Investing in our common stock involves a high degree of risk.
−Removed: Investors should carefully consider the following risks and all other information contained in this Quarterly Report on Form 10-Q, including our consolidated financial statements and the related notes, before investing in our common stock.
+Added: Investors should carefully consider the following risks and all other information contained in this Quarterly Report on Form 10-Q, including our condensed consolidated financial statements and the related notes, before investing in our common stock.
The risks and uncertainties described below are not the only ones we face.
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In that case, the trading price of our common stock could decline substantially, and investors may lose some or all of their investment.
−Removed: Risks Related to Our Business
+Added: We have summarized risks immediately below and encourage investors to carefully read the entirety of this Risk Factors section.
+Added: Summary of Risk Factors
+Added: Some of the material risks that we face include:
• Our operating results are likely to vary significantly and be unpredictable.
+Added: • Adverse economic conditions or reduced information technology spending may adversely impact our business.
+Added: • Our billings, revenue, operating margin and free cash flow growth may slow or may not continue.
+Added: • The COVID-19 pandemic could adversely affect our business in a material way.
+Added: • We rely on third-party channel partners for substantially all of our revenue and a small number of distributors represents a large percentage of our revenue and gross accounts receivable.
+Added: • Reliance on a concentration of shipments at the end of the quarter could cause our billings and revenue to fall below expected levels.
+Added: • We rely significantly on revenue from FortiGuard security subscription and FortiCare technical support services, and revenue from these services may decline or fluctuate.
+Added: • We are dependent on the continued services and performance of our senior management, as well as our ability to hire, retain and motivate qualified personnel, particularly for our sales organization.
+Added: • We generate a majority of revenue from sales outside of the United States.
+Added: • We may not be successful in executing our strategy to increase our sales to large- and medium-sized end-customers.
+Added: • A portion of our revenue is generated by sales to government organizations, which are subject to a number of challenges and risks.
+Added: • Our industry is highly competitive and we must accurately predict, prepare for and respond promptly to technological and market developments and changing end-customer needs, including by introducing products and product
+Added: enhancements and innovations that address a fast-changing technology and threat landscape and that achieve sufficient market acceptance, in order to maintain or improve our competitive position.
+Added: • Insufficient inventory or components, including component or inventory shortages based on the COVID-19 pandemic or other factors affecting the global supply chain, may result in lost sales opportunities or delayed revenue, while excess inventory may harm our gross margins.
+Added: • We depend on several third-party manufacturers to build our products and are susceptible to manufacturing delays and cost increases.
+Added: • We are susceptible to supply shortages and disruptions, long lead times for components and supply changes because some of the key components in our products come from limited sources of supply.
+Added: • We are susceptible to defects or vulnerabilities in our products or services, as well as reputational harm from the failure or misuse of our products or services.
+Added: • We and our suppliers are susceptible to cyber threats and to exploits of vulnerabilities that could affect our systems, as well as the security of our products and services and of our customers’ infrastructure.
+Added: • Our proprietary rights may be difficult to enforce and we may be subject to claims by others that we infringe their proprietary technology.
+Added: • Global economic uncertainty and weakening product demand caused by political instability, changes in trade agreements and other conflict could adversely affect our business and financial performance.
+Added: • Our inability to successfully acquire and integrate other businesses, products or technologies could seriously harm our competitive position.
+Added: • The trading price of our common stock may be volatile, which volatility may be exacerbated by share repurchases under our Repurchase Program.
+Added: • Anti-takeover provisions contained in our certificate of incorporation and bylaws, as well as provisions of Delaware law, could impair a takeover attempt.
+Added: Risks Related to Our Business and Financial Position
+Added: Our operating results are likely to vary significantly and be unpredictable.
Our operating results have historically varied from period to period, and we expect that they will continue to do so as a result of a number of factors, many of which are outside of our control or may be difficult to predict, including:
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• inventory management;
−Removed: • component and product inventory shortages, including those caused by factors outside of our control such as natural disasters and health emergencies, including earthquakes, fires, power outages, typhoons, floods, pandemics or epidemics such as the COVID-19 pandemic and manmade events such as civil unrest, labor disruption, international trade disputes, international conflicts, terrorism, wars and critical infrastructure attacks;
+Added: • component and product inventory shortages, including those caused by factors outside of our control such as the COVID-19 pandemic, international trade disputes or tariffs, natural disasters, health emergencies, power outages, civil unrest, labor disruption, international conflicts, terrorism, wars and critical infrastructure attacks;
• the mix of products sold and the mix of revenue between products and services, as well as the degree to which products and services are bundled and sold together for a package price;
• the purchasing practices and budgeting cycles of our channel partners and end-customers, including the effect of the end of product refresh cycles;
−Removed: • any decreases in demand by channel partners or end-customers, including any such decreases caused by factors outside of our control such as natural disasters and health emergencies, including earthquakes, fires,
−Removed: power outages, typhoons, floods, pandemics or epidemics such as the COVID-19 pandemic and manmade events such as civil unrest, labor disruption, international trade disputes, international conflicts, terrorism, wars and critical infrastructure attacks;
+Added: • any decreases in demand by channel partners or end-customers, including any such decreases caused by factors outside of our control such as natural disasters and health emergencies, including earthquakes, fires, power outages, typhoons, floods, pandemics or epidemics such as the COVID-19 pandemic and manmade events such as civil unrest, labor disruption, international trade disputes, international conflicts, terrorism, wars and critical infrastructure attacks;
• the effectiveness of our sales organization, generally or in a particular geographic region, the time it takes to hire sales personnel and the timing of hiring, and our ability to hire and retain effective sales personnel;
• sales execution risk related to effectively selling to all segments of the market, including enterprise and small- and medium-sized businesses and service providers, and to selling our broad security product and services portfolio, including, among other execution risks, risks associated with the complexity and distraction in selling to all segments and increased competition and unpredictability of timing to close sales deals with large enterprises;
−Removed: • execution risk associated with our efforts to capture the opportunities related to our identified growth drivers, such as risk associated with our ability to capitalize on network security and software defined wide area network (“SD-WAN”), infrastructure security, cloud security and endpoint protection, IoT and OT security opportunities;
+Added: • execution risk associated with our efforts to capture the opportunities related to our identified growth drivers, such as risk associated with our ability to capitalize on network security and SD-WAN, infrastructure security, cloud security and endpoint protection, IoT and OT security opportunities;
• the seasonal buying patterns of our end-customers;
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dollar, and the impact such fluctuations may have on the actual prices that our partners and customers are willing to pay for our products and services;
−Removed: • compliance with existing laws and regulations, and our ability to obtain and maintain permits and clearances, that are applicable to our ability to conduct business with the public sector and other sectors;
+Added: • compliance with existing laws and regulations;
+Added: • our ability to obtain and maintain permits and clearances, that are applicable to our ability to conduct business with the public sector, including the U.S.
+Added: federal government, and other sectors;
• litigation, litigation fees and costs, settlements, judgments and other equitable and legal relief granted related to litigation;
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This variability and unpredictability could result in our failing to meet our internal operating plan or the expectations of securities analysts or investors for any period.
−Removed: If we fail to meet or exceed such expectations for these or any other reasons, the market price of our shares could fall substantially and we could
−Removed: face costly lawsuits, including securities class action suits.
+Added: If we fail to meet or exceed such expectations for these or any other reasons, the market price of our shares could fall substantially and we could face costly lawsuits, including securities class action suits.
In addition, a significant percentage of our operating expenses are fixed in nature over the near term.
Accordingly, in the event of revenue shortfalls, we are generally unable to mitigate the negative impact on margins in the short term.
+Added: Adverse economic conditions or reduced information technology spending may adversely impact our business.
+Added: Our business depends on the overall demand for information technology and on the economic health of our current and prospective customers.
+Added: In addition, the purchase of our products is often discretionary and may involve a significant commitment of capital and other resources.
+Added: Weak global and regional economic conditions and spending environments, geopolitical instability and uncertainty, weak economic conditions in certain regions or a reduction in information technology spending regardless of macro-economic conditions, including the effects of the COVID-19 pandemic on the foregoing issues, could have adverse impacts on our business, financial condition and results of operations, including longer sales cycles, lower prices for our products and services, higher default rates among our channel partners, reduced unit sales and slower or declining growth.
+Added: Our billings, revenue, operating margin and free cash flow growth may slow or may not continue.
+Added: We may experience slowing growth, or a decrease, in billings, revenue, operating margin and free cash flow for a number of reasons, including as a result of the COVID-19 pandemic, a slowdown in demand for our products or services, a shift in demand from products to services, increased competition, a decrease in the growth of our overall market or softness in demand in certain geographies or industry verticals, such as the service provider industry, changes in our strategic opportunities, execution risks and our failure for any reason to continue to capitalize on sales and growth opportunities due to other risks identified in the risk factors described in this periodic report.
+Added: Our expenses as a percentage of total revenue may be higher than expected if our revenue is lower than expected.
+Added: If our investments in sales and marketing and other functional areas do not result in expected billings and revenue growth, we may experience margin declines.
+Added: In addition, we may not be able to sustain profitability in future periods if we fail to increase billings, revenue or deferred revenue, and do not appropriately manage our cost structure, free cash flow, or encounter unanticipated liabilities.
+Added: As a result, any failure by us to maintain profitability and margins and continue our billings, revenue and free cash flow growth could cause the price of our common stock to materially decline.
The COVID-19 pandemic could adversely affect our business in a material way.
The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and demand for certain solutions and created significant volatility in, and disruption of, global financial markets.
−Removed: The extent of the future impact of the COVID-19 pandemic on our operational and financial performance, including on demand for our products and services and our ability to execute our business strategies and initiatives in the expected time frame, will depend on future developments, including the duration and spread of the COVID-19 pandemic and related restrictions on, and disruptions of, business and world economies, all of which are uncertain and difficult to predict.
+Added: The extent of the future impact of the COVID-19 pandemic on our operational and financial performance, including on demand for our products and services, our ability to source components, and our ability to execute our business strategies and initiatives in the expected time frame, will depend on future developments, including the duration and spread of the COVID-19 pandemic and related restrictions on, and disruptions of, business and world economies, all of which are uncertain and difficult to predict.
An extended period of global supply chain disruption, demand reduction and economic slowdown would materially negatively affect our overall business and our operating results, including billings, revenue, gross margins, operating margins, cash flows and other operating results.
If the spread of the COVID-19 pandemic limits the availability of our products, either by limiting components available, by limiting the actual manufacture and assembly or by limiting or restricting shipping of components and products, this likely would result in increased product backlog, lower billings, lower revenue and decreased profitability and would negatively impact, and may materially negatively impact, our operating results and business.
+Added: In addition, we may also face
+Added: personnel-related risks as restrictions related to the COVID-19 pandemic begin to ease and we transition back to an in-person working model, including that our “return to office” plan may be viewed negatively by employees and lead to attrition or to difficulty in hiring.
Moreover, the COVID-19 pandemic has created a reduction in certain business activity and demand for certain solutions, which we believe has negatively impacted our billings and may in the future materially and negatively affect the rate and amount of our billings.
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While we continue to monitor developments and the potential effect on our business, it is clear that the COVID-19 pandemic will negatively impact certain sales and may have a material negative impact on our operating results in the near term and longer term.
−Removed: Adverse economic conditions or reduced information technology spending may adversely impact our business.
−Removed: Our business depends on the overall demand for information technology and on the economic health of our current and prospective customers.
−Removed: In addition, the purchase of our products is often discretionary and may involve a significant commitment of capital and other resources.
−Removed: Weak global and regional economic conditions and spending environments, geopolitical instability and uncertainty, weak economic conditions in certain regions or a reduction in information technology spending regardless of macro-economic conditions, including the effects of the COVID-19 pandemic on the foregoing issues, could have adverse impacts on our business, financial condition and results of operations, including longer sales cycles, lower prices for our products and services, higher default rates among our channel partners, reduced unit sales and slower or declining growth.
−Removed: Our billings, revenue, operating margin and free cash flow growth may slow or may not continue.
−Removed: We may experience slowing growth, or a decrease, in billings, revenue, operating margin and free cash flow for a number of reasons, including as a result of the COVID-19 pandemic, a slowdown in demand for our products or services, a shift in demand from products to services, increased competition, a decrease in the growth of our overall market or softness in demand in certain geographies or industry verticals, such as the service provider industry, changes in our strategic opportunities, execution risks and our failure for any reason to continue to capitalize on sales and growth opportunities due to other risks identified in the risk factors described in this periodic report.
−Removed: Our expenses as a percentage of total revenue may be higher than expected if our revenue is lower than expected and, if our investments in sales and marketing and other functional areas do not result in expected billings and revenue growth, we may experience margin declines and may not be able to sustain profitability in future periods if we fail to increase billings, revenue or deferred revenue, do not appropriately manage our cost
−Removed: structure and free cash flow or encounter unanticipated liabilities.
−Removed: Any failure by us to maintain profitability, maintain our margins and continue our billings, revenue and free cash flow growth could cause the price of our common stock to materially decline.
We rely on third-party channel partners for substantially all of our revenue.
If our partners fail to perform, our ability to sell our products and services will be limited, and if we fail to optimize our channel partner model going forward, our operating results may be harmed.
−Removed: Additionally, a small number of distributors represents a large percentage of our revenue and gross accounts receivable, and one distributor accounted for 31% of our total net accounts receivable as of September 30, 2020.
+Added: Additionally, a small number of distributors represents a large percentage of our revenue and gross accounts receivable, and one distributor accounted fo r 31% of our total net accounts receivable as of March 31, 2021.
A significant portion of our sales is generated through a limited number of distributors, and substantially all of our revenue is from sales by our channel partners, including distributors and resellers.
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We may also become increasingly dependent on a more limited number of channel partners, as consolidation increases the relative proportion of our business for which each channel partner is responsible, which may magnify the risks described in the preceding paragraphs.
−Removed: Exclusive Networks Group (“Exclusive”), Ingram Micro, Inc.
−Removed: (“Ingram Micro”) and Tech Data Corporation (“Tech Data”) accounted for 31%, 11% and 10% of our total net accounts receivable as of September 30, 2020, respectively, and six distributor customers accounted for 69% of our total net accounts receivable in the aggregate.
−Removed: During the three and nine months ended September 30, 2020, Exclusive accounted for 29% and 30% of our total revenue, respectively, and Ingram Micro accounted for 10% of our total revenue in both periods.
−Removed: During the three and nine months ended September 30, 2019, Exclusive accounted for 30% and 31% of our total revenue, respectively, and Ingram Micro accounted for 11% of our total revenue in both periods.
−Removed: In addition to other risks associated with the concentration of accounts receivable and revenue from these distributors, all three are privately held entities and we may not have sufficient information to assess their financial conditions and, accordingly, if any were to experience financial difficulties, we might not have advance notice.
−Removed: Additionally, Exclusive, Ingram Micro and Tech Data may face liquidity risk as private equity-backed companies, which may harm our ability to collect on our accounts receivable.
+Added: Exclusive Networks Group (“Exclusive”) accounted for 31% and 34% of our total net accounts receivable as of March 31, 2021 and December 31, 2020, respectively, and six distributor customers accounted for 70% of our total net accounts
+Added: receivable in the aggregate, respectively.
+Added: During the three months ended March 31, 2021 and 2020, Exclusive accounted for 32% and 31% of our total revenue, respectively.
+Added: In addition to other risks associated with the concentration of accounts receivable and revenue from these distributors, Exclusive is a private equity-backed company and we may not have sufficient information to assess its financial condition and, accordingly, if Exclusive were to experience financial difficulties, we might not have advance notice.
+Added: Additionally, Exclusive may face liquidity risk, which may harm our ability to collect on our accounts receivable.
We provide sales channel partners with specific programs to assist them with selling our products and incentivize them to sell our products, but there can be no assurance that these programs will be effective.
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Our FortiGuard and other security subscription and FortiCare technical support services revenue has historically accounted for a significant percentage of our total revenue.
−Removed: Revenue from the sale of new, or from the renewal of existing,
−Removed: FortiGuard and other security subscription and FortiCare technical support service contracts may decline and fluctuate as a result of a number of factors, including fluctuations in purchases of FortiGate appliances or our Fortinet Security Fabric platform products, changes in the sales mix between products and services, end-customers’ level of satisfaction with our products and services, the prices of our products and services, the prices of products and services offered by our competitors, reductions in our customers’ spending levels and the timing of revenue recognition with respect to these arrangements.
+Added: Revenue from the sale of new, or from the renewal of existing, FortiGuard and other security subscription and FortiCare technical support service contracts may decline and fluctuate as a result of a number of factors, including fluctuations in purchases of FortiGate appliances or our Fortinet Security Fabric platform products, changes in the sales mix between products and services, end-customers’ level of satisfaction with our products and services, the prices of our products and services, the prices of products and services offered by our competitors, reductions in our customers’ spending levels and the timing of revenue recognition with respect to these arrangements.
If our sales of new, or renewals of existing, FortiGuard and other security subscription and FortiCare technical support service contracts decline, our revenue and revenue growth may decline and our business could suffer.
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Our FortiGuard and other security subscription and FortiCare technical support services revenue also makes it difficult for us to rapidly increase our revenue through additional service sales in any period, as revenue from new and renewal support services contracts must be recognized over the applicable service period.
+Added: We are dependent on the continued services and performance of our senior management, the loss of any of whom could adversely affect our business, operating results and financial condition.
+Added: Our future performance depends on the continued services and continuing contributions of our senior management to execute on our business plan and to identify and pursue new opportunities and product innovations.
+Added: The loss of services of members of senior management, particularly Ken Xie, our Co-Founder, Chief Executive Officer and Chairman, or Michael Xie, our Co-Founder, President and Chief Technology Officer, or of any of our senior sales leaders or functional area leaders, could significantly delay or prevent the achievement of our development and strategic objectives.
+Added: The loss of the services or the distraction of our senior management for any reason, including the COVID-19 pandemic, could adversely affect our business, financial condition and results of operations.
+Added: If we are unable to hire, retain and motivate qualified personnel, our business will suffer.
+Added: Our future success depends, in part, on our ability to continue to attract and retain highly skilled personnel.
+Added: The loss of the services of any of our key personnel, the inability to attract or retain qualified personnel, any failure to have in place and execute an effective succession plan for key executives or delays in hiring required personnel, particularly in engineering, sales and marketing, may seriously harm our business, financial condition and results of operations.
+Added: From time to time, we experience turnover in our management-level personnel.
+Added: None of our key employees has an employment agreement for a specific term, and any of our employees may terminate their employment at any time.
+Added: Our ability to continue to attract and
+Added: retain highly skilled personnel will be critical to our future success.
