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Evaluation of Disclosure Controls and Procedures
−Removed: Based on an evaluation under the supervision and with the participation of our management (including our Chief Executive Officer and Chief Financial Officer), our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.
+Added: Based on an evaluation under the supervision and with the participation of our management (including our Chief Executive Officer and Chief Financial Officer), our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.
Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
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Legal Pro ceedings
−Removed: The information set forth under Note 8.
−Removed: Commitments and Contingencies , in the Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q, is incorporated herein by reference.
−Removed: For an additional discussion of certain risks associated with legal proceedings, see the section entitled “Risk Factors”
−Removed: in Part II, Item 1A of this Quarterly Report on Form 10-Q.
+Added: The information set forth under Note 8, Commitments and Contingencies , in the Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q, is incorporated herein by reference.
+Added: For an additional discussion of certain risks associated with legal proceedings, see the section entitled “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q.
Risk F actors
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Risks Related to our Business, Industry and Operations
−Removed: Accurately managing our sales channel inventory and product mix within the current environment is challenging, and we have, and may in the future, incur costs associated with excess inventory, or lose sales from having too few products.
−Removed: To remain competitive and stimulate consumer demand, we must successfully manage new product introductions and transitions of products and services.
+Added: • Optimizing our channel partners' inventory levels and product mix within the current environment is challenging, and we have, and may in the future, incur costs associated with excess inventory, or lose sales from having too few products.
+Added: • To remain competitive and stimulate consumer and business demand, we must successfully manage new product introductions and transitions of products and services.
• Investment in new business strategies could disrupt our ongoing business, present risks not originally contemplated and materially adversely affect our business, reputation, results of operations and financial condition.
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• We expect our operating results to fluctuate on a quarterly and annual basis, which could cause our stock price to fluctuate or decline.
−Removed: Changes in trade policy in the United States and other countries, including the imposition of tariffs and the resulting consequences, may adversely impact our business, results of operations and financial condition.
−Removed: If disruptions in our transportation network continue to occur or our shipping costs substantially increase again in the future, we may be unable to sell or timely deliver our products, and our net revenue and gross margin could decrease.
+Added: • Changes in trade policy in the United States and other countries may adversely impact our business, results of operations and financial condition.
+Added: • If disruptions in our transportation network continue to occur or our shipping costs substantially increase, we may be unable to sell or timely deliver our products, and our net revenue and gross margin could decrease.
• Expansion of our operations and infrastructure may strain our operations and increase our operating expenses.
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• Product security vulnerabilities, system security risks, data protection breaches, cyber-attacks and improper use of artificial intelligence (“AI”) tools, could disrupt our products, services, internal operations or information technology systems, and any such disruption could increase our expenses, damage our reputation, harm our business and adversely affect our stock price.
+Added: • If we are unable to successfully leverage AI technology to automate and drive efficiencies in our operations and products and services, our business, reputation, results of operations and financial condition could be harmed.
• We make substantial investments in software research and development and unsuccessful investments could materially adversely affect our business, financial condition and results of operations.
• If our products contain defects or errors, we could incur significant unexpected expenses, experience product returns and lost sales, experience product recalls, suffer damage to our brand and reputation, and be subject to product liability or other claims.
−Removed: Our user growth, engagement, and monetization of our subscription services on mobile devices depend upon effective operation with mobile operating systems, networks, technologies, products, and standards that we do not control.
+Added: • Our user growth, engagement, and monetization of our subscription services depend upon effective operation with mobile operating systems, networks, technologies, products, and standards that we do not control.
• If we are unable to secure and protect our intellectual property rights, our ability to compete could be harmed.
Financial, Legal, Regulatory and Tax Compliance Risks, Including Recent Impairment Charges
−Removed: We are currently involved in numerous litigation matters and may in the future become involved in additional litigation.
+Added: • We are currently involved in litigation matters and may in the future become involved in additional litigation.
• We have been exposed to and may in the future be exposed to adverse currency exchange rate fluctuations in jurisdictions where we transact in local currency, which could harm our financial results and cash flows.
−Removed: We are exposed to the credit risk of some of our customers and to credit exposures, including bank failures, in weakened markets.
+Added: • We are exposed to the credit risk of some of our customers and to credit exposures in weakened markets.
• Changes in tax laws or exposure to additional income tax liabilities could affect our future profitability.
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• Governmental regulations of imports or exports affecting Internet security could affect our net revenue.
−Removed: If our goodwill and intangible assets become impaired, as occurred in 2022 and 2023, we may be required to record a significant charge to earnings.
+Added: • If our goodwill becomes impaired, as occurred in 2022, we may be required to record a significant charge to earnings.
General Risk Factors
+Added: • If we lose the services of our key personnel, we may not be able to execute our business strategy effectively.
• Global economic conditions could materially adversely affect our revenue and results of operations.
−Removed: If we lose the services of our Chairman and Chief Executive Officer, Patrick C.S.
−Removed: Lo, or our other key personnel, we may not be able to execute our business strategy effectively.
• Political events, war, terrorism, public health issues, natural disasters, sudden changes in trade and immigration policies, and other circumstances could materially adversely affect us.
• Our stock price has experienced recent volatility and may be volatile in the future and your investment in our common stock could suffer a decline in value.
−Removed: We are required to evaluate our internal controls under Section 404 of the Sarbanes-Oxley Act of 2002 and any adverse results from such evaluation, including restatements of our issued financial statements, could impact investor confidence in the reliability of our internal controls over financial reporting.
+Added: • We are required to evaluate our internal controls under Section 404 of the Sarbanes-Oxley Act of 2002 and any adverse results from such evaluation could impact investor confidence in the reliability of our internal controls over financial reporting.
Additional factors that could affect our businesses, results of operations and financial condition are discussed below.
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This section should be read in conjunction with the unaudited condensed consolidated financial statements and accompanying notes thereto, and Management's Discussion and Analysis of Financial Condition and Results of Operations included in this Quarterly Report on Form 10-Q.
−Removed: We have marked with an asterisk (*) those risks described below that reflect substantive changes from the risks described under Part I, Item 1A “Risk Factors”
−Removed: included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 17, 2023.
+Added: We have marked with an asterisk (*) those risks described below that reflect substantive changes from the risks described under Part I, Item 1A “Risk Factors” included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 16, 2024.
Risks Related to our Business, Industry and Operations
−Removed: * Accurately managing our sales channel inventory and product mix within the current environment is challenging, and we have, and may in the future, incur costs associated with excess inventory, or lose sales from having too few products.
−Removed: If we are unable to properly monitor and manage our sales channel inventory and maintain an appropriate level and mix of products with our retail partners and wholesale distributors and within our sales channels, we may incur increased and unexpected costs associated with this inventory.
+Added: * Optimizing our channel partners' inventory levels and product mix within the current environment is challenging, and we have, and may in the future, incur costs associated with excess inventory, or lose sales from having too few products.
+Added: If we are unable to properly monitor and optimize our channel partners' inventory levels and maintain an appropriate level and mix of products with our retail partners and wholesale distributors and within our sales channels, we may incur increased and unexpected costs associated with this inventory.
In 2022 and the first half of 2023, many of our retail and service provider partners began significantly reducing their target inventory levels which adversely affected our results of operations.
−Removed: While we see signs of the retail networking market stabilizing, the uncertain macroeconomic environment and high interest rates are also putting pressure on our SMB channel partners, and we expect to continue to experience SMB channel inventory compression at least for the next two to three fiscal quarters.
−Removed: Low channel inventory levels increase the likelihood that our sales channel customers may not be able to fulfill end user demand, leading to delayed or lost sales, unhappy customers and potential impacts to our brand and reputation.
+Added: While we see signs of the retail networking market stabilizing, the uncertain macroeconomic environment and persistent high inflation and interest rates are also putting pressure on our NETGEAR for Business channel partners.
+Added: We have experienced and continue to experience lower revenue as a result of our channel partners lowering their inventory levels and higher cost of carrying excess channel inventory.
+Added: On the other hand, low channel inventory levels increase the likelihood that our sales channel customers may not be able to fulfill end user demand, leading to delayed or lost sales, unhappy customers and potential impacts to our brand and reputation.
