October 22, 2009

NETGEAR® Reports Third Quarter 2009 Results

Highlights:

  • Net revenue of $171.1 million, compared to $179.4 million in the comparable prior year quarter
  • Non-GAAP net income of $11.0 million, compared to net income of $6.9 million in the comparable prior year quarter
  • Non-GAAP diluted earnings per share of $0.31, compared to diluted earnings per share of $0.19 in the comparable prior year quarter
  • Fourth quarter 2009 net revenue guidance in the range of $170 million to $180 million, with non-GAAP operating margin guidance in the range of 7% to 9%

SAN JOSE, California - October 22, 2009 - NETGEAR, Inc. (NASDAQGM: NTGR), a worldwide provider of technologically innovative, branded networking products, today reported financial results for the third quarter ended September 27, 2009.

Net revenue for the third quarter ended September 27, 2009 was $171.1 million, compared to $179.4 million for the third quarter ended September 28, 2008, and $144.7 million in the second quarter ended June 28, 2009. Net income, computed in accordance with GAAP, for the third quarter of 2009 was $8.5 million, or $0.24 per diluted share. This compared to net income of $3.1 million for the third quarter of 2008, and a net loss of $3.3 million in the second quarter of 2009. Diluted earnings per share, computed in accordance with GAAP, was $0.09 for the third quarter of 2008 and diluted loss per share, computed in accordance with GAAP, was $0.10 for the second quarter of 2009.

Gross margin on a non-GAAP basis in the third quarter of 2009 was 33.5%, compared to 35.5% in the third quarter of 2008, and 29.6% in the second quarter of 2009. Non-GAAP operating margin was 10.6% in the third quarter of 2009, compared to 11.1% in the third quarter of 2008, and 3.7% in the second quarter of 2009. Non-GAAP net income was $0.31 per diluted share in the third quarter of 2009, compared to non-GAAP net income of $0.19 per diluted share in the third quarter of 2008, and non-GAAP net loss of $0.02 per diluted share in the second quarter of 2009.

The differences between GAAP and non-GAAP financial measures include adjustments, net of any tax effect, for amortization of purchased intangibles, stock-based compensation, restructuring, acquisition related compensation, and litigation reserves. The accompanying schedules provide a reconciliation of financial measures computed on a GAAP basis to financial measures computed on a non-GAAP basis.

Patrick Lo, Chairman and Chief Executive Officer of NETGEAR commented, "We are extremely pleased with our business performance this quarter. The third quarter showed robust back to school demand and market share gain in the U.S., resulting in year-over-year growth in U.S. net revenue. SMB (small and medium-sized business) demand improved with quarter-over-quarter growth across all geographic regions. Combined with our continued cost savings, this net revenue growth resulted in significant operating margin improvement which exceeded our expectations."

Mr. Lo continued, "We introduced 21 new products in the third quarter, a new record for us in product launches in a single quarter. Notable launches in home consumer products include the Digital Entertainer Live for viewing Internet video programs on TVs; Stora, our home multimedia network storage device accessible anywhere in the world via both laptops and smartphones; and the "ultimate networking machine" - a dual band, gigabit, super high speed WiFi router packed with state of the art features such as ReadyShare USB access and broadband usage metering. On the SMB front, we introduced the 12-Bay Super Performance Rackmount ReadyNAS capable of storing up to 12TB of secured data; and a full line of ProSecure security appliances ranging from UTMs for up to 25 users and Content Threat Managers for up to 600 users. We also debuted breakthrough products such as our new DOCSIS 3.0 cable WiFi gateway and revolutionary "configurable" unmanaged switches. We remain laser focused on product development and intend to roll out another 15-20 new products in the fourth quarter. This will further position us for future revenue growth and market share gain.

During the quarter, our net revenue from service providers was approximately 25% of total net revenue, as compared to 18% in the third quarter of 2008, and 30% in the second quarter of 2009. In addition, we are excited to have added J:COM in Japan and Comhem in Sweden to our service provider customer list in the third quarter of 2009."

Christine Gorjanc, Chief Financial Officer of NETGEAR, said, "We ended the third quarter of 2009 with $234.5 million in cash, cash equivalents and short-term investments, compared to $202.2 million at the end of the third quarter of 2008, and $224.5 million at the end of the second quarter of 2009. Our net inventory ended at $73.9 million, compared to $125.7 million at the end of the third quarter of 2008, and $75.0 million at the end of the second quarter of 2009. We are also pleased to announce that our current year-to-date operating expense cost reductions is approximately $8.8 million, as compared to our total 2009 operating expense cost reduction target of $10.0 million, which was based on our annualized fourth quarter 2008 run rate."

Net revenue by geography comprises gross revenue less items such as marketing incentives paid to customers, sales returns and price protection. The following table shows net revenue by geography for the periods indicated:

Looking ahead, Mr. Lo commented, "During the fourth quarter of 2009, we anticipate continued revenue expansion in new categories such as consumer and high end network storage, DOCSIS 3.0 cable gateways, and security appliances, in addition to overall market share gain in retail and SMB channels worldwide. We believe we can continue to grow and gain market share in the U.S., Asia Pacific and other emerging markets. Specifically, for the fourth quarter 2009, we expect net revenue in the range of approximately $170 million to $180 million and non-GAAP operating margin to be in the range of 7% to 9%."