+Added: Competition for highly skilled personnel is frequently intense, especially for qualified sales, support and engineering employees in network security and especially in the locations where we have a substantial presence and need for highly skilled personnel, such as the San Francisco Bay Area and Vancouver, Canada.
+Added: We may not be successful in attracting, assimilating or retaining qualified personnel to fulfill our current or future needs.
+Added: The COVID-19 pandemic may also decelerate our hiring and increase the challenge of recruiting qualified personnel to leave their current positions to join us.
+Added: In addition, to the extent we hire personnel from competitors, we may be subject to allegations that they have been improperly solicited or divulged proprietary or other confidential information.
+Added: Changes in immigration laws, including changes to the rules regarding H1-B visas, may also harm our ability to attract personnel from other countries.
+Added: Our inability to hire properly qualified and effective sales, support and engineering employees could harm our growth and our ability to effectively support growth.
+Added: We have incurred indebtedness and may incur other debt in the future, which may adversely affect our financial condition and future financial results.
+Added: As of March 31, 2021, we had an aggregate of $1.0 billion of indebtedness outstanding under our senior notes.
+Added: Under the agreements governing our indebtedness, we are permitted to incur additional debt.
+Added: This debt, and any debt that we may incur in the future, may adversely affect our financial condition and future financial results by, among other things:
+Added: • increasing our vulnerability to downturns in our business, to competitive pressures and to adverse economic and industry conditions;
+Added: • requiring the dedication of a portion of our expected cash from operations to service our indebtedness, thereby reducing the amount of expected cash flow available for other purposes, including capital expenditures, share repurchases and acquisitions;
+Added: • limiting our flexibility in planning for, or reacting to, changes in our businesses and our industries;
+Added: If we are unable to generate sufficient cash flow from operations in the future to service our debt, we may be required, among other things, to seek additional financing in the debt or equity markets, refinance or restructure all or a portion of our indebtedness, sell selected assets or reduce or delay planned capital, operating or investment expenditures.
+Added: Such measures may not be sufficient to enable us to service our debt.
+Added: Additionally, the agreements governing our indebtedness impose restrictions on us and require us to comply with certain covenants.
+Added: If we breach any of these covenants and do not obtain a waiver from the noteholders, then, subject to applicable cure periods, any or all of our outstanding indebtedness may be declared immediately due and payable.
+Added: There can be no assurance that any refinancing or additional financing would be available on terms that are favorable or acceptable to us, if at all.
+Added: Under the terms of our outstanding senior notes, we may be required to repurchase the notes for cash prior to their maturity in connection with the occurrence of certain changes of control that are accompanied by certain downgrades in the credit ratings of the notes.
+Added: The repayment obligations under the notes may have the effect of discouraging, delaying or preventing a takeover of our company.
+Added: If we were required to pay the notes prior to their scheduled maturity, it could have a negative impact on our cash position and liquidity and impair our ability to invest financial resources in other strategic initiatives.
+Added: In addition, changes by any rating agency to our credit rating may negatively impact the value and liquidity of both our debt and equity securities.
+Added: If our credit ratings are downgraded or other negative action is taken, the interest rate payable by us under our unsecured revolving credit facility may increase.
+Added: In addition, any downgrades in our credit ratings may affect our ability to obtain additional financing in the future and may negatively impact the terms of any such financing.
+Added: Risks Related to Our Sales and End-Customers
We generate a majority of revenue from sales to distributors, resellers and end-customers outside of the United States, and we are therefore subject to a number of risks associated with international sales and operations.
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• costs of compliance with foreign policies, laws and regulations and the risks and costs of non-compliance with such policies, laws and regulations;
−Removed: • any disruption in manufacturing or shipping or decreases in demand by channel partners or end-customers, including any such disruption or decreases caused by factors outside of our control such as natural disasters and health emergencies, including earthquakes, fires, power outages, typhoons, floods, pandemics or epidemics such as the COVID-19 pandemic and manmade events such as civil unrest, labor disruption, international trade disputes, international conflicts, terrorism, wars and critical infrastructure attacks;
−Removed: • protectionist policies and penalties, and local laws, requirements, policies and perceptions that may adversely impact a U.S.-headquartered business’s sales in certain countries outside of the United States (for example, over the past year, our revenue from sales in China has been insignificant, totaling less than 1% of aggregate revenue, possibly based in part on a preference in China to do business with Chinese businesses over U.S.
+Added: • disruption in manufacturing or shipping or decreases in demand by channel partners or end-customers, including any such disruption or decreases caused by factors outside of our control such as natural disasters and health emergencies, including earthquakes, fires, power outages, typhoons, floods, pandemics or epidemics such as the COVID-19 pandemic and manmade events such as civil unrest, labor disruption, international trade disputes, international conflicts, terrorism, wars and critical infrastructure attacks;
+Added: • protectionist policies and penalties, and local laws, requirements, policies and perceptions that may adversely impact a U.S.-headquartered business’s sales in certain countries outside of the U.S.
+Added: (for example, over the past year, our revenue from sales in China has been insignificant, totaling less than 1% of aggregate revenue, possibly based in part on a preference in China to do business with Chinese businesses over U.S.
businesses like Fortinet);
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• changes in tax, tariff, employment and other laws.
−Removed: The ongoing effects of the COVID-19 pandemic may enhance the severity and unpredictability of a number of the foregoing risks.
+Added: The ongoing effects of the COVID-19 pandemic may enhance the severity and unpredictability of a number of the foregoing risks, and the risks to our business presented by the COVID-19 pandemic may be more significant and for a longer term in certain international geographies where we do meaningful business.
Product and service sales and employee and contractor matters may be subject to foreign governmental regulations, which vary substantially from country to country.
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Such sales involve unique sales skillsets, processes and structures, are often more complex and feature a longer contract term and may be at higher discount levels.
−Removed: We also have experienced uneven traction selling to certain government organizations and service providers and managed security service providers (“MSSPs”), and there can be no assurance that we will be successful
−Removed: selling to these customers.
+Added: We also have experienced uneven traction selling to certain government organizations and service providers and MSSPs, and there can be no assurance that we will be successful selling to these customers.
Sales to these organizations involve risks that may not be present, or that are present to a lesser extent, with sales to smaller entities.
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• longer sales cycles and the associated risk that substantial time and resources may be spent on a potential end-customer that elects not to purchase our products and services;
+Added: • increased requirements from these customers that we have certain third-party security or other certifications, which we may not have, the lack of which may adversely affect our ability to successfully sell to such customers;
• uncertainty as to timing to close large deals and any delays in closing those deals;
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In addition, mitigation and containment measures adopted by government authorities to contain the spread of COVID-19 in the United States and internationally, including travel restrictions and other requirements that limit in-person meetings, could limit our ability to establish and maintain relationships with new and existing customers, which may exacerbate the risks described above.
+Added: If we do not increase the effectiveness of our sales organization, we may have difficulty adding new end-customers or increasing sales to our existing end-customers and our business may be adversely affected.
+Added: Although we have a channel sales model, sales in our industry are complex and members of our sales organization often engage in direct interaction with our prospective end-customers, particularly for larger deals involving larger end-customers.
+Added: Therefore, we continue to be substantially dependent on our sales organization to obtain new end-customers and sell additional products and services to our existing end-customers.
+Added: There is significant competition for sales personnel with the skills and technical knowledge that we require, including experienced enterprise sales employees and others.
+Added: Our ability to grow our revenue depends, in large part, on our success in recruiting, training and retaining sufficient numbers of sales personnel to support our growth and on the effectiveness of those personnel in selling successfully in different contexts, each of which has its own different complexities, approaches and competitive landscapes, such as managing and growing the channel business for sales to small businesses and more actively selling to the end-customer for sales to larger organizations.
+Added: New hires require substantial training and may take significant time before they achieve full productivity.
+Added: Our recent hires and planned hires may not become productive as quickly as we expect, especially in light of the COVID-19 pandemic, and we may be unable to hire or retain sufficient numbers of qualified individuals in the markets where we do business or plan to do business.
+Added: Furthermore, hiring sales personnel in new countries requires additional setup and upfront costs that we may not recover if the sales personnel fail to achieve full productivity.
+Added: If our sales employees do not become fully productive on the timelines that we have projected, our revenue may not increase at anticipated levels and our ability to achieve long-term projections may be negatively impacted.
+Added: If we are unable to hire and train sufficient numbers of effective sales personnel, or the sales personnel are not successful in obtaining new end-customers or increasing sales to our existing customer base, our business, operating results and prospects may be adversely affected.
+Added: If we do not hire properly qualified and effective sales employees and organize our sales team effectively to capture the opportunities in the various customer segments we are targeting, our growth and ability to effectively support growth may be harmed.
+Added: Unless we continue to develop better market awareness of our company and our products, and to improve lead generation and sales enablement, our revenue may not continue to grow.
+Added: Increased market awareness of our capabilities and products and increased lead generation are essential to our continued growth and our success in all of our markets, particularly the market for sales to large businesses, service providers and government organizations.
+Added: While we have increased our investments in sales and marketing, it is not clear that these investments will continue to result in increased revenue.
+Added: If our investments in additional sales personnel or our marketing programs are not successful in continuing to create market awareness of our company and products or increasing lead generation, or if we experience turnover and disruption in our sales and marketing teams, we may not be able to achieve sustained growth, and our business, financial condition and results of operations may be adversely affected.
+Added: We are also limited
+Added: in our marketing efforts as a result of the COVID-19 pandemic, as mitigation and containment measures adopted by government authorities to contain the spread of COVID-19, including travel restrictions and other requirements that limit in-person meetings, could limit our ability to establish and maintain relationships with new and existing customers and negatively affect our sales and marketing efforts.
+Added: A portion of our revenue is generated by sales to government organizations, which are subject to a number of challenges and risks.
+Added: Sales to U.S.
+Added: and foreign federal, state and local governmental agency end-customers have accounted for a portion of our revenue in past periods.
+Added: Sales to government organizations are subject to a number of risks.
+Added: Selling to government organizations can be highly competitive, expensive and time consuming, often requiring significant upfront time and expense, with long sales cycles and without any assurance of winning a sale.
+Added: Government demand, sales and payment for our products and services may be negatively impacted by numerous factors and requirements unique to selling to government agencies, such as:
+Added: • public sector budgetary cycles;
+Added: • funding authorizations and requirements unique to government agencies, with funding or purchasing reductions or delays adversely affecting public sector demand for our products;
+Added: • geopolitical matters, including tariff and trade disputes, government shutdowns and trade protectionism and other political dynamics that may adversely affect our ability to sell in certain locations or obtain the requisite permits and clearances required for certain purchases by government organizations of our products and services;
+Added: • rules and regulations applicable to certain government sales, including GSA regulations.
+Added: Government spending may also be negatively impacted by the COVID-19 pandemic.
+Added: The rules and regulations applicable to sales to government organizations may also negatively impact sales to other organizations.
+Added: To date, we have had limited traction in sales to U.S.
+Added: government agencies, and any future sales to government organizations is uncertain.
+Added: Government organizations may have contractual or other legal rights to terminate contracts with our distributors and resellers for convenience or due to a default, and any such termination may adversely impact our future results of operations.
+Added: For example, if the distributor receives a significant portion of its revenue from sales to such government organization, the financial health of the distributor could be substantially harmed, which could negatively affect our future sales to such distributor.
+Added: Governments routinely investigate, review and audit government vendors’ administrative and other processes, and any unfavorable investigation, audit, other review or unfavorable determination related to any government clearance of certification could result in the government’s refusing to continue buying our products and services, a limitation and reduction of government purchases of our products and services, a reduction of revenue or fines, or civil or criminal liability if the investigation, audit or other review uncovers improper, illegal or otherwise concerning activities.
+Added: Any such penalties could adversely impact our results of operations in a material way.
+Added: Further, any refusal to grant certain certifications or clearances by one government agency, or decision by one government agency that our products do not meet certain standards, may cause reputational harm and cause concern with other government agencies, governments and businesses and cause them to not buy our products and services and/or lead to a decrease in demand for our products generally.
+Added: Finally, purchases by the U.S.
+Added: government may require certain products to be manufactured in the United States and other high cost manufacturing locations, and we may not manufacture all products in locations that meet the requirements of the U.S.
+Added: government and may not successfully obtain all certifications or clearances required for certain U.S.
+Added: government purchases.
+Added: Risks Related to Our Industry, Customers, Products and Services
+Added: We face intense competition in our market and we may lack sufficient financial or other resources to maintain or improve our competitive position.
+Added: The market for network security products is intensely competitive and we expect competition to intensify in the future.
+Added: We face many competitors across the different cybersecurity markets.
+Added: Our competitors include companies such as Barracuda Networks, Inc., Check Point Software Technologies Ltd., Cisco Systems, Inc.
+Added: (“Cisco”), CrowdStrike Holdings, Inc., F5 Networks, Inc.
+Added: , FireEye, Inc., Forcepoint LLC, Imperva, Inc., Juniper Networks, Inc.
+Added: (“Juniper”), McAfee, LLC, Palo Alto Networks, Inc., Proofpoint, Inc., SonicWALL, Inc., Sophos Group Plc, Trend Micro Incorporated and Zscaler, Inc.
+Added: Some of our existing and potential competitors enjoy competitive advantages such as:
+Added: • greater name recognition and/or longer operating histories;
+Added: • larger sales and marketing budgets and resources;
+Added: • broader distribution and established relationships with distribution partners and end-customers;
+Added: • access to larger customer bases;
+Added: • greater customer support resources;
+Added: • greater resources to make acquisitions;
+Added: • stronger U.S.
+Added: government relationships;
+Added: • lower labor and development costs;
+Added: • substantially greater financial, technical and other resources.
+Added: In addition, certain of our larger competitors have broader product offerings, and leverage their relationships based on other products or incorporate functionality into existing products in a manner that discourages customers from purchasing our products.
+Added: These larger competitors often have broader product lines and market focus, and are in a better position to withstand any significant reduction in capital spending by end-customers in these markets.
+Added: Therefore, these competitors will not be as susceptible to downturns in a particular market.
+Added: Also, many of our smaller competitors that specialize in providing protection from a single type of security threat are often able to deliver these specialized security products to the market more quickly than we can.
+Added: Conditions in our markets could change rapidly and significantly as a result of technological advancements or continuing market consolidation.
+Added: Our competitors and potential competitors may also be able to develop products or services, and leverage new business models, that are equal or superior to ours, achieve greater market acceptance of their products and services, and increase sales by utilizing different distribution channels than we do.
+Added: For example, certain of our competitors are focusing on delivering security services from the cloud.
+Added: In addition, current or potential competitors may be acquired by third parties with greater available resources, and new competitors may arise pursuant to acquisitions of network security companies or divisions.
+Added: As a result of such acquisitions, competition in our market may continue to increase and our current or potential competitors might be able to adapt more quickly to new technologies and customer needs, devote greater resources to the promotion or sale of their products and services, initiate or withstand substantial price competition, take advantage of acquisition or other opportunities more readily, or develop and expand their product and service offerings more quickly than we do.
+Added: In addition, our competitors may bundle products and services competitive with ours with other products and services.
+Added: Customers may accept these bundled products and services rather than separately purchasing our products and services.
+Added: As our customers refresh the security products bought in prior years, they may seek to consolidate vendors, which may result in current customers choosing to purchase products from our competitors on an ongoing basis.
+Added: Due to budget constraints or economic downturns, organizations may be more willing to incrementally add solutions to their existing network security infrastructure from competitors than to replace it with our solutions.
+Added: These competitive pressures in our market or our failure to compete effectively may result in price reductions, fewer customer orders, reduced revenue and gross margins and loss of market share.
+Added: If our new products and product enhancements do not achieve sufficient market acceptance, our results of operations and competitive position will suffer.
+Added: We spend substantial amounts of time and money to acquire and develop internally new products and enhanced versions of our existing products in order to incorporate additional features, improved functionality or other enhancements in order to meet our customers’ rapidly evolving demands for network security in our highly competitive industry.
+Added: When we develop a new product or an enhanced version of an existing product, we typically incur expenses and expend resources upfront to market, promote and sell the new offering.
+Added: Therefore, when we develop and introduce new or enhanced products, they must achieve high levels of market acceptance in order to justify the amount of our investment in developing and bringing them to market.
+Added: Our new products or product enhancements could fail to attain sufficient market acceptance for many reasons, including:
+Added: • delays in releasing our new products or enhancements to the market;
+Added: • failure to accurately predict market demand in terms of product functionality and to supply products that meet this demand in a timely fashion;
+Added: • failure to have the appropriate research and development expertise and focus to make our top strategic fabric products successful;
+Added: • failure of our sales force and partners to focus on selling new products;
+Added: • inability to interoperate effectively with the networks or applications of our prospective end-customers;
+Added: • inability to protect against new types of attacks or techniques used by hackers;
+Added: • actual or perceived defects, vulnerabilities, errors or failures;
+Added: • negative publicity about their performance or effectiveness;
+Added: • introduction or anticipated introduction of competing products by our competitors;
+Added: • poor business conditions for our end-customers, causing them to delay IT purchases;
+Added: • changes to the regulatory requirements around security;
+Added: • reluctance of customers to purchase products incorporating open source software.
+Added: If our new products or enhancements do not achieve adequate acceptance in the market, our competitive position will be impaired, our revenue will be diminished and the effect on our operating results may be particularly acute because of the significant research, development, marketing, sales and other expenses we incurred in connection with the new product or enhancement.
+Added: Demand for our products may be limited by market perception that individual products from one vendor that provide multiple layers of security protection in one product are inferior to point solution network security solutions from multiple vendors.
+Added: Sales of many of our products depend on increased demand for incorporating broad security functionality into one appliance.
+Added: If the market for these products fails to grow as we anticipate, our business will be seriously harmed.
+Added: Target customers may view “all-in-one” network security solutions as inferior to security solutions from multiple vendors because of, among other things, their perception that such products of ours provide security functions from only a single vendor and do not allow users to choose “best-of-breed” defenses from among the wide range of dedicated security applications available.
+Added: Target customers might also perceive that, by combining multiple security functions into a single platform, our solutions create a “single point of failure” in their networks, which means that an error, vulnerability or failure of our product may place the entire network at risk.
+Added: In addition, the market perception that “all-in-one” solutions may be suitable only for small and medium-sized businesses because such solution lacks the performance capabilities and functionality of other solutions may harm our sales to large businesses, service provider and government organization end-customers.
+Added: If the foregoing concerns and perceptions
+Added: become prevalent, even if there is no factual basis for these concerns and perceptions, or if other issues arise with our market in general, demand for multi-security functionality products could be severely limited, which would limit our growth and harm our business, financial condition and results of operations.
+Added: Further, a successful and publicized targeted attack against us, exposing a “single point of failure,” could significantly increase these concerns and perceptions and may harm our business and results of operations.