Inadequate stock levels could also hinder our ability to fulfill large orders or take advantage of unexpected demand spikes, thereby limiting revenue growth opportunities.
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Actual demand for our products depends on many factors, which makes it difficult to forecast.
−Removed: We have experienced
−Removed: differences between our actual and our forecasted demand in the past and expect differences to arise in the future.
−Removed: If we improperly forecast demand for our products and channel inventory levels, we could end up with too many products and be unable to sell the excess inventory in a timely manner, if at all, or, alternatively we could end up with too few products and not be able to satisfy demand.
+Added: We have experienced differences between our actual and our forecasted demand in the past and expect differences to arise in the future.
+Added: improperly forecast demand for our products and channel inventory levels, we could end up with too many products and be unable to sell the excess inventory in a timely manner, if at all, or, alternatively we could end up with too few products and not be able to satisfy demand.
This problem is exacerbated because we attempt to closely match inventory levels with product demand leaving limited margin for error.
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If we improperly forecast demand for our products and channel inventory levels, we could incur increased expenses associated with writing off excessive or obsolete inventory, lose sales, incur penalties for late delivery or have to ship products by air freight to meet immediate demand incurring incremental freight costs above the sea freight costs and suffering a corresponding decline in gross margins.
−Removed: For example, in 2022, demand for our Connected Home products turned out to be lower than we previously forecasted and resulted in our revenue for our Connected Home products to come in lower than expected, as our channel partners in the U.S.
+Added: For example, when demand for our Connected Home products turned out to be lower than we previously forecasted, it had resulted in our revenue for our Connected Home products to come in lower than expected, as our channel partners in the U.S.
replenished inventory slower than they sold through to end users to right size their inventory carrying position based on the lower demand levels than were previously expected.
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If our wholesale distributors and retailers are unable to sell their inventory in a timely manner, we might lower the price of the products, or these parties may exchange the products for newer products or decrease their purchases of our products in subsequent periods, which would adversely affect our revenue and results of operations.
−Removed: * To remain competitive and stimulate consumer demand, we must successfully manage new product introductions and transitions of products and services.
−Removed: We operate in a highly competitive, quickly changing environment, and our future success depends on our ability to develop or acquire and introduce new products and services, enhance existing products and services, effectively stimulate customer demand for new and upgraded products and services, and successfully manage the transition to these new and upgraded products and services.
+Added: * To remain competitive and stimulate consumer and business demand, we must successfully manage new product introductions and transitions of products and services.
+Added: We operate in a highly competitive, quickly changing environment, and our future success depends on our ability to develop or acquire and introduce new products and services, enhance existing products and services, effectively stimulate customer and business demand for new and upgraded products and services, and successfully manage the transition to these new and upgraded products and services.
Our future success will depend in large part upon our ability to identify demand trends in the consumer, business and service provider markets, and to quickly develop or acquire, manufacture and market and sell products and services that satisfy these demands in a cost-effective manner.
−Removed: In order to differentiate our products from our competitors’
−Removed: products, we must continue to increase our focus and capital investment in research and development and marketing and sales, including software development for our products and complementary services and applications.
−Removed: For example, we have made a strategic shift to focus on premium, higher margin products and have committed a substantial amount of resources to the development, manufacture, branding, marketing and sale of our Nighthawk mobile hotspot products, Orbi WiFi systems and ProAV managed switches, and to introducing additional and improved models and services in these lines.
+Added: In order to differentiate our products from our competitors’ products, we must continue to increase our focus and capital investment in research and development and marketing and sales, including software development for our products and complementary services and applications.
+Added: For example, we previously made a strategic shift to focus on premium, higher margin products and have committed a substantial amount of resources to the development, manufacture, branding, marketing and sale of our Nighthawk mobile hotspot products, Orbi WiFi systems and Pro AV managed switches, and to introducing additional and improved models and services in these lines.
In the third quarter of 2023, we launched our first WiFi 7 products, namely the Orbi 97X mesh system and the Nighthawk RS700 router, and will continue to invest in a strong pipeline of WiFi 7 introductions in 2024 across all our major product lines.
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If we are unable to effectively and successfully further develop these new product lines, we may not be able to increase or maintain our sales and our gross margins may be adversely affected.
−Removed: Accordingly, if we cannot properly drive customer demand, manage future introductions and transitions of products and services, this could result in:
+Added: Accordingly, if we cannot properly drive customer and business demand, manage future introductions and transitions of products and services, this could result in:
• loss of or delay in revenue and loss of market share;
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* Investment in new business strategies could disrupt our ongoing business, present risks not originally contemplated and materially adversely affect our business, reputation, results of operations and financial condition.
−Removed: We have invested, and in the future may invest, in new business strategies.
+Added: We have invested, and in the future may invest, in new business strategies and adjust existing business strategies.
Such endeavors may involve significant risks and uncertainties, including distraction of management from current operations, greater-than-expected liabilities and expenses, economic, legal and regulatory challenges, inadequate return on capital, potential impairment of tangible and intangible assets, and significant write-offs.
−Removed: New business strategies are inherently risky and may not be successful.
+Added: Changes in business strategies are inherently risky and may not be successful.
The failure of any significant investment could materially adversely affect our business, reputation, results of operations and financial condition.
−Removed: For example, as mentioned in the risk factor above “
−Removed: To remain competitive and stimulate consumer demand, we must successfully manage new product introductions and transitions of products and services ”, we have made a strategic shift to focus on premium, higher margin products and services.
−Removed: We continue to hire in key areas and invest in these premium, higher margin products and services, such as ProAV managed switches, premium Orbi WiFi mesh systems, 5G mobile hotspots, and subscription services;
+Added: For example, as mentioned in the risk factor above “ To remain competitive and stimulate consumer and business demand, we must successfully manage new product introductions and transitions of products and services ”, we previously made a strategic shift to focus on premium, higher margin products and services and we continue to make changes in our business strategies, including pursuing new, adjacent markets.
+Added: Changes in business strategy would require us to hire in key areas and make certain investments, including marketing;
however, such investments may not prove to be successful.
−Removed: If we fail to develop premium user experience, elevate marketing and branding for customer acquisition, expand our sales channels or otherwise successfully execute on our business strategies, our business, financial condition, results of operations and reputation could be materially adversely affected.
+Added: If we fail to develop and successfully execute on our business strategies, our business, financial condition, results of operations and reputation could be materially adversely affected.
We rely on a limited number of traditional and online retailers, wholesale distributors and service provider customers for a substantial portion of our sales, and our net revenue could decline if they refuse to pay our requested prices or reduce their level of purchases, if there are unforeseen disruptions in their businesses, or if there is significant consolidation in our customer base that results in fewer customers for our products.
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Accordingly, the prices that they pay for our products are subject to negotiation and could change at any time.
−Removed: For example, as mentioned below in the risk factors “
−Removed: If disruptions in our transportation network continue to occur or our shipping costs substantially increase again in the future, we may be unable to sell or timely deliver our products, and net revenue and our gross margin could decrease ”
−Removed: We obtain several key components from limited or sole sources, and if these sources fail to satisfy our supply requirements or we are unable to properly manage our supply requirements with our third-party manufacturers, we may lose sales and experience increased component costs ”, we had previously experienced high freight costs and component costs and had issued price increases to our customers.
+Added: For example, as mentioned below in the risk factors “ If disruptions in our transportation network continue to occur or our shipping costs substantially increase again in the future, we may be unable to sell or timely deliver our products, and net revenue and our gross margin could decrease ” and “ We obtain several key components from limited or sole sources, and if these sources fail to satisfy our supply requirements or we are unable to properly manage our supply requirements with our third-party manufacturers, we may lose sales and experience increased component costs ”, we had previously experienced high freight costs and component costs and had issued price increases to our customers.
Our ability to maintain strong relationships with our principal customers is essential to our future performance.
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Some of our customers, such as Amazon and Best Buy, may consider this to be competitive with their own businesses, which could negatively influence their purchasing decisions with respect to our products.
−Removed: Also, during the COVID-19 pandemic, some
−Removed: channel partners had prioritized the sale and delivery of other categories of products ahead of ours.
−Removed: Further, we believe the COVID-19 pandemic led to an acceleration of the shift to a greater percentage of products being bought and sold online.
