February 8, 2011

NETGEAR® Reports Record Fourth Quarter and Full Year 2010 Results

  • Fourth quarter 2010 net revenue of $258.5 million, as compared to $218.8 million in the comparable prior year quarter, 18% year-over-year growth
  • Fourth quarter 2010 non-GAAP net income of $16.1 million, as compared to $11.8 million in the comparable prior year quarter, 36% year-over-year growth
  • Fourth quarter 2010 non-GAAP diluted earnings per share of $0.44, as compared to $0.34 in the comparable prior year quarter
  • 2010 net revenue was $902.1 million, as compared to $686.6 million in 2009, 31% year-over-year increase
  • 2010 non-GAAP net income of $62.9 million, as compared to $23.7 million in 2009
  • 2010 non-GAAP diluted earnings per share of $1.74, as compared to $0.68 in 2009
  • Company expects first quarter 2011 net revenue to be in the range of $250 million to $260 million, with non-GAAP operating margin in the range of 11% to 12%

SAN JOSE, California - February 8, 2011 - NETGEAR, Inc. (NASDAQGM: NTGR), a global networking company that delivers innovative products to consumers, businesses and service providers, today reported financial results for the fourth quarter and fiscal year ended December 31, 2010.

Net revenue for the fourth quarter ended December 31, 2010 was $258.5 million, as compared to $218.8 million for the fourth quarter ended December 31, 2009, and as compared to $236.0 million in the third quarter ended October 3, 2010. Net income, computed in accordance with GAAP, for the fourth quarter of 2010 was $13.6 million, or $0.37 per diluted share. This compared to GAAP net income of $7.9 million, or $0.22 per diluted share, for the fourth quarter of 2009, and to GAAP net income of $13.1 million, or $0.36 per diluted share, in the third quarter of 2010.

Gross margin on a non-GAAP basis in the fourth quarter of 2010 was 32.0%, as compared to 31.1% in the year ago comparable quarter, and 32.7% in the third quarter of 2010. Non-GAAP operating margin was 11.4% in the fourth quarter of 2010, as compared to 11.2% in the fourth quarter of 2009, and 11.0% in the third quarter of 2010. Non-GAAP net income was $0.44 per diluted share in the fourth quarter of 2010, as compared to non-GAAP net income of $0.34 per diluted share in the fourth quarter of 2009, and non-GAAP net income of $0.45 per diluted share in the third quarter of 2010.

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, technology license arrangements, 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.

Net revenue for the full year 2010 was $902.1 million, a 31% increase as compared to $686.6 million for 2009. Net income, computed in accordance with GAAP, for 2010 was $50.9 million, or $1.41 per diluted share. This net income was a 447% increase compared to net income of $9.3 million for 2009. Earnings per share, computed in accordance with GAAP, was $0.27 per diluted share for the full year 2009.

Non-GAAP net income for the full year 2010 was $62.9 million, a 165% increase compared to non-GAAP net income of $23.7 million for 2009. Non-GAAP net income was $1.74 per diluted share for 2010, as compared to $0.68 per diluted share for 2009, a 156% increase.

Patrick Lo, Chairman and Chief Executive Officer of NETGEAR, commented, "We are extremely pleased with our full year 2010 business performance. The fourth quarter 2010 represented another new record in our quarterly revenue, and our full year 2010 also marked a year of record revenue and strong year-over-year growth. Our net revenue from service providers was approximately 25% of total net revenue in the fourth quarter 2010, as compared to 19% in the third quarter of 2010, and 28% in the fourth quarter of 2009.

The strong revenue performance in the fourth quarter was driven by higher than expected revenue contribution from new products. We introduced a record 26 new products during the fourth quarter 2010. In total, we introduced an unprecedented 81 new products in 2010. Notable new products include the industry's first 500Mbps Powerline adapter, the Neo TV™ 550 Digital/Internet Media Player, the ReadyNAS® Ultra 2 Media Server Network Storage, the 4G LTE WiFi router, and a 10Gbps Ethernet Switch for medium size businesses. At the Las Vegas International Consumer Electronics Show in January, three of our new products were the recipients of 2011 Innovations Design and Engineering awards."

Christine Gorjanc, Chief Financial Officer of NETGEAR, said, "We ended the fourth quarter of 2010 with $270.7 million in cash, cash equivalents and short-term investments, compared to $247.1 million at the end of the fourth quarter of 2009, and $243.5 million at the end of the third quarter of 2010. Our net inventory ended at $127.4 million, compared to $90.6 million at the end of the fourth quarter of 2009, and $110.4 million at the end of the third quarter of 2010."

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

Looking forward, Mr. Lo added, "We continue to benefit from our unwavering commitment to research and development, resulting in unprecedented new product introductions in the last 3 quarters with more to come. We continue to believe that our strong new product pipeline will be the driving engine of our growth in 2011. In the first quarter of 2011, we intend to roll out at least another 20 new products. Specifically, for the first quarter 2011, we expect net revenue in the range of approximately $250 million to $260 million, with non-GAAP operating margin to be in the range of 11% to 12%."

Investor Conference Call / Webcast Details
NETGEAR will review the fourth quarter and full year 2010 results and discuss management's expectations for the first quarter of 2011 today, Tuesday, February 8, 2011 at 5 p.m. EST (2 p.m. PST). The dial-in number for the live audio call is (201) 689-8471. 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 EST (9 p.m. PST) on Tuesday, February 15, 2011 by telephone at (858) 384-5517 and via the web at www.netgear.com. The account number to access the phone replay is 3055 and the conference ID number is 365234.

About NETGEAR, Inc.
NETGEAR (NASDAQGM: NTGR) is a global networking company that delivers innovative products to consumers, businesses and service providers. For consumers, the company makes high performance, dependable and easy home networking, storage and digital media products to connect people with the Internet and their content and devices. For businesses, NETGEAR provides networking, storage and security solutions without the cost and complexity of Big IT. The company also supplies top service providers with retail proven, whole home solutions for their customers. NETGEAR 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 28,000 retail locations around the globe, and through 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 at http://www.netgear.com/ or by calling (408) 907-8000. Connect with NETGEAR at http://twitter.com/NETGEAR and http://www.facebook.com/NETGEAR.

© 2011 NETGEAR, Inc. NETGEAR, the NETGEAR logo, ReadyNAS and NeoTV are trademarks or registered trademarks of NETGEAR, Inc. in the United States and/or other countries. Other brand and product names are trademarks or registered trademarks of their respective holders. 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 market share for the Company's products globally. 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 37 through 53, in the Company's Quarterly Report on Form 10-Q for the quarter ended October 3, 2010, filed with the Securities and Exchange Commission on November 10, 2010. 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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