+Added: If functionality similar to that offered by our products is incorporated into existing network infrastructure products, organizations may decide against adding our appliances to their network, which would have an adverse effect on our business.
+Added: Large, well-established providers of networking equipment, such as Cisco and Juniper, offer, and may continue to introduce, network security features that compete with our products, either in standalone security products or as additional features in their network infrastructure products.
+Added: The inclusion of, or the announcement of an intent to include, functionality perceived to be similar to that offered by our security solutions in networking products that are already generally accepted as necessary components of network architecture may have an adverse effect on our ability to market and sell our products.
+Added: Furthermore, even if the functionality offered by network infrastructure providers is more limited than our products, a significant number of customers may elect to accept such limited functionality in lieu of adding appliances from an additional vendor such as us.
+Added: Many organizations have invested substantial personnel and financial resources to design and operate their networks and have established deep relationships with other providers of networking products, which may make them reluctant to add new components to their networks, particularly from other vendors such as us.
+Added: In addition, an organization’s existing vendors or new vendors with a broad product offering may be able to offer concessions that we are not able to match because we currently offer only network security products and have fewer resources than many of our competitors.
+Added: If organizations are reluctant to add additional network infrastructure from new vendors or otherwise decide to work with their existing vendors, our business, financial condition and results of operations will be adversely affected.
Managing inventory of our products and product components is complex.
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Our channel partners also may adjust their orders in response to the supply of our products and the products of our competitors that are available to them and in response to seasonal fluctuations in end-customer demand.
−Removed: Furthermore, if the time required to manufacture or ship certain products
−Removed: increases for any reason, inventory shortfalls could result.
−Removed: If we cannot manufacture and ship our products due to, for example, natural disasters and health emergencies such as earthquakes, fires, power outages, typhoons, floods, pandemics and epidemics such as the COVID-19 pandemic or manmade events such as civil unrest, labor disruption, international trade disputes, international conflicts, terrorism, wars and critical infrastructure attacks, our business and financial results could be materially and adversely impacted.
+Added: Furthermore, if the time required to source components, manufacture or ship certain products increases for any reason, inventory shortfalls could result.
+Added: If we cannot manufacture and ship our products due to, for example, global chip shortages, natural disasters and health emergencies such as earthquakes, fires, power outages, typhoons, floods, pandemics and epidemics such as the COVID-19 pandemic or manmade events such as civil unrest, labor disruption, international trade disputes, international conflicts, terrorism, wars and critical infrastructure attacks, our business and financial results could be materially and adversely impacted.
+Added: For example, the global chip shortage caused by the COVID-19 pandemic and other factors affecting manufacturing capacity in Asia has continued into 2021 and may have an adverse impact on our ability to manage our inventory and to meet product demand in a timely fashion.
+Added: This shortage may persist for an indefinite period of time.
Management of our inventory is further complicated by the significant number of different products and models that we sell which may impact our billings, revenue, margins and free cash flow.
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For example, we have in the past experienced inventory shortages and excesses due to the variance in demand for certain products from forecasted amounts.
−Removed: In addition, for those channel partners that have rights of return, inventory held by such channel partners affects our results of operations.
−Removed: Our inventory management systems and related supply chain visibility tools may be inadequate to enable us to effectively manage inventory.
+Added: Our inventory management systems and related supply chain visibility tools may be inadequate to enable us to effectively manage
If we are unable to effectively manage our inventory and that of our channel partners, our results of operations could be adversely affected.
−Removed: We are dependent on the continued services and performance of our senior management, the loss of any of whom could adversely affect our business, operating results and financial condition.
−Removed: Our future performance depends on the continued services and continuing contributions of our senior management to execute on our business plan and to identify and pursue new opportunities and product innovations.
−Removed: The loss of services of members of senior management, particularly Ken Xie, our Co-Founder, Chief Executive Officer and Chairman, or Michael Xie, our Co-Founder, President and Chief Technology Officer, or of any of our senior sales leaders or functional area leaders, could significantly delay or prevent the achievement of our development and strategic objectives.
−Removed: The loss of the services or the distraction of our senior management for any reason, including the COVID-19 pandemic, could adversely affect our business, financial condition and results of operations.
−Removed: If we are unable to hire, retain and motivate qualified personnel, our business will suffer.
−Removed: Our future success depends, in part, on our ability to continue to attract and retain highly skilled personnel.
−Removed: The loss of the services of any of our key personnel, the inability to attract or retain qualified personnel, any failure to have in place and execute an effective succession plan for key executives or delays in hiring required personnel, particularly in engineering, sales and marketing, may seriously harm our business, financial condition and results of operations.
−Removed: From time to time, we experience turnover in our management-level personnel.
−Removed: None of our key employees has an employment agreement for a specific term, and any of our employees may terminate their employment at any time.
−Removed: Our ability to continue to attract and retain highly skilled personnel will be critical to our future success.
−Removed: Competition for highly skilled personnel is frequently intense, especially for qualified sales, support and engineering employees in network security and especially in the locations where we have a substantial presence and need for highly skilled personnel, such as the San Francisco Bay Area and Vancouver, Canada.
−Removed: We may not be successful in attracting, assimilating or retaining qualified personnel to fulfill our current or future needs.
−Removed: The COVID-19 pandemic may also decelerate our hiring and increase the challenge of recruiting qualified personnel to leave their current positions to join us.
−Removed: In addition, to the extent we hire personnel from competitors, we may be subject to allegations that they have been improperly solicited or divulged proprietary or other confidential information.
−Removed: Changes in immigration laws, including changes to the rules regarding H1-B visas, may also harm our ability to attract personnel from other countries.
−Removed: Our inability to hire properly qualified and effective sales, support and engineering employees could harm our growth and our ability to effectively support growth.
−Removed: If we do not increase the effectiveness of our sales organization, we may have difficulty adding new end-customers or increasing sales to our existing end-customers and our business may be adversely affected.
−Removed: Although we have a channel sales model, sales in our industry are complex and members of our sales organization often engage in direct interaction with our prospective end-customers, particularly for larger deals involving larger end-customers.
−Removed: Therefore, we continue to be substantially dependent on our sales organization to obtain new end-customers and sell additional products and services to our existing end-customers.
−Removed: There is significant competition for sales personnel with the skills and technical knowledge that we require, including experienced enterprise sales employees and others.
−Removed: Our ability to grow our revenue depends, in large part, on our success in recruiting, training and retaining sufficient numbers of sales personnel to support our growth and on the effectiveness of those personnel in selling successfully in different contexts, each of which has its own different complexities, approaches and competitive landscapes, such as managing and growing the channel business for sales to small businesses and more actively selling to the end-customer for sales to larger organizations.
−Removed: New hires require substantial training and may take significant time before they achieve full productivity.
−Removed: Our recent hires and planned hires may not become productive as quickly as we expect, especially in light of the COVID-19 pandemic, and we may be unable to hire or retain sufficient numbers of qualified individuals in the markets where we do business or plan to do business.
−Removed: Furthermore, hiring sales personnel in new countries requires additional setup and upfront costs that we may not recover if the sales personnel fail to achieve full productivity.
−Removed: If our sales employees do not become fully productive on the timelines that we have projected, our revenue will not increase at anticipated levels and our ability to achieve long-term projections may be negatively impacted.
−Removed: If we are unable to hire and train sufficient numbers of effective sales personnel, or the sales personnel are not successful in obtaining new end-customers or increasing sales to our existing customer base, our business, operating results and prospects will be adversely affected.
−Removed: If we do not hire properly qualified and effective sales employees and organize our sales team effectively to capture the opportunities in the various customer segments we are targeting, our growth and ability to effectively support growth would be harmed.
+Added: Because we depend on several third-party manufacturers to build our products, we are susceptible to manufacturing delays that could prevent us from shipping customer orders on time, if at all, and may result in the loss of sales and customers, and third-party manufacturing cost increases could result in lower gross margins and free cash flow.
+Added: We outsource the manufacturing of our security appliance products to contract manufacturing partners and original design manufacturing partners, including manufacturers with facilities located in Taiwan, China and other countries outside the United States such as Micro-Star, Wistron, Senao, ADLINK and IBASE.
+Added: Our reliance on our third-party manufacturers in Asia and elsewhere reduces our control over the manufacturing process, exposing us to risks, including reduced control over quality assurance, costs, supply and timing and possible tariffs.
+Added: Any manufacturing disruption related to our third-party manufacturers or their component suppliers for any reason, including global chip shortages, natural disasters and health emergencies such as earthquakes, fires, power outages, typhoons, floods, health pandemics and epidemics such as the COVID-19 pandemic and manmade events such as civil unrest, labor disruption, international trade disputes, international conflicts, terrorism, wars and critical infrastructure attacks, could impair our ability to fulfill orders.
+Added: If we are unable to manage our relationships with these third-party manufacturers effectively, or if these third-party manufacturers experience delays, increased manufacturing lead-times, disruptions, capacity constraints or quality control problems in their manufacturing operations, or fail to meet our future requirements for timely delivery, our ability to ship products to our customers could be impaired and our business would be seriously harmed.
+Added: Further, approximately 85% of our hardware is manufactured in Taiwan.
+Added: Any increase in tensions between China and Taiwan, including threats of military actions or escalation of military activities, could adversely affect our manufacturing operations in Taiwan.
+Added: These manufacturers fulfill our supply requirements on the basis of individual purchase orders.
+Added: We have no long-term contracts or arrangements with our third-party manufacturers that guarantee capacity, the continuation of particular payment terms or the extension of credit limits.
+Added: Accordingly, they are not obligated to continue to fulfill our supply requirements, and the prices we are charged for manufacturing services could be increased on short notice.
+Added: If we are required to change third-party manufacturers, our ability to meet our scheduled product deliveries to our customers would be adversely affected, which could cause the loss of sales and existing or potential customers, delayed revenue or an increase in our costs, which could adversely affect our gross margins.
+Added: Our individual product lines are generally manufactured by only one manufacturing partner.
+Added: Any production or shipping interruptions for any reason, such as a natural disaster, epidemic, capacity shortages, quality problems or strike or other labor disruption at one of our manufacturing partners or locations or at shipping ports or locations, would severely affect sales of our product lines manufactured by that manufacturing partner.
+Added: Furthermore, manufacturing cost increases for any reason could result in lower gross margins.
+Added: Our proprietary SPUs, which are key to the performance of our appliances, are built by contract manufacturers including Renesas and Toshiba.
+Added: These contract manufacturers use foundries operated by TSMC or Renesas on a purchase-order basis, and these foundries do not guarantee their capacity and could delay orders or increase their pricing.
+Added: Accordingly, the foundries are not obligated to continue to fulfill our supply requirements, and due to the long lead time that a new foundry would require, we could suffer inventory shortages of our SPU as well as increased costs.
+Added: In addition to our proprietary SPU, we also purchase off-the-shelf ASICs or integrated circuits from vendors for which we have experienced, and may continue to experience, long lead times.
+Added: Our suppliers may also prioritize orders by other companies that order higher volumes or more profitable products.
+Added: If any of these manufacturers materially delays its supply of ASICs or specific product models to us, or requires us to find an alternate supplier and we are not able to do so on a timely and reasonable basis, or if these foundries materially increase their prices for fabrication of our SPU or ASICs, our business would be harmed.
+Added: In addition, our reliance on third-party manufacturers and foundries limits our control over environmental regulatory requirements such as the hazardous substance content of our products and therefore our ability to ensure compliance with the Restriction of Hazardous Substances Directive (the “EU RoHS”) adopted in the European Union (the “EU”) and other similar laws.
+Added: It also exposes us to the risk that certain minerals and metals, known as “conflict minerals,” that are contained in our products have originated in the Democratic Republic of the Congo or an adjoining country.
+Added: As a result of the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”), the Securities and Exchange Commission (the “SEC”) adopted disclosure requirements for public companies whose products contain conflict minerals that are necessary to the functionality or production of such products.
+Added: Under these rules, we are required to obtain sourcing data from suppliers, perform supply chain due diligence, and file annually with the SEC a specialized disclosure report on Form SD covering the prior calendar year.
+Added: We have incurred and expect to incur additional costs to comply with the rules, including costs related to efforts to determine the origin, source and chain of custody of the conflict minerals used in our products and the adoption of conflict minerals-related governance policies, processes and controls.
+Added: Moreover, the implementation of these compliance measures could adversely affect the sourcing, availability and pricing of materials used in the manufacture of our
+Added: products to the extent that there may be only a limited number of suppliers that are able to meet our sourcing requirements, which would make it more difficult to obtain such materials in sufficient quantities or at competitive prices.
+Added: We may also encounter customers who require that all of the components of our products be certified as conflict-free.
+Added: If we are not able to meet customer requirements, such customers may choose to not purchase our products, which could impact our sales and the value of portions of our inventory.
+Added: Because some of the key components in our products come from limited sources of supply, we are susceptible to supply shortages, long lead times for components, and supply changes, each of which could disrupt or delay our scheduled product deliveries to our customers, result in inventory shortage, cause loss of sales and customers or increase component costs resulting in lower gross margins and free cash flow.
+Added: We and our contract manufacturers currently purchase several key parts and components used in the manufacture of our products from limited sources of supply.
+Added: We are therefore subject to the risk of shortages and long lead times in the supply of these components and the risk that component suppliers may discontinue or modify components used in our products.
+Added: We have in the past experienced, and are currently experiencing, shortages and long lead times for certain components.
+Added: Our limited source components for particular appliances and suppliers of those components include specific types of CPUs from Intel, network chips from Broadcom, Marvell and Intel, and memory devices from Intel, ADATA, Toshiba, Samsung and Western Digital.
+Added: We also may face shortages in the supply of the capacitors and resistors that are used in the manufacturing of our products.
+Added: For example, the global chip shortage caused by the COVID-19 pandemic and other factors affecting manufacturing capacity in Asia has continued into 2021 and continues to affect the manufacturing capacity of us and our contract manufacturers.
+Added: This shortage may persist for an indefinite period of time.
+Added: The introduction by component suppliers of new versions of their products, particularly if not anticipated by us or our contract manufacturers, could require us to expend significant resources to incorporate these new components into our products.
+Added: In addition, if these suppliers were to discontinue production of a necessary part or component, we would be required to expend significant resources and time in locating and integrating replacement parts or components from another vendor.
+Added: Qualifying additional suppliers for limited source parts or components can be time-consuming and expensive.
+Added: Our manufacturing partners have experienced long lead times for the purchase of components incorporated into our products.
+Added: Lead times for components may be adversely impacted by factors outside of our control such as global chip shortages, natural disasters and health emergencies such as earthquakes, fires, power outages, typhoons, floods, health pandemics and epidemics such as the COVID-19 pandemic, and manmade events such as civil unrest, labor disruption, international trade disputes, international conflicts, terrorism, wars, critical infrastructure attacks and other factors.
+Added: Our reliance on a limited number of suppliers involves several additional risks, including:
+Added: • a potential inability to obtain an adequate supply of required parts or components when required;
+Added: • financial or other difficulties faced by our suppliers;
+Added: • infringement or misappropriation of our IP;
+Added: • price increases;
+Added: • failure of a component to meet environmental or other regulatory requirements;
+Added: • failure to meet delivery obligations in a timely fashion;
+Added: • failure in component quality;
+Added: • inability to ship products on a timely basis.
+Added: The occurrence of any of these events would be disruptive to us and could seriously harm our business.
+Added: Any interruption or delay in the supply of any of these parts or components, or the inability to obtain these parts or components from alternate sources at acceptable prices and within a reasonable amount of time, would harm our ability to meet our scheduled product deliveries to our distributors, resellers and end-customers.
+Added: This could harm our relationships with our channel partners and end-customers and could cause delays in shipment of our products and adversely affect our results of operations.
+Added: In addition, increased component costs could result in lower gross margins.
+Added: We offer retroactive price protection to certain of our major distributors, and if we fail to balance their inventory with end-customer demand for our products, our allowance for price protection may be inadequate, which could adversely affect our results of operations.
+Added: We provide certain of our major distributors with price protection rights for inventories of our products held by them.
+Added: If we reduce the list price of our products, certain distributors receive refunds or credits from us that reduce the price of such products held in their inventory based upon the new list price.
+Added: Future credits for price protection will depend on the percentage of our price reductions for the products in inventory and our ability to manage the levels of our major distributors’ inventories.
+Added: If future price protection adjustments are higher than expected, our future results of operations could be materially and adversely affected.
The sales prices of our products and services may decrease, which may reduce our gross profits and operating margin, and which may adversely impact our financial results and the trading price of our common stock.
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We cannot ensure that we will be successful in developing and introducing new offerings with enhanced functionality on a timely basis, or that our product and service offerings, if introduced, will enable us to maintain our prices, gross profits and operating margin at levels that will allow us to maintain profitability.
−Removed: If our internal enterprise IT networks, on which we conduct internal business and interface externally, our operational networks, through which we connect to customer systems and provide services, or our research and development networks, our back-end labs and cloud stacks through which we research and develop products and services, are compromised, public perception of our products and services may be harmed, our customers may be breached and harmed, we may become subject to liability, and our business, operating results and stock price may be adversely impacted.
−Removed: Our success depends on the market’s confidence in our ability to provide effective network security protection.
−Removed: Despite our efforts and processes to prevent breaches of our internal networks, systems and websites, we are still vulnerable to computer viruses, break-ins, phishing attacks, attempts to overload our servers with denial-of-service and other cyber-attacks and similar disruptions from unauthorized access to our internal networks, systems or websites.
−Removed: Our security measures may also be breached due to employee error, malfeasance or otherwise, which breaches may be more difficult to detect than outsider threats, and the existing programs and trainings we have in place to prevent such insider threats may not be effective or sufficient.
−Removed: Third parties may also attempt to fraudulently induce our employees to transfer funds or disclose information in order to gain access to our networks and confidential information.
−Removed: Third parties may also send our customers or others malware or malicious emails that falsely indicate that we are the source, potentially causing lost confidence in us and reputational harm.
−Removed: We cannot guarantee that the measures we have taken to protect our networks, systems and websites will provide adequate security.
−Removed: Moreover, because we provide network security products, we may be a more attractive target for attacks by computer hackers and any security breaches and other security incidents involving us may result in more harm to our reputation and brand than companies that do not sell network security solutions.
−Removed: Hackers and malicious parties may be able to develop and deploy
−Removed: viruses, worms, ransomware and other malicious software programs that attack our products and customers, that impersonate our update servers in an effort to access customer networks and negatively impact customers, or otherwise exploit any security vulnerabilities of our products, or attempt to fraudulently induce our employees, customers or others to disclose passwords or other sensitive information or unwittingly provide access to our internal networks, systems or data.