−Removed: If we are unable to adjust to this shift, this may lead to lower market share and lower revenues for us, and our net revenue and operating results could be harmed.
+Added: Furthermore, we have experienced a shift towards
+Added: products being bought and sold online.
+Added: If we are unable to adjust to this shift and effectively manage our business and inventory requirements amongst our online customers and traditional retail customers, this may lead to lower market share and lower revenues for us, and our net revenue and operating results could be harmed.
In addition, adverse changes in economic conditions or unforeseen disruptions in the businesses of any of our key customers could adversely impact the sale of our products to end users and the quantity of products our customers decide to purchase from us.
−Removed: For example, as mentioned above in the risk factor “
−Removed: Accurately managing our sales channel inventory and product mix within the current environment is challenging, and we have, and may in the future, incur costs associated with excess inventory, or lose sales from having too few products, ”
−Removed: many of our retail and service provider customers have and continue to reduce their target inventory levels.
+Added: For example, as mentioned above in the risk factor “ Accurately managing our sales channel inventory and product mix within the current environment is challenging, and we have, and may in the future, incur costs associated with excess inventory, or lose sales from having too few products, ” many of our retail and service provider customers have and continue to reduce their target inventory levels.
This shift may have a longer-term impact on the inventory levels our customers choose to carry.
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In addition, if worldwide demand for the components increases significantly, the availability of these components could be limited and prices for such components may increase.
−Removed: For example, as the demand for automobiles has increased significantly over the last three years, our supplier of micro controller units, which are used in both automobile production and our power over ethernet switches, has been forced to prioritize supply to the automobile industry, leaving us short of supply on these key components and affecting our ability to produce enough power over ethernet switches to meet our forecasted demand in a timely manner.
−Removed: This has resulted in our ODM partners re-designing our products to accept second source components which provide more flexibility but increases the overall cost.
−Removed: In addition, Taiwan Semiconductor Manufacturing Company has been periodically announcing price increases on its chips, which has led to some of our chip suppliers correspondingly increasing the cost of their chips to us.
+Added: For example, as the demand for Artificial Intelligence chips increase, semiconductor production capacity may be shifted to these specific components thereby constraining supply of or increasing cost on chips used in our products.
Further, dependence on a sole source for certain key components of our products may allow such sole source suppliers to command increased leverage in negotiating prices and other terms of sale, which could adversely affect our profitability.
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Our suppliers may also experience financial or other difficulties as a result of uncertain and weak worldwide economic, geopolitical conditions, trade disputes or public health issues.
−Removed: Other factors which may affect our suppliers’
−Removed: ability or willingness to supply components to us include internal management product allocation decisions or reorganizational issues, such as roll-out of new equipment which may delay or disrupt supply of previously forecasted components, or industry consolidation and divestitures, which may result in changed business and product priorities among
−Removed: certain suppliers.
+Added: Other factors which may affect our suppliers’ ability or willingness to supply components to us include internal management product allocation decisions or reorganizational issues, such as roll-out of new equipment or disruptions to information infrastructure or power transmission or navigation miscalculations which may delay or disrupt supply of previously forecasted components, or industry consolidation and divestitures, which may result in changed business and product priorities among certain suppliers.
Also, many standardized components used broadly in electronic devices are manufactured in significant quantities in concentrated geographic regions, particularly in Greater China.
−Removed: As a result, protracted crises, such as the COVID-19 pandemic, geopolitical unrest and uncertain economic conditions, could lead to eventual shortages of necessary components sourced from impacted regions or increased component costs.
−Removed: Additionally, government intervention to curb the consumption of electricity in China could have a disruptive impact on component production and supply availability.
+Added: As a result, protracted crises, geopolitical unrest and uncertain economic conditions, could lead to eventual shortages of necessary components sourced from impacted regions or increased component costs.
+Added: Additionally, government intervention to curb the consumption of electricity in China could have a disruptive impact on
+Added: component production and supply availability.
It could be difficult, costly and time consuming to obtain alternative sources for these components, or to change product designs to make use of alternative components.
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Moreover, if they are unable to use components ordered at our direction, we will need to reimburse them for any losses they incur, which could be material.
−Removed: For example, during the course of the COVID-19 pandemic, we experienced an elongation of the time from order placement to production primarily due to increased demand and the resulting component shortages and supply chain disruption.
−Removed: We have, at times, responded by extending our ordering horizon to as long as 18 months.
−Removed: When this occurs, our exposure to the foregoing risks is greater and our potential liability for losses is greater relative to our more typical ordering horizon of up to 6 to 9 months.
If we are unable to obtain a sufficient supply of components, or if we experience any interruption in the supply of components, our product shipments could be reduced or delayed or our cost of obtaining these components may increase.
Component shortages and delays affect our ability to meet scheduled product deliveries, damage our brand and reputation in the market, and cause us to lose sales and market share.
−Removed: For example, component shortages and disruptions in supply related to the COVID-19 induced lockdowns in Shenzhen, China and Shanghai, China previously had limited our ability to supply all the worldwide demand for our SMB switch products, and our revenue and profitability was affected.
+Added: For example, component shortages and disruptions in supply related to the COVID-19 induced lockdowns in Shenzhen, China and Shanghai, China previously had limited our ability to supply all the worldwide demand for our NETGEAR for Business switch products, and our revenue and profitability was affected.
At times we have elected to purchase components on the spot market or to use more expensive transportation methods, such as air freight, to make up for manufacturing delays caused by component shortages, which reduces our margins.
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Our traditional retail customers have faced increased and significant competition from online retailers.
−Removed: Further, the COVID-19 pandemic accelerated the shift to a greater percentage of purchases taking place online versus traditional retail customers.
+Added: Further, we have experienced the shift to a greater percentage of purchases taking place online versus traditional retail customers.
If we cannot effectively manage our business and inventory requirements amongst our online customers and traditional retail customers, our business would be harmed.
−Removed: The recent trend in the consolidation of online retailers and DMR channels has
−Removed: resulted in intensified competition for preferred product placement, such as product placement on an online retailer’s Internet home page.
+Added: The recent trend in the consolidation of online retailers and DMR channels has resulted in intensified competition for preferred product placement, such as product placement on an online retailer’s Internet home page.
Expanding our presence in the VAR channel may be difficult and expensive.
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Ensuring that a manufacturer is qualified to manufacture our products to our standards is time consuming.
−Removed: In addition, there is no assurance that a manufacturer can scale its production of our products at the volumes and in the quality that we require.
+Added: In addition, there is no assurance that a manufacturer can produce our products at the appropriate volumes and in the quality that we require.
In addition, as we recently have transitioned a substantial portion of our manufacturing facilities to different regions, we are subject to additional significant challenges in ensuring that quality, processes and costs, among other issues, are consistent with our expectations.
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Labor unrest in Southeast Asia, China or other locations where components and our products are manufactured may also affect our third-party manufacturers as workers may strike and cause production delays.
−Removed: If our third-party manufacturers fail to maintain good relations with their employees or contractors, and production and manufacturing of our products is affected, then we may be subject to shortages of products and quality of products delivered may be affected.
+Added: If our third-party manufacturers fail to maintain good
+Added: relations with their employees or contractors, and production and manufacturing of our products is affected, then we may be subject to shortages of products and quality of products delivered may be affected.
Further, if our manufacturers or warehousing facilities are disrupted or destroyed, we would have no other readily available alternatives for manufacturing and assembling our products and our business would be significantly harmed.
−Removed: In our typical ODM arrangement, our ODMs are generally responsible for sourcing the components of the products and warranting that the products will work against a product’s specification, including any software specifications.
−Removed: If we needed to move to a contract manufacturing arrangement, we would take on much more, if not all, of the responsibility around these areas.
+Added: In our typical ODM arrangement, our ODMs are generally responsible for sourcing the components of the products and warranting that the products will work against a product’s specification, including any software specifications.
+Added: If we needed to move to a contract manufacturing arrangement, we would take on much more, if not all, of the responsibility around these areas, including increased costs and personnel expertise.
If we are unable to properly manage these risks, our products may be more susceptible to defects and our business would be harmed.
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Average sales prices have declined in the past and may again decline in the future.