Investor Conference Call / Webcast Details
NETGEAR will review the third quarter 2009 results and discuss management's expectations for the fourth quarter of 2009 today, Thursday, October 22, 2009 at 5 p.m. EDT (2 p.m. PDT). The dial-in number for the live audio call is (201) 689-8560. A live webcast of the conference call will be available on NETGEAR's website at www.netgear.com. A replay of the call will be available 2 hours following the call through midnight EDT (9 p.m. PDT) on Thursday, October 29, 2009 by telephone at (201) 612-7415 and via the web at www.netgear.com. The account number to access the phone replay is 3055 and the conference ID number is 334701.

About NETGEAR, Inc.
NETGEAR (NASDAQGM: NTGR) designs innovative, branded technology solutions that address the specific networking, storage, and security needs of small- to medium-sized businesses and home users. The company offers an end-to-end networking product portfolio to enable users to share Internet access, peripherals, files, multimedia content, and applications among multiple computers and other Internet-enabled devices. Products are built on a variety of proven technologies such as wireless, Ethernet and powerline, with a focus on reliability and ease-of-use. NETGEAR products are sold in over 27,000 retail locations around the globe, and via more than 37,000 value-added resellers. The company's headquarters are in San Jose, Calif., with additional offices in 25 countries. NETGEAR is an ENERGY STAR® partner. More information is available by visiting www.netgear.com or calling (408) 907-8000. Follow NETGEAR at http://twitter.com/NETGEAR and http://www.facebook.com/netgear.

© 2009 NETGEAR, Inc. NETGEAR, the NETGEAR logo, ProSecure, ReadyNAS and ReadyShare are trademarks or registered trademarks of NETGEAR, Inc. in the United States and/or other countries. The information contained herein is subject to change without notice. NETGEAR shall not be liable for technical or editorial errors or omissions contained herein. All rights reserved.

Contact:
Joseph Villalta
The Ruth Group
(646) 536-7003
jvillalta@theruthgroup.com

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 for NETGEAR, Inc.:
This press release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. The words "anticipate", "expect", "believe", "will", "may", "should", "estimate", "project", "outlook", "forecast" or other similar words are used to identify such forward-looking statements. However, the absence of these words does not mean that the statements are not forward-looking. The forward-looking statements represent NETGEAR, Inc.'s expectations or beliefs concerning future events based on information available at the time such statements were made and include statements, among others, regarding NETGEAR's expected revenue, earnings, gross and operating margin and operating income on both a GAAP and non-GAAP basis, our ability and intent to launch new product offerings and continue product development efforts, current and future demand for the Company's existing and anticipated new products, and our ability to increase distribution and market share for the Company's products domestically and worldwide. These statements are based on management's current expectations and are subject to certain risks and uncertainties, including, without limitation, the following: future demand for the Company's products may be lower than anticipated; consumers may choose not to adopt the Company's new product offerings or adopt competing products; product performance may be adversely affected by real world operating conditions; the Company may be unsuccessful or experience delays in manufacturing and distributing its new and existing products; telecommunications service providers may choose to slow their deployment of the Company's products or utilize competing products; the Company may be unable to collect receivables as they become due; the Company may fail to manage costs, including the cost of developing new products and manufacturing and distribution of its existing offerings; the Company may fail to successfully continue to effect operating expense savings; channel inventory information reported is estimated based on the average number of weeks of inventory on hand on the last Saturday of the quarter, as reported by certain of NETGEAR's customers; changes in the level of NETGEAR's cash resources and the Company's planned usage of such resources; changes in the Company's stock price and developments in the business that could increase the Company's cash needs, fluctuations in foreign exchange rates, and the actions and financial health of the Company's customers. Further, certain forward-looking statements are based on assumptions as to future events that may not prove to be accurate. Therefore, actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. Further information on potential risk factors that could affect NETGEAR and its business are detailed in the Company's periodic filings with the Securities and Exchange Commission, including, but not limited to, those risks and uncertainties listed in the section entitled "Part II - Item 1A. Risk Factors," pages 35 through 49, in the Company's Quarterly Report on Form 10-Q for the quarter ended June 28, 2009, filed with the Securities and Exchange Commission on August 6, 2009. NETGEAR undertakes no obligation to release publicly any revisions to any forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Use of Non-GAAP Financial Information:
To supplement our consolidated financial statements presented on a GAAP basis, NETGEAR uses non-GAAP financial measures, which are adjusted to exclude certain expenses and tax benefits, where applicable. We believe non-GAAP financial measures are appropriate to enhance an overall understanding of our past financial performance and also our prospects for the future. These adjustments to our current period GAAP results are made with the intent of providing both management and investors a more complete understanding of NETGEAR's underlying operational results and trends and our marketplace performance. For example, the non-GAAP results are an indication of our baseline performance before charges that are considered by management to be outside of our core operating results. In addition, these adjusted non-GAAP results are among the primary indicators management uses as a basis for our planning and forecasting of future periods. The presentation of this additional information is not meant to be considered in isolation or as a substitute for financial measures prepared in accordance with generally accepted accounting principles in the United States.


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