−Removed: For example, from time to time, we have discovered that unauthorized parties have targeted us using sophisticated techniques, including by stealing technical data and attempting to steal private encryption keys, in an effort to both impersonate our products and threat intelligence update services and possibly attempt other attack methodologies.
−Removed: Using these techniques, these unauthorized parties have tried, and may in the future try, to gain access to certain of our and our customers’ systems.
−Removed: We have also, for example, discovered that unauthorized parties have targeted vulnerabilities in our product software in an effort to gain entry into our customers’ networks.
−Removed: These and other hacking efforts against us and our customers may be ongoing and may recur in the future.
−Removed: Although we take numerous measures and implement multiple layers of security to protect our networks and our customers’ networks, we cannot guarantee that our security products, processes and services will prevent all threats.
−Removed: Further, we cannot be sure that third parties have not been, or will not in the future be, successful in improperly accessing our systems and our customers’ systems, which could negatively impact us and our customers.
−Removed: An actual breach could significantly harm us and our customers, and an actual or perceived breach, or any other actual or perceived data security incident, threat or vulnerability, that involves our supply chains, networks, systems or websites and/or our customers’ supply chains, networks, systems or websites could adversely affect the market perception of our products and services and investor confidence in our company.
−Removed: Any breach of our networks, systems or websites could impair our ability to operate our business, including our ability to provide FortiGuard and other security subscription and FortiCare technical support services to our end-customers, lead to interruptions or system slowdowns, cause loss of critical data or lead to the unauthorized disclosure or use of confidential, proprietary or sensitive information.
−Removed: We could also be subject to liability and litigation and reputational harm and our channel partners and end-customers may be harmed, lose confidence in us and decrease or cease using our products and services.
−Removed: Any breach of our internal networks, systems or websites could have an adverse effect on our business, operating results and stock price.
−Removed: In addition, due to the COVID-19 pandemic, a substantial majority of our employees are temporarily working remotely, which may pose additional data security risks.
−Removed: For example, there has been an increase in phishing attempts and spam emails as well as social engineering attempts from hackers hoping to use the recent COVID-19 pandemic to their advantage.
−Removed: The risks described above could therefore be exacerbated by the COVID-19 pandemic.
−Removed: Unless we continue to develop better market awareness of our company and our products, and to improve lead generation and sales enablement, our revenue may not continue to grow.
−Removed: Increased market awareness of our capabilities and products and increased lead generation are essential to our continued growth and our success in all of our markets, particularly for the large businesses, service provider and government organization market.
−Removed: We have historically had relatively low spending on marketing activities.
−Removed: While we have increased our investments in sales and marketing, it is not clear that these investments will continue to result in increased revenue.
−Removed: If our investments in additional sales personnel or our marketing programs are not successful in continuing to create market awareness of our company and products or increasing lead generation, or if we experience turnover and disruption in our sales and marketing teams, we will not be able to achieve sustained growth, and our business, financial condition and results of operations will be adversely affected.
−Removed: We are also limited in our marketing efforts as a result of the COVID-19 pandemic, as mitigation and containment measures adopted by government authorities to contain the spread of COVID-19, including travel restrictions and other requirements that limit in-person meetings, could limit our ability to establish and maintain relationships with new and existing customers and negatively affect our sales and marketing efforts.
Actual, possible or perceived defects or vulnerabilities in our products or services, the failure of our products or services to detect or prevent a security breach or the misuse of our products could harm our reputation and divert resources.
1 unchanged sentence
Defects or vulnerabilities may impede or block network traffic, cause our products or services to be vulnerable to electronic break-ins, cause them to fail to help secure our customers or cause our products or services to allow unauthorized access to our customers’ networks.
−Removed: Additionally, any perception that our products have product vulnerabilities, whether or not accurate, may cause reputation harm.
−Removed: We are also susceptible to errors, defects, vulnerabilities or attacks that may arise at, or be inserted into our products in, different stages in our supply chain, or manufacturing processes, and which are out of our control.
−Removed: Attacks may target specific unidentified or unresolved vulnerabilities that exist or arrive only in the supply chain, making these attacks virtually impossible to anticipate and difficult to prevent or detect.
+Added: Additionally, any perception that our products have product vulnerabilities, whether or not accurate, may cause rep utation harm.
+Added: Our products are also susceptible to errors, defects, logic flaws, vulnerabilities and inserted vulnerabilities that may arise in, or be included in our products in, different stages of our supply chain, manufacturing and shipment processes, and a threat actor’s exploitation of these weaknesses may be difficult to anticipate, prevent, and detect.
If we are unable to maintain an effective supply chain security risk management program, then the security and integrity of our products and the updates to those products that our customers receive could be exploited by third parties or insiders.
2 unchanged sentences
We cannot ensure that our products will prevent all adverse security events.
−Removed: Because the techniques used by malicious adversaries to access or sabotage networks change frequently and generally are not recognized
−Removed: until launched against a target, we may be unable to anticipate these techniques.
−Removed: In addition, defects or errors in our FortiGuard and other security subscription or FortiCare updates or our FortiGate appliances and operating systems could result in a failure of our FortiGuard and other security subscription services to effectively update end-customers’ FortiGate appliances and cloud-based products and thereby leave customers vulnerable to attacks.
+Added: Because the techniques used by malicious adversaries to access or sabotage networks change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques.
+Added: In addition, defects or errors in our FortiGuard and other security subscription or FortiCare updates or our Fortinet appliances and operating systems could result in a failure of our FortiGuard and other security subscription services to effectively update end-customers’ Fortinet appliances and cloud-based products and thereby leave customers vulnerable to attacks.
Furthermore, our solutions may also fail to detect or prevent viruses, worms or similar threats due to a number of reasons such as the evolving nature of such threats and the continual emergence of new threats that we may fail to add to our FortiGuard databases in time to protect our end-customers’ networks.
−Removed: Our FortiGuard or FortiCare data centers and networks may also experience technical failures and downtime, and may fail to distribute appropriate updates, or fail to meet the increased requirements of our customer base.
+Added: Our data centers and networks and those of our hosting vendors and cloud service providers, may also experience technical failures and downtime, and may fail to distribute appropriate updates, or fail to meet the increased requirements of our customer base.
Any such technical failure, downtime or failures in general may temporarily or permanently expose our end-customers’ networks, leaving their networks unprotected against the latest security threats.
11 unchanged sentences
• litigation, regulatory inquiries or investigations that may be costly and harm our reputation and, in some instances, subject us to potential liability that is not contractually limited.
+Added: The network security market is rapidly evolving and the complex technology incorporated in our products makes them difficult to develop.
+Added: If we do not accurately predict, prepare for and respond promptly to technological and market developments and changing end-customer needs, our competitive position and prospects may be harmed.
+Added: The network security market is expected to continue to evolve rapidly.
+Added: Moreover, many of our end-customers operate in markets characterized by rapidly changing technologies and business plans, which require them to add numerous network access points and adapt increasingly complex networks, incorporating a variety of hardware, software applications, operating systems and networking protocols.
+Added: In addition, computer hackers and others who try to attack networks employ increasingly sophisticated techniques to gain access to and attack systems and networks.
+Added: The technology in our products is especially complex because it needs to effectively identify and respond to new and increasingly sophisticated methods of attack, while minimizing the impact on network performance.
+Added: Additionally, some of our new products and enhancements may require us to develop new hardware architectures and ASICs that involve complex, expensive and time-consuming research and development processes.
+Added: For example, we enter into development agreements with third parties.
+Added: If our contract development projects are not successfully completed, or are not completed in a timely fashion, our product development could be delayed and our business generally could suffer.
+Added: Costs for contract development can be substantial and our profitability may be harmed if we are unable to recover these costs.
+Added: Although the market expects rapid introduction of new products or product enhancements to respond to new threats, the development of these products is difficult and the timetable for commercial release and availability is uncertain and there can be long time periods between releases and availability of new products.
+Added: We have in the past and may in the future experience unanticipated delays in the availability of new products and services and fail to meet previously announced timetables for such availability.
+Added: If we do not quickly respond to the rapidly changing and rigorous needs of our end-customers by developing and releasing and making available on a timely basis new products and services or enhancements that can respond adequately to new security threats, our competitive position and business prospects may be harmed.
+Added: Moreover, business models based on SaaS, either hosted or cloud-based services, have become increasingly in-demand by our end-customers and adopted by other providers, including our competitors.
+Added: While we have introduced additional cloud-based products and services and will continue to do so, most of our platform is currently deployed on premise, and therefore, if customers demand that our platform be provided through a SaaS business model, we would be required to make additional investments in our infrastructure and personnel to be able to more fully provide our platform through a SaaS model in order to maintain the competitiveness of our platform.
+Added: Such investments may involve expanding our data centers, servers and networks, and increasing our technical operations and engineering teams.
+Added: These risks are compounded by the uncertainty concerning the future viability of SaaS business models and the future demand for such models by customers.
+Added: Additionally, if we are unable to meet the demand to provide our services through a SaaS model, we may lose customers to competitors.
+Added: Our uniform resource locator (“URL”) database for our web filtering service may fail to keep pace with the rapid growth of URLs and may not categorize websites in accordance with our end-customers ’ expectations.
+Added: The success of our web filtering service depends on the breadth and accuracy of our URL database.
+Added: Although our URL database currently catalogs millions of unique URLs, it contains only a portion of the URLs for all of the websites that are available on the internet.
+Added: In addition, the total number of URLs and software applications is growing rapidly, and we expect this rapid growth to continue in the future.
+Added: Accordingly, we must identify and categorize content for our security risk categories at an extremely rapid rate.
+Added: Our database and technologies may not be able to keep pace with the growth in the number of websites, especially the growing amount of content utilizing foreign languages and the increasing sophistication of malicious code and the delivery mechanisms associated with spyware, phishing and other hazards associated with the internet.
+Added: Further, the ongoing evolution of the internet and computing environments will require us to continually improve the functionality, features and reliability of our web filtering function.
+Added: Any failure of our databases to keep pace with the rapid growth and technological change of the internet could impair the market acceptance of our products, which in turn could harm our business, financial condition and results of operations.
+Added: In addition, our web filtering service may not be successful in accurately categorizing internet and application content to meet our end-customers’ expectations.
+Added: We rely upon a combination of automated filtering technology and human review to categorize websites and software applications in our proprietary databases.
+Added: Our end-customers may not agree with our determinations that particular URLs should be included or not included in specific categories of our databases.
+Added: In addition, it is possible that our filtering processes may place material that is objectionable or that presents a security risk in categories that are generally unrestricted by our customers’ internet and computer access policies, which could result in such material not being blocked from the network.
+Added: Conversely, we may miscategorize websites such that access is denied to websites containing information that is important or valuable to our customers.
+Added: Any miscategorization could result in customer dissatisfaction and harm our reputation.
+Added: Any failure to effectively categorize and filter websites according to our end-customers’ and channel partners’ expectations could impair the growth of our business.
+Added: False detection of vulnerabilities, viruses or security breaches or false identification of spam or spyware could adversely affect our business.
+Added: Our FortiGuard and other security subscription services may falsely detect, report and act on viruses or other threats that do not actually exist.
+Added: This risk is heightened by the inclusion of a “heuristics” feature in our products, which attempts to identify viruses and other threats not based on any known signatures but based on characteristics or anomalies that may indicate that a particular item is a threat.
+Added: When our end-customers enable the heuristics feature in our products, the risk of falsely identifying viruses and other threats significantly increases.
+Added: These false positives, while typical in the industry, may impair the perceived reliability of our products and may therefore adversely impact market acceptance of our products.
+Added: Also, our FortiGuard and other security subscription services may falsely identify emails or programs as unwanted spam or potentially unwanted programs, or alternatively fail to properly identify unwanted emails or programs, particularly as spam emails or spyware are often designed to circumvent anti-spam or spyware products.
+Added: Parties whose emails or programs are blocked by our products may seek redress against us for labeling them as spammers or spyware, or for interfering with their business.
+Added: In addition, false identification of emails or programs as unwanted spam or potentially unwanted programs may reduce the adoption of our products.
+Added: If our system restricts important files or applications based on falsely identifying them as malware or some other item that should be restricted, this could adversely affect end-customers’ systems and cause material system failures.
+Added: In addition, our threat researchers periodically identify vulnerabilities in various third-party products, and, if these identifications are perceived to be incorrect or are in fact incorrect, this could harm our business.
+Added: Any such false identification or perceived false identification of important files, applications or vulnerabilities could result in negative publicity, loss of end-customers and sales, increased costs to remedy any problem and costly litigation.
+Added: Our ability to sell our products is dependent on the quality of our technical support services, and our failure to offer high-quality technical support services would have a material adverse effect on our sales and results of operations.
+Added: Once our products are deployed within our end-customers’ networks, our end-customers depend on our technical support services, as well as the support of our channel partners and other third parties, to resolve any issues relating to our products.
+Added: If we, our channel partners or other third parties do not effectively assist our customers in planning, deploying and operational proficiency for our products, succeed in helping our customers quickly resolve post-deployment issues and provide effective ongoing support, our ability to sell additional products and services to existing customers would be adversely affected and our reputation with potential customers could be damaged.
+Added: Many large end-customers, and service provider or government organization end-customers, require higher levels of support than smaller end-customers because of their more complex deployments and more demanding environments and business models.
+Added: If we, our channel partners or other third parties fail to meet the requirements of our larger end-customers, it may be more difficult to execute on our strategy to increase our
+Added: penetration with large businesses, service providers and government organizations.
+Added: Our failure to maintain high-quality support services would have a material adverse effect on our business, financial condition and results of operations and may subject us to litigation, reputational damage, loss of customers and additional costs.
+Added: Our business is subject to the risks of warranty claims, product returns, product liability and product defects.
+Added: Our products are very complex and, despite testing prior to their release, have contained and may contain undetected defects or errors, especially when first introduced or when new versions are released.
+Added: Product errors have affected the performance and effectiveness of our products and could delay the development or release of new products or new versions of products, adversely affect our reputation and our end-customers’ willingness to buy products from us, result in litigation and disputes with customers and adversely affect market acceptance or perception of our products.
+Added: Any such errors or delays in releasing new products or new versions of products or allegations of unsatisfactory performance could cause us to lose revenue or market share, increase our service costs, cause us to incur substantial costs in redesigning the products, cause us to lose significant end-customers, subject us to litigation, litigation costs and liability for damages and divert our resources from other tasks, any one of which could materially and adversely affect our business, results of operations and financial condition.
+Added: Our products must successfully interoperate with products from other vendors.
+Added: As a result, when problems occur in a network, it may be difficult to identify the sources of these problems.
+Added: The occurrence of hardware and software errors, whether or not caused by our products, could delay or reduce market acceptance of our products and have an adverse effect on our business and financial performance, and any necessary revisions may cause us to incur significant expenses.
+Added: The occurrence of any such problems could harm our business, financial condition and results of operations.
+Added: Although we generally have limitation of liability provisions in our standard terms and conditions of sale, they may not fully or effectively protect us from claims if exceptions apply or if the provisions are deemed unenforceable, and in some circumstances we may be required to indemnify a customer in full, without limitation, for certain liabilities, including liabilities that are not contractually limited.
+Added: The sale and support of our products also entail the risk of product liability claims.
+Added: We maintain insurance to protect against certain claims associated with the use of our products, but our insurance coverage may not adequately cover any claim asserted against us, if at all, and in some instances may subject us to potential liability that is not contractually limited.
+Added: In addition, even claims that ultimately are unsuccessful could result in our expenditure of funds in litigation and divert management’s time and other resources.
+Added: Risks Related to our Systems and Technology
+Added: If our internal enterprise IT networks, on which we conduct internal business and interface externally, our operational networks, through which we connect to customer systems and provide services, or our research and development networks, our back-end labs and cloud stacks through which we research and develop products and services, are compromised, public perception of our products and services may be harmed, our customers may be breached and harmed, we may become subject to liability, and our business, operating results and stock price may be adversely impacted.
+Added: Our success depends on the market’s confidence in our ability to provide effective network security protection.
+Added: Despite our efforts and processes to prevent breaches of our internal networks, systems and websites, we are still vulnerable to computer viruses, break-ins, phishing attacks, attempts to overload our servers with denial-of-service, vulnerabilities in vendor hardware and software that we leverage, and other cyber-attacks and similar disruptions from unauthorized access to our internal networks, systems or websites.
+Added: Our security measures may also be breached due to employee error, malfeasance or otherwise, which breaches may be more difficult to detect than outsider threats, and the existing programs and trainings we have in place to prevent such insider threats may not be effective or sufficient.
+Added: Third parties may also attempt to fraudulently induce our employees to transfer funds or disclose information in order to gain access to our networks and confidential information.
+Added: Third parties may also send our customers or others malware or malicious emails that falsely indicate that we are the source, potentially causing lost confidence in us and reputational harm.
+Added: We cannot guarantee that the measures we have taken to protect our networks, systems and websites will provide adequate security.
+Added: Moreover, because we provide network security products, we may be a more attractive target for attacks by computer hackers and any security breaches and other security incidents involving us may result in more harm to our reputation and brand than companies that do not sell network security solutions.
+Added: Hackers and malicious parties may be able to develop and deploy viruses, worms, ransomware and other malicious software programs that attack our products and customers, that impersonate our update servers in an effort to access customer networks and negatively impact customers, or otherwise exploit any security vulnerabilities of our products, or attempt to fraudulently induce our employees, customers or others to disclose passwords or other sensitive information or unwittingly provide access to our internal networks, systems or data.
+Added: For example, from time to time, we have discovered that unauthorized parties have targeted us using sophisticated techniques, including by stealing technical data and attempting to steal private encryption keys, in an effort to both impersonate our products and threat intelligence update services and possibly attempt other attack methodologies.
+Added: Using these techniques, these unauthorized parties have tried, and may in the future try, to gain access to certain of our and our customers’ systems.
+Added: We have also, for example, discovered that unauthorized parties have targeted vulnerabilities in our product software in an effort to gain entry into our customers’ networks.
+Added: These and other hacking efforts against us and our customers may be ongoing and may recur in the future.
+Added: Although we take numerous measures and implement multiple layers of security to protect our networks and our customers’ networks, we cannot guarantee that our security products, processes and services will secure against all threats.
+Added: F urther, we cannot be sure that third parties have not been, or will not in the future be, successful in improperly accessing our systems and our customers’ systems, which could negatively impact us and our customers.
+Added: An actual breach could significantly harm us and our customers, and an actual or perceived breach, or any other actual or perceived data security incident, threat or vulnerability, that involves our supply chains, networks, systems or websites and/or our customers’ supply chains, networks, systems or websites could adversely affect the market perception of our products and services and investor confidence in our company.
