What changed in this filing

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Item 4. Controls and Procedures

2024-11-01 compared with 2024-08-02 · 51 added, 45 removed, 851 unchanged (10% of the section changed)

6 unchanged sentences

It should be noted that any system of controls, however well designed and operated, can provide only reasonable assurance, and not absolute assurance, that the objectives of the system are met.

In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events.

In addition, the design of any

control system is based in part upon certain assumptions about the likelihood of future events.

Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals in all future circumstances.

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In 2022 and the first half of 2023, many of our retail and service provider partners began significantly reducing their target inventory levels which adversely affected our results of operations.

While we 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.

While we see signs of the retail networking market stabilizing, the uncertain macroeconomic environment and high inflation and interest rates are also putting pressure on our NETGEAR for Business channel partners.

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.

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Actual demand for our products depends on many factors, which makes it difficult to forecast.

We have experienced

differences between our actual and our forecasted demand in the past and expect differences to arise in the future.

We have experienced differences

between our actual and our forecasted demand in the past and expect differences to arise in the future.

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.

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Our management may not have the experience of selling in these new markets and we may not be able to grow our business as planned.

For example, in August 2018, we acquired Meural Inc., a leader in digital platforms for visual art, to enhance our Connected Home product and service offerings.

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.

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however, such investments may not prove to be successful.

Additionally, a significant part of our business strategy and culture is to focus on long-term growth and as a result, our profitability may be lower than it would be if our strategy were to maximize short-term financial results.

If we are ultimately unable to improve profitability at the level or during the time frame anticipated by securities or industry analysts and our stockholders, the trading price of our common stock may decline.

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.

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Our traditional retail customers have faced increased and significant competition from online retailers, and some of these traditional retail customers have increasingly become a smaller portion of our business.

If key retail customers continue to reduce their level of purchases, our business could be harmed.

If key retail customers continue

to reduce their level of purchases, our business could be harmed.

Similarly, we sell products and services directly to consumers from our own e-commerce platforms and expect these revenues to grow proportionate to overall revenue.

Some of our customers, such as Amazon and Best Buy, may consider this to be competitive with their own businesses, which could negatively influence their purchasing decisions with respect to our products.

Furthermore, we have experienced a shift towards

products being bought and sold online.

Furthermore, we have experienced a shift towards products being bought and sold online.

If we are unable to adjust to this shift and effectively manage our business and inventory requirements amongst our online customers and traditional retail customers, this may lead to lower market share and lower revenues for us, and our net revenue and operating results could be harmed.

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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.

Also, many standardized components used broadly in electronic devices are manufactured in significant quantities in concentrated

geographic regions, particularly in Greater China.

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.

Additionally, government intervention to curb the consumption of electricity in China could have a disruptive impact on

component production and supply availability.

Additionally, government intervention to curb the consumption of electricity in China could have a disruptive impact on 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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For example, Amazon provides an important sales channel for our products, but it also competes with us in the mesh WiFi systems product category through its subsidiary Eero.

In addition, certain competitors may have different business models, such as integrated manufacturing capabilities, that may allow them to achieve cost savings and to compete on the basis of price.

In addition, certain competitors may have different business models, such as integrated

manufacturing capabilities, that may allow them to achieve cost savings and to compete on the basis of price.

Other competitors may have fewer resources but may be more nimble in developing new or disruptive technology or in entering new markets.

We anticipate that current and potential competitors will also intensify their efforts to penetrate our target markets.

in the past certain network security companies such as Symantec have introduced security routers for the home consumer market to compete with us and we believe that other network security companies may also seek to do the same.

For example, in the past certain network security companies such as Symantec have introduced security routers for the home consumer market to compete with us and we believe that other network security companies may also seek to do the same.

Also, due to our recent success in the audio visual over IP market, some of our competitors may seek to enter this market as well.

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Competition for selling to broadband service providers is fierce and intense.

Penetrating service provider accounts typically involves a long sales cycle and the challenge of displacing incumbent suppliers with established relationships and field-deployed products.

Penetrating service provider accounts typically involves a long sales cycle and the challenge of displacing incumbent

suppliers with established relationships and field-deployed products.

If we are unable to maintain and expand our sales channels, our growth would be limited and our business would be harmed.

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If our third-party manufacturers fail to maintain good relations with their employees or contractors, and production and manufacturing of our products is affected, then we may be subject to shortages of products and quality of products delivered may be affected.

Further, if our manufacturers or warehousing facilities are disrupted or destroyed, we would have no other readily available alternatives for manufacturing and assembling our products and our business would be significantly harmed.

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.

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.

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International sales comprise a significant amount of our overall net revenue.

International sales were approximately 36% of overall net revenue in the second fiscal quarter of 2024 and approximately 34% of overall net revenue in fiscal 2023.