−Removed: These competitors may have more advanced technology, more extensive distribution channels, stronger brand names,
−Removed: greater access to shelf space in retail locations, bigger promotional budgets and larger customer bases than we do.
+Added: These competitors may have more advanced technology, more extensive distribution channels, stronger brand names, greater access to shelf space in retail locations, bigger promotional budgets and larger customer bases than we do.
In addition, many of these competitors leverage a broader product portfolio and offer lower pricing as part of a more comprehensive end-to-end solution which we may not have.
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International sales comprise a significant amount of our overall net revenue.
−Removed: International sales were approximately 30% of overall net revenue in the third fiscal quarter of 2023 and approximately 36% of overall net revenue in fiscal 2022.
+Added: International sales were approximately 35% of overall net revenue in the first fiscal quarter of 2024 and approximately 34% of overall net revenue in fiscal 2023.
We continue to be committed to growing our international sales, and while we have committed resources to expanding our international operations and sales channels, these efforts may not be successful.
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• exchange rate fluctuations and inflation;
−Removed: geopolitical and economic tensions, such as between China/Taiwan, international terrorism and anti-American sentiment, particularly in emerging markets;
+Added: • geopolitical and economic tensions, such as in the Middle East, between China/Taiwan, international terrorism and anti-American sentiment, particularly in emerging markets;
• potential for violations of anti-corruption laws and regulations, such as those related to bribery and fraud;
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If this occurs, the timing of revenue recognition is uncertain and our business would be harmed.
−Removed: In addition, we often commence building custom-made products prior to execution of a contract in order to meet the customer’s contemplated launch dates and requirements.
+Added: In addition, we often commence building custom-made products prior to execution of a contract in order to meet the customer’s contemplated launch dates and requirements.
Service provider products are generally custom-made for a specific customer and may not be scalable to other customers or in other channels.
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Orders from service providers generally tend to be large but sporadic, which causes our revenues from them to fluctuate and challenges our ability to accurately forecast demand from them.
−Removed: In particular, managing inventory, inventory levels and production of our products for our service provider customers is a challenge and may be further exacerbated by current macroeconomic uncertainties and geopolitical instability.
+Added: In particular, managing inventory, inventory levels and production of our products for our service provider customers is a challenge and may be further exacerbated by current
+Added: macroeconomic uncertainties and geopolitical instability.
Many of our service provider customers have irregular purchasing requirements.
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• operational disruptions, such as transportation delays or failure of our order processing system, particularly if they occur at the end of a fiscal quarter;
−Removed: component supply constraints, including specialized WiFi 6 chipsets, or sudden, unforeseen price increases from our manufacturers, suppliers and vendors;
+Added: • component supply constraints, including specialized WiFi 6 or WiFi 7 chipsets, or sudden, unforeseen price increases from our manufacturers, suppliers and vendors;
• unanticipated increases in costs, including air and ocean freight, associated with shipping and delivery of our products;
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• unexpected challenges or delays in our ability to further develop services and applications that complement our products and result in meaningful subscriber growth and future recurring revenue;
−Removed: discovery or exploitation of security vulnerabilities in our products, services or systems, leading to negative publicity, decreased demand or potential liability, including potential breach of our customers’
−Removed: data privacy or disruption of the continuous operation of our cloud infrastructure and our products;
+Added: • discovery or exploitation of security vulnerabilities in our products, services or systems, leading to negative publicity, decreased demand or potential liability, including potential breach of our customers’ data privacy or disruption of the continuous operation of our cloud infrastructure and our products;
• introductions of new technologies and changes in consumer preferences that result in either unanticipated or unexpectedly rapid product category shifts;
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• delays in the introduction of new products by us or market acceptance of these products;
−Removed: delays in regulatory approvals or consumer adoption of WiFi 6E technology in various regions;
+Added: • delays in regulatory approvals or consumer adoption of WiFi 6E or WiFi 7 technology in various regions;
• increases in expenses related to the development, introduction and marketing of new products that adversely impact our margins;
−Removed: increases in expenses related to the development and marketing related to the Company’s direct online sales channels that adversely impact our margins;
+Added: • increases in expenses related to the development and marketing related to the Company’s direct online sales channels that adversely impact our margins;
• changes in tax rates or adverse changes in tax laws that expose us to additional income tax liabilities;
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• labor unrest at facilities managed by our third-party manufacturers;
−Removed: workplace or human rights violations in certain countries in which our third-party manufacturers or suppliers operate, which may affect our brand and negatively affect our products’
−Removed: acceptance by consumers;
+Added: • workplace or human rights violations in certain countries in which our third-party manufacturers or suppliers operate, which may require quarantine of affected products, affect our brand and negatively affect our products’ acceptance by consumers;
• overall performance of the equity markets and the economy as a whole;
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* Changes in trade policy in the United States and other countries, including the imposition of tariffs and the resulting consequences, may adversely impact our business, results of operations and financial condition.
−Removed: International trade disputes, geopolitical tensions, and military conflicts have led, and continue to lead, to new and increasing export restrictions, trade barriers, tariffs, and other trade measures that can increase our manufacturing costs, limit our ability to sell to certain customers or markets, limit our ability to procure, or increase our costs for, components or raw materials, impede or slow the movement of our goods across borders, or otherwise restrict our ability to conduct operations.
+Added: International trade disputes, geopolitical tensions, and military conflicts have led, and continue to lead, to new and increasing export restrictions, trade barriers, tariffs, and other trade measures that can increase our manufacturing and transportation costs, limit our ability to sell to certain customers or markets, limit our ability to procure, or increase our costs for, components or raw materials, impede or slow the movement of our goods across borders, or otherwise restrict our ability to conduct operations.
Increasing protectionism, economic nationalism, and national security concerns may also lead to further changes in trade policy.
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As a result, we may be required to raise our prices on certain products, which could result in the loss of customers and harm to our revenue, market share, competitive position and operating performance.
−Removed: Additionally, the imposition of tariffs is dependent upon the classification of items under the Harmonized Tariff System (“HTS”) and the country of origin of the item.
−Removed: Determination of the HTS and the origin of the item is a technical matter that
−Removed: can be subjective in nature.
+Added: Additionally, the imposition of tariffs is dependent upon the classification of items under the Harmonized Tariff System (“HTS”) and the country of origin of the item.
+Added: Determination of the HTS and the origin of the item is a technical matter that can be subjective in nature.
Accordingly, although we believe our classifications of both HTS and origin are appropriate, there is no certainty that the U.S.
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If disruptions in our transportation network continue to occur or our shipping costs substantially increase again in the future, we may be unable to sell or timely deliver our products, and our net revenue and gross margin could decrease.
−Removed: The transportation network is subject to disruption or congestion from a variety of causes, including labor disputes or port strikes, acts of war, terrorism or other geopolitical conflicts, natural disasters, effects of climate change, pandemics like COVID-19 and congestion resulting from higher shipping volumes.
+Added: The transportation network is subject to disruption or congestion from a variety of causes, including labor disputes or port strikes, acts of war, terrorism or other geopolitical conflicts, like the Middle East conflict, natural disasters, effects of climate change, pandemics like COVID-19 and congestion resulting from higher shipping volumes.
We are highly dependent upon the transportation systems we use to ship our products, including surface and air freight.
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Furthermore, labor disputes among freight carriers and at ports of entry are common.
−Removed: A port worker strike, work slow-down or other transportation disruption in the ports of Singapore, Rotterdam, Netherlands, Los Angeles or Long Beach, California, where we have significant distribution centers, could significantly disrupt our business.
+Added: A port worker strike, work slow-down or other transportation disruption in the ports of Singapore, Rotterdam, Los Angeles or Long Beach, California, where we have significant distribution centers, could significantly disrupt our business.
For example, at times, during the course of the COVID-19 pandemic, we had experienced disruptions at the ports, due to multiple factors, such as supply and demand imbalance, a shortage of warehouse workers, truck drivers, and transport equipment (tractors and trailers), and other causes, and had suffered from heightened congestion, bottleneck and gridlock, leading to abnormally high transportation delays.
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If the systems fail to operate appropriately or we experience any disruptions or delays in enhancing their functionality to meet current business requirements, our ability to fulfill customer orders, bill and track our customers, fulfill contractual obligations, accurately report our financials and otherwise run our business could be adversely affected.