+Added: Any breach of our networks, systems or websites could impair our ability to operate our business, including our ability to provide FortiGuard and other security subscription and FortiCare technical support services to our end-customers, lead to interruptions or system slowdowns, cause loss of critical data or lead to the unauthorized disclosure or use of confidential, proprietary or sensitive information.
+Added: We could also be subject to liability and litigation and reputational harm and our channel partners and end-customers may be harmed, lose confidence in us and decrease or cease using our products and services.
+Added: Any breach of our internal networks, systems or websites could have an adverse effect on our business, operating results and stock price.
+Added: In addition, due to the COVID-19 pandemic, a substantial majority of our employees are temporarily working remotely, which may pose additional data security risks.
+Added: For example, there has been an increase in phishing attempts and spam emails as well as social engineering attempts from hackers hoping to use the recent COVID-19 pandemic to their advantage.
+Added: The risks described above could therefore be exacerbated by the COVID-19 pandemic.
If we do not appropriately manage any future growth, including through the expansion of our real estate facilities, or are unable to improve our systems, processes and controls, our operating results will be negatively affected.
13 unchanged sentences
We have expanded our office real estate holdings to meet our projected growing need for office space.
−Removed: We have started construction on a second building adjacent to our headquarters as we expand our campus in Sunnyvale, California.
−Removed: These plans will require significant capital expenditure over the next several years and involve certain risks, including impairment charges and acceleration of depreciation, changes in future business strategy that may decrease the need for expansion (such as a decrease in headcount) and risks related to construction.
+Added: These plans will require significant capital expenditure over the next several years and involve certain risks, including impairment charges and acceleration of depreciation, changes in future business strategy that may decrease the need for expansion (such as a decrease in headcount or increase in work from home) and risks related to construction.
Future changes in growth or fluctuations in cash flow may also negatively impact our ability to pay for these projects or free cash flow.
7 unchanged sentences
Our operating results may be adversely affected if these upgrades or expansions are delayed or if the systems do not function as intended or are not sufficient to meet our operating requirements.
−Removed: If our estimates or judgments relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our operating results could fall below expectations of securities analysts and investors, resulting in a decline in our stock price.
−Removed: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.
−Removed: We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in this Quarterly Report on Form 10-Q, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
−Removed: Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of securities analysts and investors, resulting in a decline in our stock price.
−Removed: Significant assumptions and estimates used in preparing our consolidated financial statements include those related to revenue recognition, deferred contract costs and commission expense, valuation of inventory, accounting for business combination, contingent liabilities and accounting for income taxes.
−Removed: We offer retroactive price protection to certain of our major distributors, and if we fail to balance their inventory with end-customer demand for our products, our allowance for price protection may be inadequate, which could adversely affect our results of operations.
−Removed: We provide certain of our major distributors with price protection rights for inventories of our products held by them.
−Removed: If we reduce the list price of our products, certain distributors receive refunds or credits from us that reduce the price of such products held in their inventory based upon the new list price.
−Removed: Future credits for price protection will depend on the percentage of our price reductions for the products in inventory and our ability to manage the levels of our major distributors’ inventories.
−Removed: If future price protection adjustments are higher than expected, our future results of operations could be materially and adversely affected.
−Removed: Because we depend on several third-party manufacturers to build our products, we are susceptible to manufacturing delays that could prevent us from shipping customer orders on time, if at all, and may result in the loss of sales and customers, and third-party manufacturing cost increases could result in lower gross margins and free cash flow.
−Removed: We outsource the manufacturing of our security appliance products to contract manufacturing partners and original design manufacturing partners, including manufacturers with facilities located in Taiwan, China and other countries outside the United States such as Micro-Star, Wistron, Senao, ADLINK and IBASE.
−Removed: Our reliance on our third-party manufacturers in Asia and elsewhere reduces our control over the manufacturing process, exposing us to risks, including reduced control over quality assurance, costs, supply and timing and possible tariffs.
−Removed: Any manufacturing disruption related to our third-party manufacturers or their component suppliers for any reason, including natural disasters and health emergencies such as earthquakes, fires, power outages, typhoons, floods, health pandemics and epidemics such as the COVID-19 pandemic and manmade events such as civil unrest, labor disruption, international trade disputes, international conflicts, terrorism, wars and critical infrastructure attacks, could impair our ability to fulfill orders.
−Removed: If we are unable to manage our relationships with these third-party manufacturers effectively, or if these third-party manufacturers experience delays, increased manufacturing lead-times, disruptions, capacity constraints or quality control problems in their manufacturing operations, or fail to meet our future requirements for timely delivery, our ability to ship products to our customers could be impaired and our business would be seriously harmed.
−Removed: These manufacturers fulfill our supply requirements on the basis of individual purchase orders.
−Removed: We have no long-term contracts or arrangements with our third-party manufacturers that guarantee capacity, the continuation of particular payment terms or the extension of credit limits.
−Removed: Accordingly, they are not obligated to continue to fulfill our supply requirements, and the prices we are charged for manufacturing services could be increased on short notice.
−Removed: If we are required to change third-party manufacturers, our ability to meet our scheduled product deliveries to our customers would be adversely affected, which could cause the loss of sales and existing or potential customers, delayed revenue or an increase in our costs, which could adversely affect our gross margins.
−Removed: Our individual product lines are generally manufactured by only one manufacturing partner.
−Removed: Any production or shipping interruptions for any reason, such as a natural disaster, epidemic, capacity shortages, quality problems or strike or other labor disruption at one of our manufacturing partners or locations or at shipping ports or locations, would severely affect sales of our product lines manufactured by that manufacturing partner.
−Removed: Furthermore, manufacturing cost increases for any reason could result in lower gross margins.
−Removed: Our proprietary SPUs, which are key to the performance of our appliances, are built by contract manufacturers including Renesas and Toshiba.
−Removed: These contract manufacturers use foundries operated by TSMC or Renesas on a purchase-order basis, and these foundries do not guarantee their capacity and could delay orders or increase their pricing.
−Removed: Accordingly, the foundries are not obligated to continue to fulfill our supply requirements, and due to the long lead time that a new foundry would require, we could suffer inventory shortages of our SPU as well as increased costs.
−Removed: In addition to our proprietary SPU, we also purchase off-the-shelf ASICs or integrated circuits from vendors for which we have experienced, and may continue to experience, long lead times.
−Removed: Our suppliers may also prioritize orders by other companies that order higher volumes or more profitable products.
−Removed: If any of these manufacturers materially delays its supply of ASICs or specific product models to us, or requires us to find an alternate supplier and we are not able to do so on a timely and reasonable basis, or if these foundries materially increase their prices for fabrication of our ASICs, our business would be harmed.
−Removed: In addition, our reliance on third-party manufacturers and foundries limits our control over environmental regulatory requirements such as the hazardous substance content of our products and therefore our ability to ensure compliance with the Restriction of Hazardous Substances Directive (the “EU RoHS”) adopted in the European Union (the “EU”) and other similar laws.
−Removed: It also exposes us to the risk that certain minerals and metals, known as “conflict minerals,” that are contained in our products have originated in the Democratic Republic of the Congo or an adjoining country.
−Removed: As a result of the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”), the SEC adopted disclosure requirements for public companies whose products contain conflict minerals that are necessary to the functionality or production of such products.
−Removed: Under these rules, we are required to obtain sourcing data from suppliers, perform supply chain due diligence, and file annually with the SEC a specialized disclosure report on Form SD covering the prior calendar year.
−Removed: We have incurred and expect to incur additional costs to comply with the rules, including costs related to efforts to determine the origin, source and chain of custody of the conflict minerals used in our products and the adoption of conflict minerals-related governance policies, processes and controls.
−Removed: Moreover, the implementation of these compliance measures could adversely affect the sourcing, availability and pricing of materials used in the manufacture of our products to the extent that there may be only a limited number of suppliers that are able to meet our sourcing requirements, which would make it more difficult to obtain such materials in sufficient quantities or at competitive prices.
−Removed: We may also encounter customers who require that all of the components of our products be certified as conflict-free.
−Removed: If we are not able to meet customer requirements, such customers may choose to not purchase our products, which could impact our sales and the value of portions of our inventory.
−Removed: Because some of the key components in our products come from limited sources of supply, we are susceptible to supply shortages, long lead times for components, and supply changes, each of which could disrupt or delay our scheduled product deliveries to our customers, result in inventory shortage, cause loss of sales and customers or increase component costs resulting in lower gross margins and free cash flow.
−Removed: We and our contract manufacturers currently purchase several key parts and components used in the manufacture of our products from limited sources of supply.
−Removed: We are therefore subject to the risk of shortages and long lead times in the supply of these components and the risk that component suppliers may discontinue or modify components used in our products.
−Removed: We have in the past experienced, and are currently experiencing, shortages and long lead times for certain components.
−Removed: Our limited source components for particular appliances and suppliers of those components include specific types of CPUs from Intel, network chips from Broadcom, Marvell and Intel, and memory devices from Intel, ADATA, Toshiba, Samsung and Western Digital.
−Removed: We also may face shortages in the supply of the capacitors and resistors that are used in the manufacturing of our products.
−Removed: The introduction by component suppliers of new versions of their products, particularly if not anticipated by us or our contract manufacturers, could require us to expend significant resources to incorporate these new components into our products.
−Removed: In addition, if these suppliers were to discontinue production of a necessary part or component, we would be required to expend significant resources and time in locating and integrating replacement parts or components from another vendor.
−Removed: Qualifying additional suppliers for limited source parts or components can be time-consuming and expensive.
−Removed: Our manufacturing partners have experienced long lead times for the purchase of components incorporated into our products.
−Removed: Lead times for components may be adversely impacted by factors outside of our control such as natural disasters and health emergencies such as earthquakes, fires, power outages, typhoons, floods, health pandemics and epidemics such as the COVID-19 pandemic, and manmade events such as civil unrest, labor disruption, international trade disputes, international conflicts, terrorism, wars, critical infrastructure attacks and other factors.
−Removed: Our reliance on a limited number of suppliers involves several additional risks, including:
−Removed: • a potential inability to obtain an adequate supply of required parts or components when required;
−Removed: • financial or other difficulties faced by our suppliers;
−Removed: • infringement or misappropriation of our IP;
−Removed: • price increases;
−Removed: • failure of a component to meet environmental or other regulatory requirements;
−Removed: • failure to meet delivery obligations in a timely fashion;
−Removed: • failure in component quality;
−Removed: • inability to ship products on a timely basis.
−Removed: The occurrence of any of these events would be disruptive to us and could seriously harm our business.
−Removed: Any interruption or delay in the supply of any of these parts or components, or the inability to obtain these parts or components from alternate sources at acceptable prices and within a reasonable amount of time, would harm our ability to meet our scheduled product deliveries to our distributors, resellers and end-customers.
−Removed: This could harm our relationships with our channel partners and end-customers and could cause delays in shipment of our products and adversely affect our results of operations.
−Removed: In addition, increased component costs could result in lower gross margins.
−Removed: We are exposed to fluctuations in currency exchange rates, which could negatively affect our financial condition and results of operations.
−Removed: A significant portion of our operating expenses are incurred outside the United States.
−Removed: These expenses are denominated in foreign currencies and are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Euro, Brazilian real, Canadian dollar and British pound.
−Removed: Additionally, fluctuations in the exchange rate of the Canadian dollar may negatively impact our development plans in Burnaby, Canada.
−Removed: While we are not currently engaged in material hedging activities, we have been hedging currency exposures relating to certain balance sheet accounts through the use of forward exchange contracts.
−Removed: If we stop hedging against any of these risks or if our attempts to hedge against these currency exposures are not successful, our financial condition and results of operations could be adversely affected.
−Removed: Our sales contracts are primarily denominated in U.S.
−Removed: dollars and therefore, while substantially all of our revenue is not subject to foreign currency
−Removed: risk, it does not serve as a hedge to our foreign currency-denominated operating expenses.
−Removed: In addition, a strengthening of the U.S.
−Removed: dollar may increase the real cost of our products to our customers outside of the United States, which may also adversely affect our financial condition and results of operations.
+Added: Risks Related to our Intellectual Property
+Added: Our proprietary rights may be difficult to enforce, which could enable others to copy or use aspects of our products without compensating us.
+Added: We rely primarily on patent, trademark, copyright and trade secrets laws and confidentiality procedures and contractual provisions to protect our technology.
+Added: Valid patents may not issue from our pending applications, and the claims eventually allowed on any patents may not be sufficiently broad to protect our technology or products.
+Added: Any issued patents may be challenged, invalidated or circumvented, and any rights granted under these patents may not actually provide adequate defensive protection or competitive advantages to us.
+Added: Patent applications in the United States are typically not published until at least 18 months after filing, or, in some cases, not at all, and publications of discoveries in industry-related literature lag behind actual discoveries.
+Added: We cannot be certain that we were the first to make the inventions claimed in our pending patent applications or that we were the first to file for patent protection.
+Added: Additionally, the process of obtaining patent protection is expensive and time-consuming, and we may not be able to prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner.
+Added: In addition, recent changes to the patent laws in the United States may bring into question the validity of certain software patents and may make it more difficult and costly to prosecute patent applications.
+Added: As a result, we may not be able to obtain adequate patent protection or effectively enforce our issued patents.
+Added: Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or obtain and use information that we regard as proprietary.
+Added: We generally enter into confidentiality or license agreements with our employees, consultants, vendors and customers, and generally limit access to and distribution of our proprietary information.
+Added: However, we cannot guarantee that the steps taken by us will prevent misappropriation of our technology.
+Added: Policing unauthorized use of our technology or products is difficult.
+Added: In addition, the laws of some foreign countries do not protect our proprietary rights to as great an extent as the laws of the United States, and many foreign countries do not enforce these laws as diligently as government agencies and private parties in the United States.
+Added: From time to time, legal action by us may be necessary to enforce our patents and other IP rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement or invalidity.
+Added: Such litigation could result in substantial costs and diversion of resources and could negatively affect our business, operating results and financial condition.
+Added: If we are unable to protect our proprietary rights (including aspects of our software and products protected other than by patent rights), we may find ourselves at a competitive disadvantage to others who need not incur the additional expense, time and effort required to create the innovative products that have enabled us to be successful to date.
+Added: Our products contain third-party open source software components, and failure to comply with the terms of the underlying open source software licenses could restrict our ability to sell our products.
+Added: Our products contain software modules licensed to us by third-party authors under “open source” licenses, including the GNU Public License, the GNU Lesser Public License, the BSD License, the Apache License, the MIT X License and the
+Added: Mozilla Public License.
+Added: From time to time, there have been claims against companies that distribute or use open source software in their products and services, asserting that open source software infringes the claimants’ IP rights.
+Added: We could be subject to suits by parties claiming infringement of IP rights in what we believe to be licensed open source software.
+Added: Use and distribution of open source software may entail greater risks than use of third-party commercial software, as, for example, open source licensors generally do not provide warranties or other contractual protections regarding infringement claims or the quality of the code.
+Added: Some open source licenses contain requirements that we make available source code for modifications or derivative works we create based upon the type of open source software we use.
+Added: If we combine our proprietary software with open source software in a certain manner, we could, under certain open source licenses, be required to release the source code of our proprietary software to the public.
+Added: This would allow our competitors to create similar products with lower development effort and time and ultimately could result in a loss of product sales for us.
+Added: Although we monitor our use of open source software to avoid subjecting our products to conditions we do not intend, the terms of many open source licenses have not been interpreted by U.S.
+Added: courts, and there is a risk that these licenses could be construed in a way that, for example, could impose unanticipated conditions or restrictions on our ability to commercialize our products.
+Added: In this event, we could be required to seek licenses from third parties to continue offering our products, to make our proprietary code generally available in source code form, to re-engineer our products or to discontinue the sale of our products if re-engineering could not be accomplished on a timely basis, any of which requirements could adversely affect our business, operating results and financial condition.
+Added: Claims by others that we infringe their proprietary technology or other litigation matters could harm our business.
+Added: Patent and other IP disputes are common in the network security industry.
+Added: Third parties are currently asserting, have asserted and may in the future assert claims of infringement of IP rights against us.
+Added: Third parties have also asserted such claims against our end-customers or channel partners whom we may indemnify against claims that our products infringe the IP rights of third parties.
+Added: As the number of products and competitors in our market increases and overlaps occur, infringement claims may increase.
+Added: Any claim of infringement by a third party, even those without merit, could cause us to incur substantial costs defending against the claim and could distract our management from our business.
+Added: In addition, litigation may involve patent holding companies, non-practicing entities or other adverse patent owners who have no relevant product revenue and against whom our own patents may therefore provide little or no deterrence or protection.
+Added: Although third parties may offer a license to their technology, the terms of any offered license may not be acceptable, and the failure to obtain a license or the costs associated with any license could cause our business, financial condition and results of operations to be materially and adversely affected.
+Added: In addition, some licenses may be non-exclusive and, therefore, our competitors may have access to the same technology licensed to us.
+Added: Alternatively, we may be required to develop non-infringing technology, which could require significant time, effort and expense, and may ultimately not be successful.
+Added: Furthermore, a successful claimant could secure a judgment or we may agree to a settlement that prevents us from distributing certain products or performing certain services or that requires us to pay substantial damages (including treble damages if we are found to have willfully infringed such claimant’s patents or copyrights), royalties or other fees.
+Added: Any of these events could seriously harm our business, financial condition and results of operations.
+Added: From time to time we are subject to lawsuits claiming patent infringement.
+Added: We are also subject to other litigation in addition to patent infringement claims, such as employment-related litigation and disputes, as well as general commercial litigation, and could become subject to other forms of litigation and disputes, including stockholder litigation.
+Added: If we are unsuccessful in defending any such claims, our operating results and financial condition and results may be materially and adversely affected.
+Added: For example, we may be required to pay substantial damages and could be prevented from selling certain of our products.
+Added: Litigation, with or without merit, could negatively impact our business, reputation and sales in a material fashion.
+Added: We have several ongoing patent lawsuits, certain companies have sent us demand letters proposing that we license certain of their patents, and organizations have sent letters demanding that we provide indemnification for patent claims.
+Added: As two examples of the ongoing patent lawsuits against us, one such patent lawsuit by British Telecommunications plc was filed in federal court in Delaware in July 2018, and a second such lawsuit by Finjan, Inc.
+Added: was filed in federal court in California in October 2018, and additional patent lawsuits have been filed against us since.
+Added: Given this and the proliferation of lawsuits in our industry and other similar industries by both non-practicing entities and operating entities, and recent non-practicing entity and operating entity patent litigation against other companies in the security space, we expect that we will be sued for patent infringement in the future, regardless of the merits of any such lawsuits.
+Added: The cost to defend such lawsuits and any settlement payment or adverse result in such lawsuits could have a material adverse effect on our results of operations and financial condition.
+Added: We rely on the availability of third-party licenses.
+Added: Many of our products include software or other IP licensed from third parties.