International sales were approximately 32% of overall net revenue in the third 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;

• geopolitical and economic tensions, such as in the Middle East, between China/Taiwan, international terrorism and anti-American sentiment, particularly in emerging markets;

• geopolitical and economic tensions, such as in the Middle East, between China/Taiwan, and international terrorism and anti-American sentiment, particularly in emerging markets;

• potential for violations of anti-corruption laws and regulations, such as those related to bribery and fraud;

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The loss of recurring orders from any of our more significant customers could cause our revenue and profitability to suffer.

Our ability to attract new customers will depend on a variety of factors, including the cost-effectiveness, reliability, scalability, breadth and depth of our products.

Our ability to attract new customers will depend on a variety of factors, including the cost-effectiveness, reliability, scalability,

breadth and depth of our products.

In addition, a change in the mix of our customers, or a change in the mix of direct and indirect sales, could adversely affect our revenue and gross margins.

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Further, successful engagements with service provider customers requires a constant analysis of technology trends.

If we are unable to anticipate technology trends and service provider customer product needs, and to allocate research and development resources to the right projects, we may not be successful in continuing to sell products to service provider customers.

In addition, because our service provider customers command significant resources, including for software support, and demand extremely

competitive pricing, certain ODMs have declined to develop service provider products on an ODM basis.

If we are unable to anticipate technology trends and service provider customer product needs, and to allocate research and development

resources to the right projects, we may not be successful in continuing to sell products to service provider customers.

In addition, because our service provider customers command significant resources, including for software support, and demand extremely competitive pricing, certain ODMs have declined to develop service provider products on an ODM basis.

Accordingly, as our ODMs increasingly limit development of our service provider products, our service provider business will be harmed if we cannot replace this capability with alternative ODMs or in-house development.

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Furthermore, labor disputes among freight carriers and at ports of entry are common.

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.

via ports there, 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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This further intensifies the need for our transportation systems to function effectively and without delay.

Significant disruptions to the transportation network could lead to significant disruptions in our business, delays in shipments, and revenue and profitability shortfalls which could materially and adversely affect our business and financial results, especially if they were to take place within the last few weeks of any quarter.

Significant disruptions to the transportation network could lead to significant disruptions in our business, delays in shipments, increased shipping costs, and revenue and profitability shortfalls which could materially and adversely affect our business and financial results, especially if they were to take place within the last few weeks of any quarter.

Our international freight is regularly subjected to inspection by governmental entities.

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From time to time, we will undertake acquisitions to add new product lines and technologies, gain new sales channels or enter into new sales territories.

For example, in August 2018, we acquired Meural Inc., a leader in digital platforms for visual art, to enhance our Connected Home product and service offerings.

Acquisitions involve numerous risks and challenges, including but not limited to the following:

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Failure to manage and successfully integrate acquisitions could materially harm our business and operating results.

In addition, if stock market analysts

or our stockholders do not support or believe in the value of the acquisitions that we choose to undertake, our stock price may decline.

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.

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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.

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.

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.

* 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.

Our products and services may contain unknown security vulnerabilities.

Our products and services could be compromised due to security vulnerabilities.

For example, the firmware, software and open source software that we or our manufacturing partners have installed on our products may be susceptible to hacking or misuse.

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.

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.

Despite our efforts and processes to prevent breaches, our systems and products are vulnerable to cybersecurity risks, including cyber-attacks such as viruses and worms, vulnerabilities such as command injection, cross site scripting, credential stuffing attacks, authentication and session management, and stack-based buffer overflow, and other sophisticated attacks or exploits.

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.

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In addition, any such breaches may result in negative publicity, adversely affect our brand, decrease demand for our products and services, and adversely affect our operating results and financial condition.

Further, under certain circumstances, we may need to prioritize fixing these vulnerabilities over new product development, which may impact our revenues and adversely affect our business.

Applicable data privacy and security obligations may require us, or we may voluntarily choose to, notify relevant stakeholders, including affected individuals, customers, regulators, investors and others of security breaches.

Such disclosures and related actions can be costly and the disclosure or the failure to comply with such applicable requirements could lead to adverse consequences.

Further, under certain circumstances, we may need to prioritize fixing vulnerabilities or responding to security breaches over new product development, which may impact our revenues and adversely affect our business.

In addition, we offer a comprehensive online cloud management service paired with a number of our products.

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In addition, U.S.

and foreign regulators have increased their focus on cybersecurity vulnerabilities and risks and many states, countries and jurisdictions have laws and regulations that 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, that continuously evolves and develops, and we may be required to put in place additional mechanisms ensuring compliance with the laws and regulations and incur substantial expenditures.

and foreign regulators have increased their focus on cybersecurity (including related vulnerabilities and risks) and many states, countries and jurisdictions have laws and regulations that 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, that continuously evolves and develops, and we may be required to put in place additional mechanisms ensuring compliance with the laws and regulations and incur substantial expenditures.

