ability to deliver these new products in a timely manner and our customers' acceptance of these products.