+Added: It may be necessary in the future to renew licenses relating to various aspects of these products or to seek new licenses for existing or new products.
+Added: Licensors may claim we owe them additional license fees for past and future use of their software and other IP or that we cannot utilize such software or IP in our products going forward.
+Added: There can be no assurance that the necessary licenses would be available on acceptable terms, if at all.
+Added: The inability to obtain certain licenses or other rights or to obtain such licenses or rights on favorable terms or for reasonable pricing, or the need to engage in litigation regarding these matters, could result in delays in product releases until equivalent technology can be identified, licensed or developed, if at all, and integrated into our products and may result in significant license fees and have a material adverse effect on our business, operating results, and financial condition.
+Added: Moreover, the inclusion in our products of software or other IP licensed from third parties on a non-exclusive basis could limit our ability to differentiate our products from those of our competitors.
+Added: We also rely on technologies licensed from third parties in order to operate functions of our business.
+Added: If any of these third parties allege that we have not properly paid for such licenses or that we have improperly used the technologies under such licenses, we may need to pay additional fees or obtain new licenses, and such licenses may not be available on terms acceptable to us or at all or may be costly.
+Added: In any such case, or if we were required to redesign our internal operations to function with new technologies, our business, results of operations and financial condition could be harmed.
+Added: Other Risks Related to Our Business and Financial Position
Failure to comply with laws and regulations applicable to our business could subject us to fines and penalties and could also cause us to lose end-customers in the public sector or negatively impact our ability to contract with the public sector.
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For example, in June 2018, California passed the California Consumer Privacy Act (the “CCPA”), which provides new data privacy rights for consumers and new operational requirements for companies and became effective on January 1, 2020.
+Added: The CCPA was expanded pursuant to the California Privacy Rights Act, which was passed in 2020 and which will become effective in 2023.
The costs of compliance with and the penalties for violations of the GDPR and CCPA, along with other burdens imposed by these regulations, may limit the use and adoption of our products and services and could have an adverse impact on our business.
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Failure to comply with these requirements or to obtain and maintain government permits and clearances required to do certain business, by either us or our channel partners, could subject us to investigations, fines, suspension, limitations on business or debarment from doing business with the U.S.
−Removed: government or one of its divisions, as well as other penalties and damages, which could have an adverse effect on our business, operating results, financial condition and prospects.
+Added: government or one of its divisions, as well as other penalties, damages and reputational harms, which
+Added: could have an adverse effect on our business, operating results, financial condition and prospects.
Any violations of regulatory and contractual requirements could result in us being suspended or debarred from future government contracting.
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Any such damages, penalties, disruptions or limitations in our ability to do business with the public sector could have an adverse effect on our business and operating results.
−Removed: Global economic uncertainty and weakening product demand caused by political instability and conflict could adversely affect our business and financial performance.
−Removed: Economic uncertainty in various global markets caused by political instability and conflict and economic challenges caused by the COVID-19 pandemic has resulted, and may continue to result, in weakened demand for our products and services and difficulty in forecasting our financial results and managing inventory levels.
−Removed: Political developments impacting government spending and international trade, including potential government shutdowns and election year instability in the United States and trade disputes and tariffs, may negatively impact markets and cause weaker macro-economic conditions.
−Removed: The effects of
−Removed: these events may continue due to potential U.S.
−Removed: government shutdowns and developments resulting from the 2020 presidential election, and the United States’ ongoing trade disputes with China and other countries.
−Removed: The continuing effect of any or all of these events could adversely impact demand for our products, harm our operations and weaken our financial results.
We are subject to governmental export and import controls that could subject us to liability or restrictions on sales, and that could impair our ability to compete in international markets.
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Moreover, efforts to implement changes related to export or import regulations (including the imposition of new border taxes or tariffs on foreign imports), trade barriers, economic sanctions and other related policies could harm our results of operations.
−Removed: For example, during 2018 and 2019 the United States imposed additional import tariffs on certain goods from different countries and on most of Chinese imported goods.
+Added: For example, in recent years, the United States has imposed additional import tariffs on certain goods from different countries and on most of Chinese imported goods.
As a result, China and other countries imposed retaliatory tariffs on goods exported from the United States and both the United States and foreign countries have threatened to alter or leave current trade agreements.
−Removed: While we do not currently expect these tariffs to have a significant effect on our raw material and product import costs, if the United States expands increased tariffs, or retaliatory trade measures are taken by China or other countries in response to the tariffs, the cost of our products could increase, our operations could be disrupted or we could be required to raise our prices, which may result in the loss of customers and harm to our reputation and operating performance.
+Added: While we do not currently expect these tariffs to have a significant effect on our raw material and product import costs, if the United States expands increased tariffs, or retaliatory trade measures are taken by China or other countries in
+Added: response to the tariffs, the cost of our products could increase, our operations could be disrupted or we could be required to raise our prices, which may result in the loss of customers and harm to our reputation and operating performance.
Any modification in these areas, any shift in the enforcement or scope of existing regulations or any change in the countries, governments, persons or technologies targeted by such regulations, could result in decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential end-customers with international operations and could result in increased costs.
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If we fail to comply with environmental requirements, our business, financial condition, operating results and reputation could be adversely affected.
−Removed: We are subject to various environmental laws and regulations, including laws governing the hazardous material content of our products, laws relating to our real property and future expansion plans and laws concerning the recycling of electrical and electronic equipment.
+Added: We are subject to various environmental laws and regulations, including laws governing the hazardous material content of our products, laws relating to our real property and future expansion plans and laws concerning the recycling of Electrical and Electronic Equipment (“EEE”).
The laws and regulations to which we are subject include the EU RoHS Directive, EU Regulation 1907/2006 – Registration, Evaluation, Authorization and Restriction of Chemicals (the “REACH” Regulation) and the EU Waste Electrical and Electronic Equipment Directive (the “WEEE Directive”), as well as the implementing legislation of the EU member states.
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This re-engineering and component substitution could result in additional costs to us and/or disrupt our operations or logistics.
−Removed: As part of the Circular Economy Action Plan, the European Commission amended the EU Waste Framework Directive (“WFD”) to include a number of measures related to waste prevention and recycling.
−Removed: Starting on January 5, 2021, we will be responsible for submitting product data to a database of hazardous substances known as the Substances of Concern In articles, as such and in complex objects (Products) database (the “SCIP database”).
−Removed: The SCIP database was established under the WFD and will be managed by the European Chemicals Agency.
+Added: As part of the Circular Economy Action Plan, the European Commission amended the EU Waste Framework Directive (“WFD”) to include a number of measures related to waste prevention and recycling, whereby we are responsible for submitting product data to a database of hazardous substances established under the WFD and managed by the European Chemicals Agency.
We expect to incur costs in order to comply with this new requirement.
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Our failure to comply with these and future environmental rules and regulations could result in reduced sales of our products, increased costs, substantial product inventory write-offs, reputational damage, penalties and other sanctions.
−Removed: A portion of our revenue is generated by sales to government organizations, which are subject to a number of challenges and risks.
−Removed: Sales to U.S.
−Removed: and foreign federal, state and local governmental agency end-customers have accounted for a portion of our revenue in past periods, and we may in the future increase sales to government organizations.
−Removed: Sales to government organizations are subject to a number of risks.
−Removed: Selling to government organizations can be highly competitive, expensive and time consuming, often requiring significant upfront time and expense, with long sales cycles and without any assurance of winning a sale.
−Removed: Government demand, sales and payment for our products and services may be negatively impacted by numerous factors and requirements unique to selling to government agencies, such as:
−Removed: • public sector budgetary cycles;
−Removed: • funding authorizations and requirements unique to government agencies, with funding or purchasing reductions or delays adversely affecting public sector demand for our products;
−Removed: • geopolitical matters, including tariff and trade disputes, government shutdowns and trade protectionism and other political dynamics that may adversely affect our ability to sell in certain locations or obtain the requisite permits and clearances required for certain purchases by government organizations of our products and services;
−Removed: • rules and regulations applicable to certain government sales, including GSA regulations.
−Removed: Government spending may also be negatively impacted by the COVID-19 pandemic.
−Removed: The rules and regulations applicable to sales to government organizations may also negatively impact sales to other organizations.
−Removed: To date, we have had limited traction in sales to U.S.
−Removed: government agencies, and any future sales to government organizations is uncertain.
−Removed: Government organizations may have contractual or other legal rights to terminate contracts with our distributors and resellers for convenience or due to a default, and any such termination may adversely impact our future results of operations.
−Removed: For example, if the distributor receives a significant portion of its revenue from sales to such government organization, the financial health of the distributor could be substantially harmed, which could negatively affect our future sales to such distributor.
−Removed: Governments routinely investigate, review and audit government vendors’ administrative and other processes, and any unfavorable investigation, audit, other review or unfavorable determination related to any government clearance of certification could result in the government’s refusing to continue buying our products and services, a limitation and reduction of government purchases of our products and services, a reduction of revenue or fines, or civil or criminal liability if the investigation, audit or other review uncovers improper, illegal or otherwise concerning activities.
−Removed: Any such penalties could adversely impact our results of operations in a material way.
−Removed: Further, any refusal to grant certain certifications or clearances by one government agency, or decision by one government agency that our products do not meet certain standards, may cause reputational harm and cause concern with other government agencies, governments and businesses and cause them to not buy our products and services and/or lead to a decrease in demand for our products generally.
−Removed: Finally, purchases by the U.S.
−Removed: government may require certain products to be manufactured in the United States and other high cost manufacturing locations, and we may not manufacture all products in locations that meet the requirements of the U.S.
−Removed: government and may not successfully obtain all certifications or clearances required for certain U.S.
−Removed: government purchases.
−Removed: False detection of vulnerabilities, viruses or security breaches or false identification of spam or spyware could adversely affect our business.
−Removed: Our FortiGuard and other security subscription services may falsely detect, report and act on viruses or other threats that do not actually exist.
−Removed: This risk is heightened by the inclusion of a “heuristics” feature in our products, which attempts to identify viruses and other threats not based on any known signatures but based on characteristics or anomalies that may indicate that a particular item is a threat.
−Removed: When our end-customers enable the heuristics feature in our products, the risk of falsely identifying viruses and other threats significantly increases.
−Removed: These false positives, while typical in the industry, may impair the perceived reliability of our products and may therefore adversely impact market acceptance of our products.
−Removed: Also, our FortiGuard and other security subscription services may falsely identify emails or programs as unwanted spam or potentially unwanted programs, or alternatively fail to properly identify unwanted emails or programs, particularly as spam emails or spyware are often designed to circumvent anti-spam or spyware products.
−Removed: Parties whose emails or programs are blocked by our products may seek redress against us for labeling them as spammers or spyware, or for interfering with their business.
−Removed: In addition, false identification of emails or programs as unwanted spam or potentially unwanted programs may reduce the adoption of our products.
−Removed: If our system restricts important files or applications based on falsely identifying them as malware or some other item that should be restricted, this could adversely affect end-customers’ systems and cause material system failures.
−Removed: In addition, our threat researchers periodically identify vulnerabilities in various third-party products, and, if these identifications are perceived to be incorrect or are in fact incorrect, this could harm our business.
−Removed: Any such false identification or perceived false identification of important files, applications or vulnerabilities could result in negative publicity, loss of end-customers and sales, increased costs to remedy any problem and costly litigation.
−Removed: Our ability to sell our products is dependent on the quality of our technical support services, and our failure to offer high-quality technical support services would have a material adverse effect on our sales and results of operations.
−Removed: Once our products are deployed within our end-customers’ networks, our end-customers depend on our technical support services, as well as the support of our channel partners and other third parties, to resolve any issues relating to our products.
−Removed: If we, our channel partners or other third parties do not effectively assist our customers in planning, deploying and operational proficiency for our products, succeed in helping our customers quickly resolve post-deployment issues and provide effective ongoing support, our ability to sell additional products and services to existing customers would be adversely affected and our reputation with potential customers could be damaged.
−Removed: Many large end-customers, and service provider or government organization end-customers, require higher levels of support than smaller end-customers because of their more complex deployments and more demanding environments and business models.
−Removed: If we, our channel partners or other third parties fail to
−Removed: meet the requirements of our larger end-customers, it may be more difficult to execute on our strategy to increase our penetration with large businesses, service providers and government organizations.
−Removed: Our failure to maintain high-quality support services would have a material adverse effect on our business, financial condition and results of operations and may subject us to litigation, reputational damage, loss of customers and additional costs.
+Added: Our inability to successfully acquire and integrate other businesses, products or technologies could seriously harm our competitive position.
+Added: In order to remain competitive, we may seek to acquire additional businesses, products, technologies or IP, such as patents.
+Added: For example, we acquired ShieldX in 2021.
+Added: F or any possible future acquisitions, we may not be successful in negotiating the terms of the acquisition or financing the acquisition.
+Added: For both our prior and future acquisitions, we may not be successful in effectively integrating the acquired business, product, technology or IP and sales force into our existing business and operations.
+Added: We may have difficulty incorporating acquired technologies, IP or products with our existing product lines, integrating reporting systems and procedures, and maintaining uniform standards, controls, procedures and policies.
+Added: For example, we may experience difficulties integrating an acquired company’s ERP or CRM systems, sales support and other processes and systems, with our current systems and processes.
+Added: Our due diligence may fail to identify all of the problems, liabilities or other shortcomings or challenges of an acquired business, product or technology, including issues with IP, product quality or product architecture, regulatory compliance practices, revenue recognition or other accounting practices or employee or customer issues, and we may not accurately forecast the financial impact of an acquisition.
+Added: In addition, any acquisitions we are able to complete may be dilutive to revenue growth and earnings and may not result in any synergies or other benefits we had expected to achieve, which could result in impairment charges that could be substantial.
+Added: We may have to pay cash, incur debt or issue equity securities to pay for any acquisition, each of which could affect our financial condition or the value of our capital stock and could result in dilution to our stockholders.
+Added: Acquisitions during a quarter may result in increased operating expenses and adversely affect our results of operations for that period or future periods compared to the results that we have previously forecasted or achieved.
+Added: Further, completing a potential acquisition and integrating acquired businesses, products, technologies or IP could significantly divert management time and resources.
+Added: Investors’ expectations of our performance relating to environmental, social and governance factors may impose additional costs and expose us to new risks.
+Added: There is an increasing focus from certain investors, employees and other stakeholders concerning corporate responsibility, specifically related to environmental, social and governance matters.
+Added: Some investors may use these factors to guide their investment strategies and, in some cases, may choose not to invest in us if they believe our policies relating to corporate responsibility are inadequate.
+Added: Third-party providers of corporate responsibility ratings and reports on companies have increased to meet growing investor demand for measurement of corporate responsibility performance.
+Added: The criteria by which our corporate responsibility practices are assessed may change, which could result in greater expectations of us and cause us to undertake costly initiatives to satisfy such new criteria.
+Added: If we elect not to or are unable to satisfy such new criteria, investors may conclude that our policies with respect to corporate social responsibility are inadequate.
+Added: We may face reputational damage in the event that our corporate social responsibility procedures or standards do not meet the standards set by various constituencies.
+Added: Furthermore, if our competitors’ corporate social responsibility performance is perceived to be better than ours, potential or current investors may elect to invest with our competitors instead.
+Added: In addition, in the event that we communicate certain initiatives and goals regarding environmental, social and governance matters, we could fail, or be perceived to fail, in our achievement of such initiatives or goals, or we could be criticized for the scope of such initiatives or goals.
+Added: If we fail to satisfy the expectations of investors, employees and other stakeholders or our initiatives are not executed as planned, our reputation and business, operating results and financial condition could be adversely impacted.
+Added: Risks Related to Finance, Accounting and Tax Matters
+Added: If our estimates or judgments relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our operating results could fall below expectations of securities analysts and investors, resulting in a decline in our stock price.
+Added: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes.
+Added: We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in this Quarterly Report on Form 10-Q, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
+Added: Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of securities analysts and investors, resulting in a decline in our stock price.
+Added: Significant assumptions and estimates used in preparing our condensed consolidated financial statements include those related to revenue recognition, deferred contract costs
+Added: and commission expense, valuation of inventory, accounting for business combination, contingent liabilities and accounting for income taxes.
+Added: We are exposed to fluctuations in currency exchange rates, which could negatively affect our financial condition and results of operations.
+Added: A significant portion of our operating expenses are incurred outside the United States.
+Added: These expenses are denominated in foreign currencies and are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Euro, Canadian dollar and British pound.
+Added: Additionally, fluctuations in the exchange rate of the Canadian dollar may negatively impact our development plans in Burnaby, Canada.
+Added: While we are not currently engaged in material hedging activities, we have been hedging currency exposures relating to certain balance sheet accounts through the use of forward exchange contracts.
+Added: If we stop hedging against any of these risks or if our attempts to hedge against these currency exposures are not successful, our financial condition and results of operations could be adversely affected.
+Added: Our sales contracts are primarily denominated in U.S.
+Added: dollars and therefore, while substantially all of our revenue is not subject to foreign currency risk, it does not serve as a hedge to our foreign currency-denominated operating expenses.
+Added: In addition, a strengthening of the U.S.
+Added: dollar may increase the real cost of our products to our customers outside of the United States, which may also adversely affect our financial condition and results of operations.
We could be subject to changes in our tax rates, the adoption of new U.S.
6 unchanged sentences
• transfer pricing adjustments;
+Added: • increases to the corporate tax rate, including the increase proposed in 2021;
• an increase in non-deductible expenses for tax purposes, including certain stock-based compensation expense;
4 unchanged sentences
We have open tax years that could be subject to the examination by the Internal Revenue Service (the “IRS”) and other tax authorities.
−Removed: We currently have ongoing tax audits in the United Kingdom, Canada and several other foreign jurisdictions.
+Added: We currently have ongoing tax audits in the United Kingdom, Canada, Germany and several other foreign jurisdictions.
The focus of all of these audits is the allocation of profit between our legal entities.
We regularly assess the likelihood of adverse outcomes resulting from such examinations to determine the adequacy of our provision for income taxes.
−Removed: Although we believe that our estimates are reasonable, the ultimate tax outcome may differ from the amounts recorded in our consolidated financial statements and may materially affect our financial results.
+Added: Although we believe that our estimates are reasonable, the ultimate tax outcome may differ from the amounts recorded in our condensed consolidated financial statements and may materially affect our financial results.
We may undertake corporate operating restructurings or transfers of assets that involve our group of foreign country subsidiaries through which we do business abroad, in order to maximize the operational and tax efficiency of our group structure.
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Forecasting our estimated annual effective tax rate is complex and subject to uncertainty, and there may be material differences between our forecasted and actual tax rates.