If we fail to comply with any such laws or regulations, we may face significant fines and penalties that could adversely affect our business, financial condition and results of operations.

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The applicability and scope of these laws and regulations, as interpreted by courts, regulators, or administrative bodies, remain uncertain and compliance in the event of a widespread data breach or other cybersecurity incident could be costly.

Potential breaches of our security measures and the accidental loss, inadvertent disclosure or unapproved dissemination of proprietary information or sensitive or confidential data about us, our employees or our customers, including the potential loss or disclosure of such information or data as a result of improper use of AI tools, employee error or other employee actions, hacking, fraud, social engineering or other forms of deception, could expose us, our customers or the individuals affected to a risk of loss or misuse of this information, result in litigation and potential liability for us, subject us to significant governmental fines, damage our brand and reputation, or otherwise harm our business.

Actual and potential breaches of our security measures as well as the loss, disclosure or dissemination of proprietary information or sensitive or confidential data about us, our employees or our customers, including the potential loss or disclosure of such information or data as a result of improper use of AI tools, employee error or other employee actions, hacking, fraud, social engineering or other forms of deception, could expose us, our customers or the individuals affected to a risk of loss or misuse of this information, result in litigation and potential liability for us, subject us to significant governmental fines, damage our brand and reputation, or otherwise harm our business.

It may be difficult and/or costly to detect, investigate, mitigate, contain and remediate security breaches and our efforts to do so may not be successful.

Actions taken by us or third parties with whom we work to detect, investigate, mitigate, contain and remediate a security breach could result in outages, data losses, disruptions to our business and otherwise harm our business.

Unauthorized parties may also gain access to other networks, systems and products after a compromise of our networks, systems, and products.

Our management has spent increasing amounts of time, effort and expense in this area, and in the event of the discovery of significant product or system security vulnerability, or improper use of AI tools or other cybersecurity incidents, we could incur additional substantial expenses and our business and reputation could be harmed.

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We continue to evolve our historically hardware-centric business model towards a model that includes more sophisticated software offerings, including subscription services and applications that complement our products and are intended to drive subscriber growth and future recurring revenue.

As such, we have evolved the focus of our organization towards the delivery of more integrated hardware and software solutions for our customers, as well as related services, and we have and will continue to expend additional resources in this area in the future, including key new hires.

to expend additional resources in this area in the future, including key new hires.

Such endeavors may involve significant risks and uncertainties, including distraction of management from current operations and insufficient revenue to offset expenses associated with this strategy.

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The substantial majority of our revenue from our subscription services is generated from use of such services on mobile devices.

We are dependent on the interoperability of Armor and our parental controls services and our other products and

services with popular mobile operating systems, networks, technologies, products, and standards that we do not control, such as the Android and iOS operating systems and mobile browsers.

We are dependent on the interoperability of Armor and our parental controls services and our other products and services with popular mobile operating systems, networks, technologies, products, and standards that we do not control, such as the Android and iOS operating systems and mobile browsers.

Any changes, bugs, or technical issues in such systems, or changes in our relationships with mobile operating system partners, handset manufacturers, browser developers, or mobile carriers, or in their terms of service or policies that degrade our products’ functionality, reduce or eliminate our ability to update or distribute our products or services, give preferential treatment to competitive products, or charge fees related to the distribution of our products could adversely affect the usage of our subscription services products or our other products and services on mobile devices.

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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 2024, another third party filed a case against us in the International Trade Commission and California District Court alleging patent infringement and seeking an exclusion order on importation of purportedly infringing products into the United States as well as damages.

In addition, several third-party non practicing entities have initiated litigation against us in China, which also raises novel and unique challenges for us.

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 us, 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.

or even end user customers, alleging infringement of their proprietary rights with respect to existing or future products.

In the event successful claims of infringement are brought by third parties, and we are unable to obtain licenses or independently develop alternative technology on a timely basis, we may be subject to indemnification obligations, be unable to offer competitive products, or be subject to increased expenses.

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Our hearing on all years at the Italian Supreme Court was held on March 6, 2024.

As of June 30, 2024, decisions were issued in the Company’s favor for the 2007 through 2012 tax years.

As of June 30, 2024, decisions on the 2004 through 2006 were reverted back to the lower court for re-hearing.

Decisions were issued in the Company’s favor for the 2006 through 2012 tax years.

Decisions on the 2004 through 2006 tax years were reverted back to the lower court for re-hearing.

If we are unsuccessful in defending our tax positions for the remaining years, our profitability will be reduced.

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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.

What changed 10-Q

Item 4. Controls and Procedures