−Removed: Even if we do not encounter these adverse effects, the enhancement of systems may be much more costly than we anticipated.
+Added: Even if we do not encounter these adverse effects, the enhancement of systems may be much more costly than we
If we are unable to continue to enhance our information technology systems as planned, our financial position, results of operations and cash flows could be negatively impacted.
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• overcoming the employee, customer, vendor and supplier turnover that may occur as a result of the acquisition;
−Removed: disruption of, and demands on, our ongoing business as a result of integration activities including diversion of management’s time and attention from running the day-to-day operations of our business;
+Added: • disruption of, and demands on, our ongoing business as a result of integration activities including diversion of management’s time and attention from running the day-to-day operations of our business;
• inability to implement uniform standards, disclosure controls and procedures, internal controls over financial reporting and other procedures and policies in a timely manner;
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Failure to manage and successfully integrate acquisitions could materially harm our business and operating results.
−Removed: In addition, if stock market analysts
−Removed: or our stockholders do not support or believe in the value of the acquisitions that we choose to undertake, our stock price may decline.
+Added: In addition, if stock market analysts or our stockholders do not support or believe in the value of the acquisitions that we choose to undertake, our stock price may decline.
We invest in companies primarily for strategic reasons but may not realize a return on our investments.
We have made, and continue to seek to make, investments in companies around the world to further our strategic objectives and support our key business initiatives.
−Removed: These investments may include equity or debt instruments of public or private companies, and may be non-marketable at the time of our initial investment.
+Added: These investments may include equity or debt instruments of public or private
+Added: companies, and may be non-marketable at the time of our initial investment.
We do not restrict the types of companies in which we seek to invest.
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If we are unable to license the necessary technology, we may be forced to acquire or develop alternative technology, which could be of lower quality or performance standards.
−Removed: The acquisition or development of alternative technology may limit
−Removed: and delay our ability to offer new or competitive products and services and increase our costs of production.
+Added: The acquisition or development of alternative technology may limit and delay our ability to offer new or competitive products and services and increase our costs of production.
As a result, our business, operating results and financial condition could be materially adversely affected.
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We devote considerable time and resources to uncovering and remedying these vulnerabilities, using both internal and external resources, but the threats to network and data security are increasingly diverse and sophisticated and we continue to implement additional protections and increase our monitoring and threat intelligence.
−Removed: Despite our efforts and processes to prevent breaches, our devices are potentially vulnerable to cybersecurity risks, including cyber-attacks such as viruses and worms, vulnerabilities such as command injection, cross site scripting, authentication and session management, and stack-based buffer overflow, and other sophisticated attacks or exploits.
−Removed: It is also possible that an attacker could compromise our internal code repository or those of our partners and insert a ‘backdoor’
−Removed: that would give them easy access to any of our devices using this code.
+Added: Despite our efforts and processes to prevent breaches, our systems and products are potentially vulnerable to cybersecurity risks, including cyber-attacks such as viruses and worms, vulnerabilities such as command injection, cross site scripting, authentication and session management, and stack-based buffer overflow, and other sophisticated attacks or exploits.
+Added: It is also possible that an attacker could compromise our internal code repository or those of our partners and insert a ‘backdoor’ that would give them easy access to any of our devices using this code.
This particular kind of attack is very sophisticated, relatively new, and hard to defend against.
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In addition, we offer a comprehensive online cloud management service paired with a number of our products.
−Removed: If malicious actors compromise this cloud service, or if customer confidential information is accessed without authorization, our business would be harmed.
+Added: If malicious actors compromise this cloud service, or if customer confidential information is accessed without authorization, our business and reputation would be harmed.
Operating an online cloud service is a relatively new business for us and we may not have the expertise to properly manage risks related to data security and systems security.
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Malicious actors may develop and deploy malware that is designed to manipulate our products and systems, including our internal network, or those of our vendors or customers.
−Removed: Additionally, outside parties may attempt to fraudulently induce our employees to disclose sensitive information in order to gain access to our information technology systems, our data or our customers’
−Removed: We have established a crisis management plan and business continuity program.
−Removed: While we regularly test the plan and the program, there can be no assurance that the plan and program can withstand an actual or serious disruption in our business, including a data protection breach or cyber-attack.
+Added: Additionally, outside parties may attempt to fraudulently induce our employees to disclose sensitive information in order to gain access to our information technology systems, our data or our customers’ data.
+Added: We have established a crisis management plan, business continuity program, information security incident response plan and Generative AI policy.
+Added: While we regularly test and update these plans, policy and program, there can be no assurance that the plans, policy and program can withstand an actual or serious disruption in our business, including a data protection breach or cyber-attack.
While we have established infrastructure and geographic redundancy for our critical systems, our ability to utilize these redundant systems requires further testing and we cannot be assured that such systems are fully functional.
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In addition, U.S.
−Removed: and foreign regulators have increased their focus on cybersecurity vulnerabilities and risks and many states, countries and jurisdictions strictly regulate data privacy and protection and may impose significant penalties for failure to comply with these
−Removed: requirements.
+Added: and foreign regulators have increased their focus on cybersecurity vulnerabilities and risks and many states, countries and jurisdictions strictly regulate data privacy and protection and may impose significant penalties for failure to comply with these requirements.
Compliance with laws and regulations concerning artificial intelligence, privacy, cybersecurity, data governance and data protection is a rigorous and time-intensive process, and we may be required to put in place additional mechanisms ensuring compliance with the laws and regulations and incur substantial expenditures.
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If we or our third-party providers are unable to successfully prevent breaches of security relating to our products, services, systems or customer private information, including customer personal identification information, or if these third-party systems failed for other reasons, it could result in litigation and potential liability for us, damage our brand and reputation, or otherwise harm our business.
+Added: * If we are unable to successfully leverage AI technology to automate and drive efficiencies in our operations and products and services, our business, reputation, results of operations and financial condition could be harmed.
+Added: We have embarked on an AI transformation effort to take full advantage of automation, artificial intelligence, machine learning and other technologies to drive efficiencies and improve productivity in our operations and to develop and improve our products, services and customer experiences.
+Added: As we increase our investment in technology, software and systems to support this transformation effort, such investments may not increase productivity, result in more efficient operations or deliver better products, services and customer experiences.
+Added: In addition, the evolution of these technologies may create unforeseen competitive pressures or cause disruption or delays to our operations, which may harm our business.
+Added: Our competitors may incorporate AI technologies into their products and services more quickly or more successfully than us and could impair our ability to compete effectively and adversely affect our results of operations.
+Added: Additionally, AI algorithms and training methodologies may be flawed, and the use of AI has been known to result in, and may in the future result in cybersecurity incidents.
+Added: Further, the rapid evolution of AI may require the dedication of significant resources to develop, test and maintain AI technologies.
+Added: If our incorporation of AI technologies does not increase our operational efficiency in accordance with our expectations, or if competition increases for the technology and services provided by third parties, our business, results of operations and financial condition may be harmed.
+Added: The legal and regulatory landscape surrounding generative AI technologies is rapidly evolving and uncertain including in the areas of intellectual property, discrimination, cybersecurity, privacy and data protection.
+Added: Compliance with existing, new, and changing laws, regulations, and industry standards relating to AI may limit some uses of AI, impose significant operational costs, and limit our ability to develop, deploy, or use AI technologies.
+Added: Further, the continued integration of any AI technologies into our products and services may result in new or enhanced governmental or regulatory scrutiny.
+Added: Failure to appropriately respond to this evolving landscape may result in legal liability, regulatory action, or brand and reputational harm.
We make substantial investments in software research and development and unsuccessful investments could materially adversely affect our business, financial condition and results of operations.
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Software research and development is complex.
−Removed: We must make long-term investments, develop or obtain appropriate intellectual property and commit significant resources before knowing whether our output from these investments will successfully result in meaningful customer demand and retention for our products and services.
−Removed: We must accurately forecast mixes of software solutions and configurations that meet customer requirements, and we may not succeed at doing so within a given product’s life cycle or at all.
+Added: We must make long-term investments, develop or obtain appropriate intellectual property and commit significant resources before knowing whether our output from these investments will
+Added: successfully result in meaningful customer demand and retention for our products and services.