−Removed: Forecasts of our income tax position and effective tax rate are complex, subject to uncertainty and periodic updates because our income tax position for each year combines the effects of a mix of profits earned and losses incurred by us in various tax jurisdictions with a broad range of income tax rates, as well as changes in the valuation of deferred tax assets and liabilities, the impact of various accounting rules and changes to these rules and tax laws, the results of examinations by various
−Removed: tax authorities, and the impact of any acquisition, business combination or other reorganization or financing transaction.
+Added: Forecasts of our income tax position and effective tax rate are complex, subject to uncertainty and periodic updates because our income tax position for each year combines the effects of a mix of profits earned and losses incurred by us in various tax jurisdictions with a broad range of income tax rates, as well as changes in the valuation of deferred tax assets and liabilities, the impact of various accounting rules and changes to these rules and tax laws, the results of examinations by various tax authorities, and the impact of any acquisition, business combination or other reorganization or financing transaction.
To forecast our global tax rate, we estimate our pre-tax profits and losses by jurisdiction and forecast our tax expense by jurisdiction.
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and foreign tax rules.
+Added: For example, in April 2021, legislation was proposed that would increase the corporate tax rate to 28% from its current 21%.
+Added: If passed, this legislation would increase our tax rate in the United States.
As a multinational corporation, we conduct our business in many countries and are subject to taxation in many jurisdictions.
6 unchanged sentences
Due to our extensive international business activities, any changes in the taxation of such activities could increase our tax obligations in many countries and may increase our worldwide effective tax rate.
−Removed: Our inability to successfully acquire and integrate other businesses, products or technologies could seriously harm our competitive position.
−Removed: In order to remain competitive, we may seek to acquire additional businesses, products, technologies or IP, such as patents.
−Removed: For example, we closed our acquisitions of enSilo and CyberSponse in the fourth quarter of 2019, and we acquired OPAQ in July 2020.
−Removed: For any possible future acquisitions, we may not be successful in negotiating the terms of the acquisition or financing the acquisition.
−Removed: For both our prior and future acquisitions, we may not be successful in effectively integrating the acquired business, product, technology or IP and sales force into our existing business and operations.
−Removed: We may have difficulty incorporating acquired technologies, IP or products with our existing product lines, integrating reporting systems and procedures, and maintaining uniform standards, controls, procedures and policies.
−Removed: For example, we may experience difficulties integrating an acquired company’s ERP or CRM systems, sales support and other processes and systems, with our current systems and processes.
−Removed: Our due diligence may fail to identify all of the problems, liabilities or other shortcomings or challenges of an acquired business, product or technology, including issues with IP, product quality or product architecture, regulatory compliance practices, revenue recognition or other accounting practices or employee or customer issues, and we may not accurately forecast the financial impact of an acquisition.
−Removed: In addition, any acquisitions we are able to complete may be dilutive to revenue growth and earnings and may not result in any synergies or other benefits we had expected to achieve, which could result in impairment charges that could be substantial.
−Removed: We may have to pay cash, incur debt or issue equity securities to pay for any acquisition, each of which could affect our financial condition or the value of our capital stock and could result in dilution to our stockholders.
−Removed: Acquisitions during a quarter may result in increased operating expenses and adversely affect our results of operations for that period or future periods compared to the results that we have previously forecasted or achieved.
−Removed: Further, completing a potential acquisition and integrating acquired businesses, products, technologies or IP could significantly divert management time and resources.
−Removed: Our business is subject to the risks of warranty claims, product returns, product liability and product defects.
−Removed: Our products are very complex and, despite testing prior to their release, have contained and may contain undetected defects or errors, especially when first introduced or when new versions are released.
−Removed: Product errors have affected the performance and effectiveness of our products and could delay the development or release of new products or new versions of products, adversely affect our reputation and our end-customers’ willingness to buy products from us, result in litigation and disputes with customers and adversely affect market acceptance or perception of our products.
−Removed: Any such errors or delays in releasing new products or new versions of products or allegations of unsatisfactory performance could cause us to lose revenue or market share, increase our service costs, cause us to incur substantial costs in redesigning the products, cause us to lose significant end-customers, subject us to litigation, litigation costs and liability for damages and divert our resources from other tasks, any one of which could materially and adversely affect our business, results of operations and financial condition.
−Removed: Our products must successfully interoperate with products from other vendors.
−Removed: As a result, when problems occur in a network, it may be difficult to identify the sources of these problems.
−Removed: The occurrence of hardware and software errors, whether or not
−Removed: caused by our products, could delay or reduce market acceptance of our products and have an adverse effect on our business and financial performance, and any necessary revisions may cause us to incur significant expenses.
−Removed: The occurrence of any such problems could harm our business, financial condition and results of operations.
−Removed: Although we generally have limitation of liability provisions in our standard terms and conditions of sale, they may not fully or effectively protect us from claims if exceptions apply or if the provisions are deemed unenforceable, and in some circumstances we may be required to indemnify a customer in full, without limitation, for certain liabilities, including liabilities that are not contractually limited.
−Removed: The sale and support of our products also entail the risk of product liability claims.
−Removed: We maintain insurance to protect against certain claims associated with the use of our products, but our insurance coverage may not adequately cover any claim asserted against us, if at all, and in some instances may subject us to potential liability that is not contractually limited.
−Removed: In addition, even claims that ultimately are unsuccessful could result in our expenditure of funds in litigation and divert management’s time and other resources.
−Removed: Our business is subject to the risks of earthquakes, fire, power outages, typhoon, floods, virus outbreaks and other broad health-related challenges and other catastrophic events, and to interruption by manmade problems such as civil unrest, labor disruption, critical infrastructure attack and terrorism.
−Removed: A significant natural disaster, such as an earthquake, fire, power outage, flood, viral outbreak or other catastrophic event, could have a material adverse impact on our business, operating results and financial condition.
−Removed: Our corporate headquarters are located in the San Francisco Bay Area, a region known for seismic activity, and our research and development and data center in Burnaby, Canada, from which we deliver to customers our FortiGuard and other security subscription updates, is subject to the risk of flooding and is also in a region known for seismic activity.
−Removed: Any earthquake in the Bay Area or Burnaby, or flooding in Burnaby, could materially negatively impact our ability to provide products and services, such as FortiCare support and FortiGuard subscription services and could otherwise materially negatively impact our business.
−Removed: In addition, natural disasters could affect our manufacturing vendors, suppliers or logistics providers’ ability to perform services, such as obtaining product components and manufacturing products, or performing or assisting with shipments, on a timely basis, as well as our customers’ ability to order from us and our employees’ ability to perform their duties.
−Removed: For example, a typhoon in Taiwan could materially negatively impact our ability to ship products and could result in delays and reductions in billings and revenues, and the COVID-19 pandemic will negatively impact our ability to manufacture and ship products, possibly in a material way, and could result in delays and reductions in billings and revenues, also possibly in a material way.
−Removed: In the event our or our service providers’ information technology systems or manufacturing or logistics abilities are hindered by any of the events discussed above, shipments could be delayed, resulting in our missing financial targets, such as revenue and shipment targets, for a particular quarter.
−Removed: In addition, regional instability, civil unrest, labor disruptions, acts of terrorism and other geo-political unrest could cause disruptions in our business or the business of our manufacturers, logistics providers, partners or end-customers, or of the economy as a whole.
−Removed: Given our typical concentration of sales at the end of each quarter, any disruption in the business of our manufacturers, logistics providers, partners or end-customers that impacts sales at the end of our quarter could have a significant adverse impact on our quarterly results.
−Removed: To the extent that any of the above results in security risks to our customers, delays or cancellations of customer orders, the delay of the manufacture, deployment or shipment of our products or interruption or downtime of our services, our business, financial condition and results of operations would be adversely affected.
−Removed: Risks Related to Our Industry
−Removed: The network security market is rapidly evolving and the complex technology incorporated in our products makes them difficult to develop.
−Removed: If we do not accurately predict, prepare for and respond promptly to technological and market developments and changing end-customer needs, our competitive position and prospects may be harmed.
−Removed: The network security market is expected to continue to evolve rapidly.
−Removed: Moreover, many of our end-customers operate in markets characterized by rapidly changing technologies and business plans, which require them to add numerous network access points and adapt increasingly complex networks, incorporating a variety of hardware, software applications, operating systems and networking protocols.
−Removed: In addition, computer hackers and others who try to attack networks employ increasingly sophisticated techniques to gain access to and attack systems and networks.
−Removed: The technology in our products is especially complex because it needs to effectively identify and respond to new and increasingly sophisticated methods of attack, while minimizing the impact on network performance.
−Removed: Additionally, some of our new products and enhancements may require us to develop new hardware architectures and ASICs that involve complex, expensive and time-consuming research and development processes.
−Removed: For example, we enter into development agreements with third parties.
−Removed: If our contract development projects are not successfully completed, or are not completed in a timely fashion, our product development could be delayed and our business generally could suffer.
−Removed: Costs for contract development can be substantial and our profitability may be harmed if we are unable to recover these costs.
−Removed: Although the market expects rapid introduction of new products or product
−Removed: enhancements to respond to new threats, the development of these products is difficult and the timetable for commercial release and availability is uncertain and there can be long time periods between releases and availability of new products.
−Removed: We have in the past and may in the future experience unanticipated delays in the availability of new products and services and fail to meet previously announced timetables for such availability.
−Removed: If we do not quickly respond to the rapidly changing and rigorous needs of our end-customers by developing and releasing and making available on a timely basis new products and services or enhancements that can respond adequately to new security threats, our competitive position and business prospects may be harmed.
−Removed: Moreover, business models based on SaaS, either hosted or cloud-based services, have become increasingly in-demand by our end-customers and adopted by other providers, including our competitors.
−Removed: While we have introduced additional cloud-based products and services and will continue to do so, most of our platform is currently deployed on premise, and therefore, if customers demand that our platform be provided through a SaaS business model, we would be required to make additional investments in our infrastructure and personnel to be able to more fully provide our platform through a SaaS model in order to maintain the competitiveness of our platform.
−Removed: Such investments may involve expanding our data centers, servers and networks, and increasing our technical operations and engineering teams.
−Removed: These risks are compounded by the uncertainty concerning the future viability of SaaS business models and the future demand for such models by customers.
−Removed: Additionally, if we are unable to meet the demand to provide our services through a SaaS model, we may lose customers to competitors.
−Removed: Our uniform resource locator (“URL”) database for our web filtering service may fail to keep pace with the rapid growth of URLs and may not categorize websites in accordance with our end-customers ’ expectations.
−Removed: The success of our web filtering service depends on the breadth and accuracy of our URL database.
−Removed: Although our URL database currently catalogs millions of unique URLs, it contains only a portion of the URLs for all of the websites that are available on the internet.
−Removed: In addition, the total number of URLs and software applications is growing rapidly, and we expect this rapid growth to continue in the future.
−Removed: Accordingly, we must identify and categorize content for our security risk categories at an extremely rapid rate.
−Removed: Our database and technologies may not be able to keep pace with the growth in the number of websites, especially the growing amount of content utilizing foreign languages and the increasing sophistication of malicious code and the delivery mechanisms associated with spyware, phishing and other hazards associated with the internet.
−Removed: Further, the ongoing evolution of the internet and computing environments will require us to continually improve the functionality, features and reliability of our web filtering function.
−Removed: Any failure of our databases to keep pace with the rapid growth and technological change of the internet could impair the market acceptance of our products, which in turn could harm our business, financial condition and results of operations.
−Removed: In addition, our web filtering service may not be successful in accurately categorizing internet and application content to meet our end-customers’ expectations.
−Removed: We rely upon a combination of automated filtering technology and human review to categorize websites and software applications in our proprietary databases.
−Removed: Our end-customers may not agree with our determinations that particular URLs should be included or not included in specific categories of our databases.
−Removed: In addition, it is possible that our filtering processes may place material that is objectionable or that presents a security risk in categories that are generally unrestricted by our customers’ internet and computer access policies, which could result in such material not being blocked from the network.
−Removed: Conversely, we may miscategorize websites such that access is denied to websites containing information that is important or valuable to our customers.
−Removed: Any miscategorization could result in customer dissatisfaction and harm our reputation.
−Removed: Any failure to effectively categorize and filter websites according to our end-customers’ and channel partners’ expectations could impair the growth of our business.
−Removed: If our new products and product enhancements do not achieve sufficient market acceptance, our results of operations and competitive position will suffer.
−Removed: We spend substantial amounts of time and money to acquire and develop internally new products and enhanced versions of our existing products in order to incorporate additional features, improved functionality or other enhancements in order to meet our customers’ rapidly evolving demands for network security in our highly competitive industry.
−Removed: When we develop a new product or an enhanced version of an existing product, we typically incur expenses and expend resources upfront to market, promote and sell the new offering.
−Removed: Therefore, when we develop and introduce new or enhanced products, they must achieve high levels of market acceptance in order to justify the amount of our investment in developing and bringing them to market.
−Removed: Our new products or product enhancements could fail to attain sufficient market acceptance for many reasons, including:
−Removed: • delays in releasing our new products or enhancements to the market;
−Removed: • failure to accurately predict market demand in terms of product functionality and to supply products that meet this demand in a timely fashion;
−Removed: • failure to have the appropriate research and development expertise and focus to make our top strategic fabric products successful;
−Removed: • failure of our sales force and partners to focus on selling new products;
−Removed: • inability to interoperate effectively with the networks or applications of our prospective end-customers;
−Removed: • inability to protect against new types of attacks or techniques used by hackers;
−Removed: • actual or perceived defects, vulnerabilities, errors or failures;
−Removed: • negative publicity about their performance or effectiveness;
−Removed: • introduction or anticipated introduction of competing products by our competitors;
−Removed: • poor business conditions for our end-customers, causing them to delay IT purchases;
−Removed: • changes to the regulatory requirements around security;
−Removed: • reluctance of customers to purchase products incorporating open source software.
−Removed: If our new products or enhancements do not achieve adequate acceptance in the market, our competitive position will be impaired, our revenue will be diminished and the effect on our operating results may be particularly acute because of the significant research, development, marketing, sales and other expenses we incurred in connection with the new product or enhancement.
−Removed: Demand for our products may be limited by market perception that individual products from one vendor that provide multiple layers of security protection in one product are inferior to point solution network security solutions from multiple vendors.
−Removed: Sales of many of our products depend on increased demand for incorporating broad security functionality into one appliance.
−Removed: If the market for these products fails to grow as we anticipate, our business will be seriously harmed.
−Removed: Target customers may view “all-in-one” network security solutions as inferior to security solutions from multiple vendors because of, among other things, their perception that such products of ours provide security functions from only a single vendor and do not allow users to choose “best-of-breed” defenses from among the wide range of dedicated security applications available.
−Removed: Target customers might also perceive that, by combining multiple security functions into a single platform, our solutions create a “single point of failure” in their networks, which means that an error, vulnerability or failure of our product may place the entire network at risk.
−Removed: In addition, the market perception that “all-in-one” solutions may be suitable only for small and medium-sized businesses because such solution lacks the performance capabilities and functionality of other solutions may harm our sales to large businesses, service provider and government organization end-customers.
−Removed: If the foregoing concerns and perceptions become prevalent, even if there is no factual basis for these concerns and perceptions, or if other issues arise with our market in general, demand for multi-security functionality products could be severely limited, which would limit our growth and harm our business, financial condition and results of operations.
−Removed: Further, a successful and publicized targeted attack against us, exposing a “single point of failure,” could significantly increase these concerns and perceptions and may harm our business and results of operations.
−Removed: We face intense competition in our market and we may lack sufficient financial or other resources to maintain or improve our competitive position.
−Removed: The market for network security products is intensely competitive and we expect competition to intensify in the future.
−Removed: We face many competitors across the different cybersecurity markets.
−Removed: Our competitors include companies such as Barracuda, Check Point, Cisco, CrowdStrike, F5 Networks, FireEye, Forcepoint, Imperva, Juniper, McAfee, Palo Alto Networks, Proofpoint, SonicWALL, Sophos, Trend Micro and Zscaler.
−Removed: Many of our existing and potential competitors enjoy substantial competitive advantages such as:
−Removed: • greater name recognition and longer operating histories;
−Removed: • larger sales and marketing budgets and resources;
−Removed: • broader distribution and established relationships with distribution partners and end-customers;
−Removed: • access to larger customer bases;
−Removed: • greater customer support resources;
−Removed: • greater resources to make acquisitions;
−Removed: • lower labor and development costs;
−Removed: • substantially greater financial, technical and other resources.
−Removed: In addition, some of our larger competitors have substantially broader product offerings, and leverage their relationships based on other products or incorporate functionality into existing products in a manner that discourages customers from purchasing our products.
−Removed: These larger competitors often have broader product lines and market focus, and are in a better position to withstand any significant reduction in capital spending by end-customers in these markets.
−Removed: Therefore, these competitors will not be as susceptible to downturns in a particular market.
−Removed: Also, many of our smaller competitors that specialize in providing protection from a single type of security threat are often able to deliver these specialized security products to the market more quickly than we can.
−Removed: Conditions in our markets could change rapidly and significantly as a result of technological advancements or continuing market consolidation.
−Removed: Our competitors and potential competitors may also be able to develop products or services, and leverage new business models, that are equal or superior to ours, achieve greater market acceptance of their products and services, and increase sales by utilizing different distribution channels than we do.
−Removed: For example, certain of our competitors are focusing on delivering security services from the cloud.
−Removed: In addition, current or potential competitors may be acquired by third parties with greater available resources, and new competitors may arise pursuant to acquisitions of network security companies or divisions.
−Removed: As a result of such acquisitions, competition in our market may continue to increase and our current or potential competitors might be able to adapt more quickly to new technologies and customer needs, devote greater resources to the promotion or sale of their products and services, initiate or withstand substantial price competition, take advantage of acquisition or other opportunities more readily, or develop and expand their product and service offerings more quickly than we do.
−Removed: In addition, our competitors may bundle products and services competitive with ours with other products and services.
−Removed: Customers may accept these bundled products and services rather than separately purchasing our products and services.
−Removed: As our customers refresh the security products bought in prior years, they may seek to consolidate vendors, which may result in current customers choosing to purchase products from our competitors on an ongoing basis.
−Removed: Due to budget constraints or economic downturns, organizations may be more willing to incrementally add solutions to their existing network security infrastructure from competitors than to replace it with our solutions.
−Removed: These competitive pressures in our market or our failure to compete effectively may result in price reductions, fewer customer orders, reduced revenue and gross margins and loss of market share.
−Removed: If functionality similar to that offered by our products is incorporated into existing network infrastructure products, organizations may decide against adding our appliances to their network, which would have an adverse effect on our business.
−Removed: Large, well-established providers of networking equipment such as Cisco, F5 Networks and Juniper offer, and may continue to introduce, network security features that compete with our products, either in standalone security products or as additional features in their network infrastructure products.
−Removed: The inclusion of, or the announcement of an intent to include, functionality perceived to be similar to that offered by our security solutions in networking products that are already generally accepted as necessary components of network architecture may have an adverse effect on our ability to market and sell our products.
−Removed: Furthermore, even if the functionality offered by network infrastructure providers is more limited than our products, a significant number of customers may elect to accept such limited functionality in lieu of adding appliances from an additional vendor such as us.
−Removed: Many organizations have invested substantial personnel and financial resources to design and operate their networks and have established deep relationships with other providers of networking products, which may make them reluctant to add new components to their networks, particularly from other vendors such as us.
−Removed: In addition, an organization’s existing vendors or new vendors with a broad product offering may be able to offer concessions that we are not able to match because we currently offer only network security products and have fewer resources than many of our competitors.
−Removed: If organizations are
−Removed: reluctant to add additional network infrastructure from new vendors or otherwise decide to work with their existing vendors, our business, financial condition and results of operations will be adversely affected.
−Removed: Risks Related to Intellectual Property
−Removed: Our proprietary rights may be difficult to enforce, which could enable others to copy or use aspects of our products without compensating us.
−Removed: We rely primarily on patent, trademark, copyright and trade secrets laws and confidentiality procedures and contractual provisions to protect our technology.
−Removed: Valid patents may not issue from our pending applications, and the claims eventually allowed on any patents may not be sufficiently broad to protect our technology or products.
−Removed: Any issued patents may be challenged, invalidated or circumvented, and any rights granted under these patents may not actually provide adequate defensive protection or competitive advantages to us.
−Removed: Patent applications in the United States are typically not published until at least 18 months after filing, or, in some cases, not at all, and publications of discoveries in industry-related literature lag behind actual discoveries.
−Removed: We cannot be certain that we were the first to make the inventions claimed in our pending patent applications or that we were the first to file for patent protection.
−Removed: Additionally, the process of obtaining patent protection is expensive and time-consuming, and we may not be able to prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner.
−Removed: In addition, recent changes to the patent laws in the United States may bring into question the validity of certain software patents and may make it more difficult and costly to prosecute patent applications.
−Removed: As a result, we may not be able to obtain adequate patent protection or effectively enforce our issued patents.
−Removed: Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or obtain and use information that we regard as proprietary.
−Removed: We generally enter into confidentiality or license agreements with our employees, consultants, vendors and customers, and generally limit access to and distribution of our proprietary information.
−Removed: However, we cannot guarantee that the steps taken by us will prevent misappropriation of our technology.
−Removed: Policing unauthorized use of our technology or products is difficult.
−Removed: In addition, the laws of some foreign countries do not protect our proprietary rights to as great an extent as the laws of the United States, and many foreign countries do not enforce these laws as diligently as government agencies and private parties in the United States.
−Removed: From time to time, legal action by us may be necessary to enforce our patents and other IP rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement or invalidity.
−Removed: Such litigation could result in substantial costs and diversion of resources and could negatively affect our business, operating results and financial condition.
−Removed: If we are unable to protect our proprietary rights (including aspects of our software and products protected other than by patent rights), we may find ourselves at a competitive disadvantage to others who need not incur the additional expense, time and effort required to create the innovative products that have enabled us to be successful to date.
−Removed: Our products contain third-party open source software components, and failure to comply with the terms of the underlying open source software licenses could restrict our ability to sell our products.
−Removed: Our products contain software modules licensed to us by third-party authors under “open source” licenses, including the GNU Public License, the GNU Lesser Public License, the BSD License, the Apache License, the MIT X License and the Mozilla Public License.
−Removed: From time to time, there have been claims against companies that distribute or use open source software in their products and services, asserting that open source software infringes the claimants’ IP rights.
−Removed: We could be subject to suits by parties claiming infringement of IP rights in what we believe to be licensed open source software.
−Removed: Use and distribution of open source software may entail greater risks than use of third-party commercial software, as, for example, open source licensors generally do not provide warranties or other contractual protections regarding infringement claims or the quality of the code.
−Removed: Some open source licenses contain requirements that we make available source code for modifications or derivative works we create based upon the type of open source software we use.
−Removed: If we combine our proprietary software with open source software in a certain manner, we could, under certain open source licenses, be required to release the source code of our proprietary software to the public.
−Removed: This would allow our competitors to create similar products with lower development effort and time and ultimately could result in a loss of product sales for us.
−Removed: Although we monitor our use of open source software to avoid subjecting our products to conditions we do not intend, the terms of many open source licenses have not been interpreted by U.S.
−Removed: courts, and there is a risk that these licenses could be construed in a way that, for example, could impose unanticipated conditions or restrictions on our ability to commercialize our products.
−Removed: In this event, we could be required to seek licenses from third parties to continue offering our products, to make our proprietary code generally available in source code form, to re-engineer our products or to discontinue the sale of our products if re-engineering could not be accomplished on a timely basis, any of which requirements could adversely affect our business, operating results and financial condition.
−Removed: Claims by others that we infringe their proprietary technology or other litigation matters could harm our business.
−Removed: Patent and other IP disputes are common in the network security industry.
−Removed: Third parties are currently asserting, have asserted and may in the future assert claims of infringement of IP rights against us.
−Removed: Third parties have also asserted such claims against our end-customers or channel partners whom we may indemnify against claims that our products infringe the IP rights of third parties.
−Removed: As the number of products and competitors in our market increases and overlaps occur, infringement claims may increase.
−Removed: Any claim of infringement by a third party, even those without merit, could cause us to incur substantial costs defending against the claim and could distract our management from our business.
−Removed: In addition, litigation may involve patent holding companies, non-practicing entities or other adverse patent owners who have no relevant product revenue and against whom our own patents may therefore provide little or no deterrence or protection.
−Removed: Although third parties may offer a license to their technology, the terms of any offered license may not be acceptable, and the failure to obtain a license or the costs associated with any license could cause our business, financial condition and results of operations to be materially and adversely affected.
−Removed: In addition, some licenses may be non-exclusive and, therefore, our competitors may have access to the same technology licensed to us.
−Removed: Alternatively, we may be required to develop non-infringing technology, which could require significant time, effort and expense, and may ultimately not be successful.
−Removed: Furthermore, a successful claimant could secure a judgment or we may agree to a settlement that prevents us from distributing certain products or performing certain services or that requires us to pay substantial damages (including treble damages if we are found to have willfully infringed such claimant’s patents or copyrights), royalties or other fees.
−Removed: Any of these events could seriously harm our business, financial condition and results of operations.
−Removed: From time to time we are subject to lawsuits claiming patent infringement.
−Removed: We are also subject to other litigation in addition to patent infringement claims, such as employment-related litigation and disputes, as well as general commercial litigation, and could become subject to other forms of litigation and disputes, including stockholder litigation.
−Removed: If we are unsuccessful in defending any such claims, our operating results and financial condition and results may be materially and adversely affected.
−Removed: For example, we may be required to pay substantial damages and could be prevented from selling certain of our products.
−Removed: Litigation, with or without merit, could negatively impact our business, reputation and sales in a material fashion.
−Removed: We have several ongoing patent lawsuits, certain companies have sent us demand letters proposing that we license certain of their patents, and organizations have sent letters demanding that we provide indemnification for patent claims.
−Removed: As two examples of the ongoing patent lawsuits against us, one such patent lawsuit by British Telecommunications plc was filed in federal court in Delaware in July 2018, and a second such lawsuit by Finjan, Inc.
−Removed: was filed in federal court in California in October 2018, and additional patent lawsuits have been filed against us since.
−Removed: Given this and the proliferation of lawsuits in our industry and other similar industries by both non-practicing entities and operating entities, and recent non-practicing entity and operating entity patent litigation against other companies in the security space, we expect that we will be sued for patent infringement in the future, regardless of the merits of any such lawsuits.
−Removed: The cost to defend such lawsuits and any settlement payment or adverse result in such lawsuits could have a material adverse effect on our results of operations and financial condition.
−Removed: We rely on the availability of third-party licenses.
−Removed: Many of our products include software or other IP licensed from third parties.
−Removed: It may be necessary in the future to renew licenses relating to various aspects of these products or to seek new licenses for existing or new products.
−Removed: Licensors may claim we owe them additional license fees for past and future use of their software and other IP or that we cannot utilize such software or IP in our products going forward.
−Removed: There can be no assurance that the necessary licenses would be available on acceptable terms, if at all.
−Removed: The inability to obtain certain licenses or other rights or to obtain such licenses or rights on favorable terms or for reasonable pricing, or the need to engage in litigation regarding these matters, could result in delays in product releases until equivalent technology can be identified, licensed or developed, if at all, and integrated into our products and may result in significant license fees and have a material adverse effect on our business, operating results, and financial condition.
−Removed: Moreover, the inclusion in our products of software or other IP licensed from third parties on a non-exclusive basis could limit our ability to differentiate our products from those of our competitors.
−Removed: We also rely on technologies licensed from third parties in order to operate functions of our business.
−Removed: If any of these third parties allege that we have not properly paid for such licenses or that we have improperly used the technologies under such licenses, we may need to pay additional fees or obtain new licenses, and such licenses may not be available on terms acceptable to us or at all or may be costly.
−Removed: In any such case, or if we were required to redesign our internal operations to function with new technologies, our business, results of operations and financial condition could be harmed.
Risks Related to Ownership of Our Common Stock
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If compliance with these various legal and regulatory requirements diverts our management’s attention from other business concerns, it could have a material adverse effect on our business, financial condition and results of operations.
−Removed: Sarbanes-Oxley requires, among other things, that we assess the effectiveness of our internal control over financial reporting annually, and of our disclosure controls and procedures quarterly.
+Added: Sarbanes-Oxley requires, among other things, that we assess the effectiveness of our internal control over financial reporting annually, and of our disclosure con trols and procedures quarterly.
Although our most recent assessment, testing and evaluation resulted in our conclusion that, as of December 31, 2020, our internal controls over financial reporting were effective, we cannot predict the outcome of our testing in 2021 or future periods.
−Removed: We may incur additional expenses and commitment of management’s time in connection with further evaluations, both of which could materially increase our operating expenses and accordingly reduce our operating results.
−Removed: Changes in financial accounting standards may cause adverse unexpected fluctuations and affect our reported results of operations.
−Removed: A change in accounting standards or practices, and varying interpretations of existing or new accounting pronouncements, such as changes to standards related to accounting for leases (which became effective for us on January 1, 2019), as well as the significant costs incurred or that may be incurred to adopt and to comply with these new pronouncements, could have a significant effect on our reported financial results or the way we conduct our business.
−Removed: If we do not ensure that our systems and processes are aligned with the new standards, we could encounter difficulties generating quarterly and annual financial statements in a timely manner, which could have an adverse effect on our business, our ability to meet our reporting obligations and compliance with internal control requirements.
−Removed: The lease standard is principles based and interpretation of those principles may vary from company to company based on their unique circumstances.
−Removed: Management will continue to make judgments and assumptions based on our interpretation of the new standard.
−Removed: If our circumstances change or if actual circumstances differ from our assumptions, our operating result may be adversely affected and could fall below our publicly announced guidance or the expectations of securities analysts and investors, resulting in a decline in the market price of our common stock.
−Removed: Further, equity investments are now required to be measured at fair value (with subsequent changes in fair value recognized in net income), which may increase the volatility of our earnings
+Added: We may incur additional expenses and commitment of management’s time in connection with further ev aluations, both of which could materially increase our operating expenses and accordingly reduce our operating results.
If securities or industry analysts stop publishing research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
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The trading price of our common stock may be volatile.
−Removed: The market price of our common stock may be subject to wide fluctuations in response to, among other things, the risk factors described in this periodic report, news about us and our financial results, the impact of the COVID-19 pandemic, news about our competitors and their results, and other factors such as rumors or fluctuations in the valuation of companies perceived by investors to be comparable to us.
−Removed: For example, during the nine months ended September 30, 2020, the closing price of our common stock ranged from $75.70 to $149.60 per share.
+Added: The market price of our common stock may be subject to wide fluctuations in response to, among other things, the risk factors described in this pe riodic report, news about us and our financial results, the impact of the COVID-19 pandemic, news about our competitors and their results, and other factors such as rumors or fluctuations in the valuation of companies perceived by investors to be comparable to us.
+Added: For example, during the three months ended March 31, 2021, the closing price of our common stock ranged from $138.11 to $192.03 per share.
Furthermore, stock markets have experienced price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies.
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The extent to which the COVID-19 pandemic may impact the market price of our common stock is unclear, and the market price of our common stock may fluctuate significantly as a result of the COVID-19 pandemic.
−Removed: Share repurchases under our Repurchase Program could increase the volatility of the trading price of our common stock, could diminish our cash reserves, could occur at non-optimal prices and may not result in the most effective use of our capital.
+Added: Share repurchases under our Repurchase Program (the “Repurchase Program”) could increase the volatility of the trading price of our common stock, could diminish our cash reserves, could occur at non-optimal prices and may not result in the most effective use of our capital.
In July 2020, our board of directors approved a $500.0 million increase in the authorized stock repurchase amount under the Repurchase Program and extended the term of the Repurchase Program to February 28, 2022, bringing the aggregate amount authorized to be repurchased to $3.0 billion.
−Removed: As of September 30, 2020, $1.05 billion remained available for future share repurchases under the Repurchase Program.
+Added: As of March 31, 2021, $1.01 billion remained available for future share repurchases under the Repurchase Program.
Share repurchases under the Repurchase Program could affect the price of our common stock, increase stock price volatility and diminish our cash reserves.
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Any person or entity purchasing or otherwise acquiring any interest in any of our securities shall be deemed to have notice of and consented to this provision.
−Removed: This provision, as well as provisions providing that certain litigation matters may only be brought against us in state or federal courts in the State of Delaware, may limit a stockholder’s ability to bring a claim in a judicial
−Removed: forum that it finds favorable for disputes with us or any of our directors, officers or other employees, which may discourage lawsuits against us and our directors, officers and other employees.
+Added: This provision, as well as provisions providing that certain litigation matters may only be brought against us in state or federal courts in the State of Delaware, may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers or other employees, which may discourage lawsuits against us and our directors, officers and other employees.
As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation Law, which prevents stockholders holding more than 15% of our outstanding common stock from engaging in certain business combinations without approval of the holders of a substantial majority of all of our outstanding common stock.
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Further, we may incur significant expenses in retaining professionals to advise and assist us on activist stockholder matters, including legal, financial, communications advisors and solicitation experts, which may negatively impact our future financial results.
+Added: General Risks
+Added: Global economic uncertainty and weakening product demand caused by political instability and conflict could adversely affect our business and financial performance.
+Added: Economic uncertainty in various global markets caused by political instability and conflict and economic challenges caused by the COVID-19 pandemic has resulted, and may continue to result, in weakened demand for our products and services and difficulty in forecasting our financial results and managing inventory levels.
+Added: Political developments impacting government spending and international trade, including potential government shutdowns and trade disputes and tariffs, may negatively impact markets and cause weaker macro-economic conditions.
+Added: The effects of these events may continue due to potential U.S.
+Added: government shutdowns and the transition in administrations, and the United States’ ongoing trade disputes with China and other countries.
+Added: The continuing effect of any or all of these events could adversely impact demand for our products, harm our operations and weaken our financial results.
+Added: Our business is subject to the risks of earthquakes, fire, power outages, typhoon, floods, virus outbreaks and other broad health-related challenges and other catastrophic events, and to interruption by manmade problems such as civil unrest, labor disruption, critical infrastructure attack and terrorism.
+Added: A significant natural disaster, such as an earthquake, fire, power outage, flood, viral outbreak or other catastrophic event, could have a material adverse impact on our business, operating results and financial condition.
+Added: Our corporate headquarters are located in the San Francisco Bay Area, a region known for seismic activity, and our research and development and data center in Burnaby, Canada, from which we deliver to customers our FortiGuard and other security subscription updates, is subject to the risk of flooding and is also in a region known for seismic activity.
+Added: Any earthquake in the Bay Area or Burnaby, or flooding in Burnaby, could materially negatively impact our ability to provide products and services, such as FortiCare support and FortiGuard subscription services and could otherwise materially negatively impact our business.
+Added: In addition, natural disasters could affect our manufacturing vendors, suppliers or logistics providers’ ability to perform services, such as obtaining product components and manufacturing products, or performing or assisting with shipments, on a timely basis, as well as our customers’ ability to order from us and our employees’ ability to perform their duties.
+Added: For example, a typhoon in Taiwan could materially negatively impact our ability to ship products and could result in delays and reductions in billings and revenues, and the COVID-19 pandemic will negatively impact our ability to manufacture and ship products, possibly in a material way, and could result in delays and reductions in billings and revenues, also possibly in a material way.
+Added: In the event our or our service providers’ information technology systems or manufacturing or logistics abilities are hindered by any of the events discussed above, shipments could be delayed, resulting in our missing financial targets, such as revenue and shipment targets, for a particular quarter.
+Added: In addition, regional instability, civil unrest, labor disruptions, acts of terrorism and other geo-political unrest could cause disruptions in our business or the business of our manufacturers, logistics providers, partners or end-customers, or of the economy as a whole.
+Added: Given our typical concentration of sales at the end of each quarter, any disruption in the business of our manufacturers, logistics providers, partners or end-customers that impacts sales at the end of our quarter could have a significant adverse impact on our quarterly results.
+Added: To the extent that any of the above results in security risks to our customers, delays or cancellations of customer orders, the delay of the manufacture, deployment or shipment of our products or interruption or downtime of our services, our business, financial condition and results of operations would be adversely affected.
+Added: Changes in financial accounting standards may cause adverse unexpected fluctuations and affect our reported results of operations.
+Added: A change in accounting standards or practices, and varying interpretations of existing or new accounting pronouncements, such as changes to standards related to accounting for credit losses on financial instruments (which became effective for us on January 1, 2020), as well as significant costs incurred or that may be incurred to adopt and to comply with these new pronouncements, could have a significant effect on our reported financial results or the way we conduct our business.
+Added: If we do not ensure that our systems and processes are aligned with the new standards, we could encounter difficulties generating quarterly and annual financial statements in a timely manner, which could have an adverse effect on our business, our ability to meet our reporting obligations and compliance with internal control requirements.
+Added: Management will continue to make judgments and assumptions based on our interpretation of new standards.
+Added: If our circumstances change or if actual circumstances differ from our assumptions, our operating results may be adversely affected and could fall below our publicly announced guidance or the expectations of securities analysts and investors, resulting in a decline in the market price of our common stock.
+Added: Further, equity investments are required to be measured at fair value (with subsequent changes in fair value recognized in net income), which may increase the volatility of our earnings.
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.