+Added: We must accurately forecast mixes of software solutions and configurations that meet customer requirements, and we may not succeed at doing so within a given product’s life cycle or at all.
Any delay in the development, production or marketing of a new software solution could result in us not being among the first to market, which could further harm our competitive position.
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Finding solutions to quality issues or defects can be expensive and may result in additional warranty, replacement and other costs, adversely affecting our profits.
−Removed: If new or existing customers have difficulty with our software solutions or are dissatisfied with our services, our operating margins could be adversely affected, and we could face possible claims if we fail to meet our customers’
−Removed: expectations.
+Added: If new or existing customers have difficulty with our software solutions or are dissatisfied with our services, our operating margins could be adversely affected, and we could face possible claims if we fail to meet our customers’ expectations.
In addition, quality issues can impair our relationships with new or existing customers and adversely affect our brand and reputation, which could adversely affect our operating results.
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Some errors and defects may be discovered only after a product has been installed and used by the end-user.
−Removed: As also noted in the risk factor “
−Removed: We make substantial investments in software research and development and unsuccessful investments could materially adversely affect our business, financial condition and results of operations ”
−Removed: above, we devote considerable time and resources on testing and quality control efforts to detect quality issues and defects, and any reallocation of resources to fix such quality issues and defects could lead to delays in product introductions, which could further harm our competitive position.
+Added: As also noted in the risk factor “ We make substantial investments in software research and development and unsuccessful investments could materially adversely affect our business, financial condition and results of operations ” above, we devote considerable time and resources on testing and quality control efforts to detect quality issues and defects, and any reallocation of resources to fix such quality issues and defects could lead to delays in product introductions, which could further harm our competitive position.
In addition, epidemic failure clauses are found in certain of our customer contracts, especially contracts with service providers.
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If any of these events occurred, our reputation and brand could be damaged, and we could face product liability or other claims regarding our products, resulting in unexpected expenses and adversely impacting our operating results.
−Removed: For instance, if a third party were able to successfully overcome the security measures in our products, such a person or entity could misappropriate customer data, third party data stored by our customers and other information, including intellectual property.
+Added: For instance, if a third party were able to successfully overcome the security measures in our products, such a person or entity could misappropriate customer data, third party data stored by our customers and other information, including intellectual property and personal information.
In addition, the operations of our end-user customers may be interrupted.
2 unchanged sentences
The substantial majority of our revenue from our subscription services is generated from use of such services on mobile devices.
−Removed: We are dependent on the interoperability of Armor and our parental controls services and our other products with popular mobile operating systems, networks, technologies, products, and standards that we do not control, such as the Android and iOS operating systems and mobile browsers.
−Removed: Any changes, bugs, or technical issues in such systems, or changes in our relationships with mobile operating system partners, handset manufacturers, browser developers, or mobile carriers, or in their terms of service or policies that degrade our products’
−Removed: functionality, reduce or eliminate our ability to update or distribute our products, give preferential treatment to competitive products, or charge fees related to the distribution of our products could adversely affect the usage of our subscription services products or our other products on mobile devices.
−Removed: We may not be successful in maintaining or developing relationships with key participants in the mobile ecosystem or in developing products that operate effectively with these technologies, products, systems, networks, or standards.
−Removed: In the event that it is more difficult for our users to access and use our subscription services products or our other products on their mobile devices, or if our users choose not to access or use our subscription services products or our other products on their mobile devices, our user growth and user engagement and our business could be harmed.
+Added: We are dependent on the interoperability of Armor and our parental controls services and our other products and services with popular mobile operating systems, networks, technologies, products, and standards that we do not control, such as the Android and iOS operating systems and mobile browsers.
+Added: Any changes, bugs, or technical issues in such systems, or changes in our relationships with mobile operating system partners, handset manufacturers, browser developers, or mobile carriers, or in their terms of service or policies that degrade our products’ functionality, reduce or eliminate our ability to update or distribute our products or services, give preferential treatment to competitive products, or charge fees related to the distribution of our products could adversely affect the usage of our subscription services products or our other products and services on mobile devices.
+Added: We may not be successful in maintaining or developing relationships with key participants in the mobile ecosystem or in developing products and services that operate effectively with these technologies, products, systems, networks, or standards.
+Added: In the event that it is more difficult for our users to access and use our subscription services products
+Added: or our other products on their mobile devices, or if our users choose not to access or use our subscription services products or our other products on their mobile devices, our user growth and user engagement and our business could be harmed.
If we are unable to secure and protect our intellectual property rights, our ability to compete could be harmed.
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At any time, any of these non-practicing entities, or any other third-party could initiate litigation against us, or we may be forced to initiate litigation against them, which could divert management attention, be costly to defend or prosecute, prevent us from using or selling the challenged technology, require us to design around the challenged technology and cause the price of our stock to decline.
−Removed: In 2022, a third-party initiated litigation against us in Germany, which carries with it the threat of an injunction on the importation of our products into Germany, as well as a significant increase in time and resources to defend against.
+Added: In 2022, a third-party initiated litigation against us in Germany and China, which carries with it the threat of an injunction on the importation of our products into Germany and China, as well as a significant increase in time and resources to defend against.
In addition, several third-party non practicing entities have initiated litigation against us in China, which also raises novel and unique challenges for us.
−Removed: For example, thus far we have experienced that patent litigation in China proceeds along a faster timeline, is more costly than we anticipated, carries a greater risk of injunction, and suffers from a relative lack of judicial development relative to patent litigation in the United States.
+Added: For example, we have experienced that patent litigation in China proceeds along a faster timeline, is more costly than we anticipated, carries a greater risk of injunction, and suffers from a relative lack of judicial development relative to patent litigation in the United States.
In addition, third parties, some of whom are potential competitors, have initiated and may continue to initiate litigation against our manufacturers, suppliers, members of our sales channels or our service provider customers or even end user customers, alleging infringement of their proprietary rights with respect to existing or future products.
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Finally, we have been sued in securities class action lawsuits, and may in the future be named in other similar lawsuits.
−Removed: For additional information regarding certain of the lawsuits in which we are involved, see the information set forth in Note 8.
−Removed: Commitments and Contingencies , in Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q.
+Added: For additional information regarding certain of the lawsuits in which we are involved, see the information set forth in Note 8, Commitments and Contingencies , in Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q.
If we do not resolve these claims on a favorable basis, our business, operating results and financial condition could be significantly harmed.
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We may enter into foreign currency forward contracts or other instruments, the majority of which mature within approximately five months.
−Removed: Our foreign currency forward contracts reduce,
−Removed: but do not eliminate, the impact of currency exchange rate movements.
+Added: Our foreign currency forward contracts reduce, but do not eliminate, the impact of currency exchange rate movements.
For example, we do not execute forward contracts in all currencies in which we conduct business.
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We monitor individual customer financial viability in granting such open credit arrangements, seek to limit such open credit to amounts we believe the customers can pay, and maintain reserves we believe are adequate to cover exposure for doubtful accounts.
−Removed: In the past, there have been bankruptcies amongst our customer base, and certain of our customers’
−Removed: businesses face financial challenges that put them at risk of future bankruptcies.
+Added: In the past, there have been bankruptcies amongst our customer base, and certain of our customers’ businesses face financial challenges that put them at risk of future bankruptcies.
Although losses resulting from customer bankruptcies have not been material to date, any future bankruptcies could harm our business and have a material adverse effect on our operating results and financial condition.
1 unchanged sentence
Although such impacts have not resulted in material losses to date, any future bank sector disruptions could harm our business and have a material adverse effect on our operating results and financial condition.
−Removed: Furthermore, to the degree that turmoil in the credit markets makes it more difficult for some customers to obtain financing, our customers’
−Removed: ability to pay could be adversely impacted, which in turn could have a material adverse impact on our business, operating results, and financial condition.
+Added: Furthermore, to the degree that turmoil in the credit markets makes it more difficult for some customers to obtain financing, our customers’ ability to pay could be adversely impacted, which in turn could have a material adverse impact on our business, operating results, and financial condition.
* Changes in tax laws or exposure to additional income tax liabilities could affect our future profitability.
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Foreign jurisdictions have increased the volume of tax audits of multinational corporations.
−Removed: Further, many countries continue to consider changes in their tax laws by implementing new taxes such as the digital service tax and initiatives such as the Organization for Economic Co-operation and Development’s (OECD) Pillar II global minimum tax.
+Added: Further, many countries continue to consider changes in
+Added: their tax laws by implementing new taxes such as the digital service tax and initiatives such as the Organization for Economic Co-operation and Development’s (OECD) Pillar II global minimum tax.
More than 140 countries agreed to enact the Pillar II global minimum tax.
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These provisions have a material impact on our cash taxes which will continue in the future if these provisions are not modified, or repealed by Congress.
−Removed: We have been audited by the ITA for the 2004 through 2012 tax years.
+Added: We have been audited by the Italy Tax Authority (“ITA”) for the 2004 through 2012 tax years.
The ITA examination included an audit of income, gross receipts and value-added taxes.
−Removed: Currently, we are in litigation with the ITA for the 2004 through 2012 years.
−Removed: If we are unsuccessful in defending our tax positions, our profitability will be reduced.
+Added: We have been in litigation with the ITA for the 2004 through 2012 years.
+Added: This litigation was appealed by the ITA to the Italian Supreme Court.
+Added: Our hearing on all years at the Italian Supreme Court was held on March 6, 2024.
+Added: As of March 31, 2024, decisions were issued in the Company’s favor for the 2008 through 2012 tax years.
+Added: As of the March 31, 2024 decisions on the 2004 through 2007 tax years had not yet been issued.
+Added: If we are unsuccessful in defending our tax positions for the remaining years, our profitability will be reduced.
We are also subject to examination by other tax authorities, including state revenue agencies and other foreign governments.
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federal and state deferred tax assets.
−Removed: Accordingly, we recorded a valuation allowance of $81.5 million to impair U.S.
+Added: Accordingly, we recorded a full valuation allowance to impair U.S.
federal and state deferred tax assets.
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There are areas where new regulations have been enacted which could increase our cost of the components that we utilize or require us to expend additional resources to ensure compliance.
−Removed: For example, the SEC’s “conflict minerals”
−Removed: rules apply to our business, and we are expending significant resources to ensure compliance.
+Added: For example, the SEC’s “conflict minerals” rules apply to our business, and we expended significant resources to ensure compliance.
The implementation of these requirements by government regulators and our partners and/or customers could adversely affect the sourcing, availability, and pricing of minerals used in the manufacture of certain components used in our products.
−Removed: In addition, the supply-chain due diligence investigation required by the conflict minerals rules will require expenditures of resources and management attention regardless of the results of the investigation.
+Added: In addition, the supply-chain due diligence investigation required by the conflict minerals rules require expenditures of resources and management attention regardless of the results of the investigation.
If there is an unanticipated new regulation which significantly impacts our use of various components or requires more expensive components, that regulation would have a material adverse impact on our business, financial condition and results of operations.
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The potential for liability under these laws can be difficult to predict as it often depends on a finding that the challenged conduct resulted in harm to competition, such as higher prices, restricted supply, or a reduction in the quality or variety of products available to consumers.
−Removed: We utilize a number of different distribution channels to deliver our products to the end consumer, and regularly enter agreements with resellers of our products at various levels in the distribution chain that could be subject to scrutiny under these laws in the event of private litigation or an investigation by a governmental competition
+Added: We utilize a number of different distribution channels to deliver our products to the end consumer, and regularly enter agreements with resellers of our products at various levels in the distribution chain that could be subject to scrutiny under these laws in the event of private litigation or an investigation by a governmental competition authority.
In addition, many of our products are sold to consumers via the Internet.
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We also incorporate encryption technology into certain of our solutions.
−Removed: These encryption solutions and underlying technology may be exported outside of the United States only with the required export authorizations or exceptions, including by license, a license exception, appropriate classification notification requirement and encryption authorization.
+Added: These encryption solutions and underlying technology may be exported outside of the United States
+Added: only with the required export authorizations or exceptions, including by license, a license exception, appropriate classification notification requirement and encryption authorization.
Furthermore, our activities are subject to U.S.
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sanctions or export control laws can result in significant fines or penalties and incarceration could be imposed on employees and managers for criminal violations of these laws.
−Removed: Also, various countries, in addition to the United States, regulate the import and export of certain encryption and other technology, including import and export licensing requirements, and have enacted laws that could limit our ability to distribute our products and services or our end-users’
−Removed: ability to utilize our solutions in their countries.
+Added: Also, various countries, in addition to the United States, regulate the import and export of certain encryption and other technology, including import and export licensing requirements, and have enacted laws that could limit our ability to distribute our products and services or our end-users’ ability to utilize our solutions in their countries.
Changes in our products and services or changes in import and export regulations may create delays in the introduction of our products in international markets.
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As a result, they may be able to compete more effectively than we can in the United States and the international Internet security market.
−Removed: If our goodwill and intangible assets become impaired, as occurred in 2022 and 2023, we may be required to record a significant charge to earnings.
+Added: If our goodwill becomes impaired, as occurred in 2022, we may be required to record a significant charge to earnings.
Goodwill is required to be tested for impairment at least annually.
−Removed: Factors that may be considered when determining if the carrying value of our goodwill or intangible assets may not be recoverable include a significant decline in our expected future cash flows or a sustained, significant decline in our stock price and market capitalization.
−Removed: As a result of our acquisitions, we have significant goodwill and intangible assets recorded on our balance sheets.
−Removed: In addition, significant negative industry or economic trends, such as those that have occurred as a result of the recent economic downturn, including reduced estimates of future cash flows or disruptions to our business could indicate that goodwill and intangible assets might be impaired.
−Removed: If, in any period our stock price decreases to the point where our market capitalization is less than our book value, this too could indicate a potential impairment and we may be required to record an impairment charge in that period.
+Added: Factors that may be considered when determining if the carrying value of our goodwill may not be recoverable include a significant decline in our expected future cash flows or a sustained, significant decline in our stock price and market capitalization.
+Added: As a result of our acquisitions, we have significant goodwill recorded on our balance sheets.
+Added: In addition, significant negative industry or economic trends, such as those that have occurred as a result of the recent economic downturn, including reduced estimates of future cash flows or disruptions to our business could indicate that goodwill might be impaired.
+Added: If, in any period
+Added: our stock price decreases to the point where our market capitalization is less than our book value, this too could indicate a potential impairment and we may be required to record an impairment charge in that period.
Our valuation methodology for assessing impairment requires management to make judgments and assumptions based on projections of future operating performance.
1 unchanged sentence
Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for each reporting unit.
−Removed: For example, in 2022 and 2023, the market price of our common stock and market capitalization declined and the U.S.
+Added: For example, in 2022, the market price of our common stock and market capitalization declined and the U.S.
WiFi market contracted, which had a significant negative impact on our Connected Home business.
−Removed: As a result, we recognized a goodwill impairment charge in the first quarter of 2022 and an intangible impairment charge in the third quarter of 2023 to our Connected Home reporting unit.
−Removed: We have not recognized any impairment charge on our SMB reporting unit.
+Added: As a result, we recognized a goodwill impairment charge in the first quarter of 2022.
+Added: We have not recognized any impairment charge on our NETGEAR for Business reporting unit.
However, we operate in highly competitive environments and projections of future operating results and cash flows may vary significantly from actual results.
−Removed: As a result, we may incur substantial impairment charges to earnings in our financial statements should an impairment of our goodwill be determined on our SMB reporting unit, resulting in an adverse impact on our results of operations.
+Added: As a result, we may incur substantial impairment charges to earnings in our financial statements should an impairment of our goodwill be determined on our NETGEAR for Business reporting unit, resulting in an adverse impact on our results of operations.
General Risk Factors
+Added: * If we lose the services of our key personnel, we may not be able to execute our business strategy effectively.
+Added: Changes in our management team may disrupt our business, strategic and employee relationships, which may delay or prevent the achievement of our business objectives.
+Added: During the transition periods, there may be uncertainty among investors, employees and others concerning our future direction and performance.
+Added: For example, we appointed a new Chief Executive Officer effective January 31, 2024 and are undergoing a leadership change to our NETGEAR for Business reporting unit.
+Added: The failure to successfully transition could adversely affect our results of operations.
+Added: Our future success depends in large part upon the continued services of our key technical, engineering, sales, marketing, finance and senior management personnel.
+Added: We do not maintain any key person life insurance policies.
+Added: Our business model requires extremely skilled and experienced senior management who are able to withstand the rigorous requirements and expectations of our business.
+Added: Our success depends on senior management being able to execute at a very high level.
+Added: The loss of any of our senior management or other key engineering, research, development, sales or marketing personnel, particularly if lost to competitors, could harm our ability to implement our business strategy and respond to the rapidly changing needs of our business.
+Added: Our future success also depends on our ability to hire for key functions.
+Added: The market for talent in the technology industry, especially in the areas of software and subscription services is competitive, and we may not have the resources to compete at the same level as larger companies who are able to offer more compelling compensation packages.
+Added: Therefore, our ability to recruit new talent and retain existing talent may be adversely affected, and as a result our business as a whole may suffer.
+Added: While we believe that we have mitigated some of the business execution and business continuity risk with our organization into two business segments with separate leadership teams, the loss of any key personnel would still be disruptive and harm our business, especially given that our business is leanly staffed and relies on the expertise and high performance of our key personnel.
Global economic conditions could materially adversely affect our revenue and results of operations.
−Removed: Our business has been and may continue to be affected by a number of factors that are beyond our control, such as general geopolitical, economic and business conditions, conditions in the financial markets, and changes in the overall demand for networking and smart home products.
−Removed: A severe and/or prolonged economic downturn could adversely affect our customers’
−Removed: financial condition and the levels of business activity of our customers.
+Added: Our business has been and may continue to be affected by a number of factors that are beyond our control, such as general geopolitical, economic and business conditions, conditions in the financial markets, and changes in the overall demand for Pro AV, networking and smart home products.
+Added: A severe and/or prolonged economic downturn could adversely affect our customers’ financial condition and the levels of business activity of our customers.
Weakness in, and uncertainty about, global economic conditions may cause businesses to postpone spending in response to tighter credit, negative financial news and/or declines in income or asset values, which could have a material negative effect on the demand for networking products.
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Macroeconomic weakness and uncertainty also make it more difficult for us to accurately forecast revenue, gross margin and expenses.
−Removed: If we are unable to successfully anticipate changing economic, geopolitical and financial conditions, we may be unable to effectively plan for and respond to those changes which could further disrupt our business or limit our ability to access certain assets and materially adversely affect our business and results of operations.
+Added: If we are unable to successfully anticipate changing economic, geopolitical and financial conditions, we may be unable to effectively plan for and respond to those changes which
+Added: could further disrupt our business or limit our ability to access certain assets and materially adversely affect our business and results of operations.
In addition, availability of our products from third-party manufacturers and our ability to distribute our products into the United States and non-U.S.
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These and other economic factors could materially and adversely affect our revenue and results of operations.
−Removed: * If we lose the services of our Chairman and Chief Executive Officer, Patrick C.S.
−Removed: Lo, or our other key personnel, we may not be able to execute our business strategy effectively.
−Removed: Our future success depends in large part upon the continued services of our key technical, engineering, sales, marketing, finance and senior management personnel.
−Removed: In particular, the services of Patrick C.S.
−Removed: Lo, our Chairman and Chief Executive Officer, who has led our company since its inception, are very important to our business.
−Removed: We do not maintain any key person life insurance policies.
−Removed: Our business model requires extremely skilled and experienced senior management who are able to withstand the rigorous requirements and expectations of our business.
−Removed: Our success depends on senior management being able to execute at a very high level.
−Removed: The loss of any of our senior management or other key engineering, research, development, sales or marketing personnel, particularly if lost to competitors, could harm our ability to implement our business strategy and respond to the rapidly changing needs of our business.
−Removed: The market for talent in the technology industry, especially in the areas of software and subscription services is competitive, and we may not have the resources to compete at the same level as larger companies who are able to offer more compelling compensation packages.
−Removed: Therefore, our ability to recruit new talent and retain existing talent may be adversely affected, and as a result our business as a whole may suffer.
−Removed: While we have adopted an emergency succession plan for the short term, we have not formally adopted a long-term succession plan.
−Removed: As a result, if we suffer the loss of services of any key executive, our long-term business results may be harmed.
−Removed: While we believe that we have mitigated some of the business execution and business continuity risk with our organization into two business segments with separate leadership teams, the loss of any key personnel would still be disruptive and harm our business, especially given that our business is leanly staffed and relies on the expertise and high performance of our key personnel.
−Removed: In addition, because we do not have a formal long-term succession plan, we may not be able to have the proper personnel in place to effectively execute our long-term business strategy if Mr.
−Removed: Lo or other key personnel retire, resign or are otherwise terminated.
Political events, war, terrorism, public health issues, climate changes, natural disasters, sudden changes in trade and immigration policies, and other circumstances could materially adversely affect us.
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This could also lead to increased costs and decreased revenues.
−Removed: In addition, health epidemics, war, terrorism, geopolitical uncertainties, social and economic instability, public health issues, sudden changes in trade and immigration policies (such as the higher tariffs on certain products imported from China enacted by the previous U.S.
−Removed: administration or U.S.
−Removed: sanctions against Russia as a result of the Russia-Ukraine dispute), and other business interruptions have caused and could cause damage or disruption to international commerce and the global economy, and thus could have a strong negative effect on us, our suppliers, logistics providers, manufacturing vendors and customers.
−Removed: Our business operations are subject to interruption by natural disasters, fire, power shortages, terrorist attacks and other hostile acts, labor disputes, public health issues, and other events beyond our control.
−Removed: In addition, in the past, labor disputes at third-party manufacturing facilities have led to workers going on strike, and labor unrest could materially affect our third-party manufacturers’
−Removed: abilities to manufacture our products.
+Added: In addition, health epidemics, war, terrorism, geopolitical uncertainties, social and economic instability, public health issues, sudden changes in trade and immigration policies (such as the higher tariffs on certain products imported from China, U.S.
+Added: sanctions against Russia as a result of the Russia-Ukraine dispute, the Israel-Hamas conflict, and Red Sea crisis), and other business interruptions have caused and could cause damage or disruption to international commerce and the global economy, and thus could have a strong negative effect on us, our suppliers, logistics providers, manufacturing vendors and customers.
+Added: Our business operations are subject to interruption by natural disasters, fire, power shortages, geopolitical disputes or conflicts, terrorist attacks and other hostile acts, labor disputes, public health issues, and other events beyond our control.
+Added: In addition, in the past, labor disputes at third-party manufacturing facilities have led to workers going on strike, and labor unrest could materially affect our third-party manufacturers’ abilities to manufacture our products.
Such events could decrease demand for our products, make it difficult, more expensive or impossible for us to make and deliver products to our customers or to receive components from our direct or indirect suppliers, and create delays and inefficiencies in our supply chain.
−Removed: Major public health issues, including pandemics such as COVID-19, could negatively affect us through more stringent employee travel restrictions, additional limitations in freight services, governmental actions limiting the movement of products between regions, delays in production ramps of new products, and disruptions in the operations of our manufacturing vendors and component suppliers.
+Added: Wars or geopolitical conflicts, major public health issues, including pandemics such as COVID-19, could negatively affect us through more stringent employee travel restrictions, additional limitations in freight services or increase in freight costs, governmental actions limiting the movement of products between regions, delays in production ramps of new products, and disruptions in the operations of our manufacturing vendors and component suppliers.
Our stock price has experienced recent volatility and may be volatile in the future and your investment in our common stock could suffer a decline in value.
2 unchanged sentences
Some specific factors that may have a significant effect on our common stock market price include:
−Removed: actual or anticipated fluctuations in our operating results or our competitors’
−Removed: operating results;
−Removed: actual or anticipated changes in the growth rate of the general networking sector, our growth rates or our competitors’
−Removed: growth rates;
+Added: • actual or anticipated fluctuations in our operating results or our competitors’ operating results;
+Added: • actual or anticipated changes in the growth rate of the general networking sector, our growth rates or our competitors’ growth rates;
• conditions in the financial markets in general or changes in general economic, political and market conditions, including government efforts to mitigate economic downturns or control inflation;
17 unchanged sentences
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.