July 26, 2012

NETGEAR® REPORTS SECOND QUARTER 2012 RESULTS

  • Second quarter 2012 net revenue of $320.7 million, as compared to $291.2 million in the comparable prior year quarter, 10.1% year-over-year growth
  • Second quarter 2012 non-GAAP net income of $24.6 million, as compared to $24.7 million in the comparable prior year quarter, decrease of 0.4% year-over-year
  • Second quarter 2012 non-GAAP diluted earnings per share of $0.64, as compared to $0.65 in the comparable prior year quarter, decrease of 1.5% year-over-year
  • Company expects third quarter 2012 net revenue to be in the range of $310 million to $325 million, with non-GAAP operating margin in the range of 11% to 12%

SAN JOSE, California - July 26, 2012 - NETGEAR, Inc. (NASDAQGM: NTGR), a global networking company that delivers innovative products to consumers, businesses and service providers, today reported financial results for the second quarter ended July 1, 2012.

Net revenue for the second quarter ended July 1, 2012 was $320.7 million, as compared to $291.2 million for the second quarter ended July 3, 2011, and $325.6 million in the first quarter ended April 1, 2012.  Net income, computed in accordance with GAAP, for the second quarter of 2012 was $21.5 million, or $0.56 per diluted share.  This compared to GAAP net income of $20.6 million, or $0.54 per diluted share, for the second quarter of 2011, and GAAP net income of $25.1 million, or $0.65 per diluted share, in the first quarter of 2012.  

Gross margin on a non-GAAP basis in the second quarter of 2012 was 29.9%, as compared to 31.7% in the year ago comparable quarter, and 31.0% in the first quarter of 2012. Non-GAAP operating margin was 11.0% in the second quarter of 2012, as compared to 11.9% in the second quarter of 2011, and 12.5% in the first quarter of 2012. Non-GAAP net income was $0.64 per diluted share in the second quarter of 2012, as compared to non-GAAP net income of $0.65 per diluted share in the second quarter of 2011, and non-GAAP net income of $0.73 per diluted share in the first quarter of 2012.  

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 and other charges, acquisition related compensation, impact to cost of sales from acquisition accounting adjustments to inventory, 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, "Despite the challenging macro environment in Europe, we are pleased that we finished the second quarter with double digit year-over-year worldwide revenue growth.  We increased our R&D spend and we are excited about the 26 products introduced in Q2 as well as the new products planned for the rest of the year.  We continued to see strong revenue growth and market share gain in Asia Pacific, the fastest growing region in the world."

 "Our Service Provider Business Unit net revenue for the quarter ended July 1, 2012 was up 3% sequentially, and up an impressive 19% over the prior year quarter. The second quarter was another record for quarterly net revenue for our Service Provider Business Unit. Our Commercial Business Unit net revenue was up 8% sequentially, and up 5% over the prior year quarter. Our Retail Business Unit net revenue for the quarter was down 12% sequentially, which is typical of second quarter seasonality. On a year-over-year basis, our Retail Business Unit net revenue was up 5%."

Christine Gorjanc, Chief Financial Officer of NETGEAR, said, "We are excited to announce that we have recently closed two acquisitions. First, in June 2012 we acquired select assets of a small engineering operation in India to enhance our small campus wireless LAN product offerings in our Commercial Business Unit. Additionally on July 2nd, we closed the acquisition of privately held AVAAK, Inc., creators of the VueZone™ home video monitoring system and the only completely wire-free IP cameras on the market. This acquisition gives us entry into the smart home market and is expected to be accretive in the second half of 2013. VueZone products and subscription services are currently sold online in the United States and we plan to roll them out both online and in stores worldwide over the next 6 to 12 months. In aggregate we invested approximately $31 million in cash for these two acquisitions which we expect to help us achieve our longer term growth objectives."  

Looking forward, Mr. Lo added, "We expect our Service Provider Business Unit revenue to decline in the coming quarter due to reduced marketing activities among our customers. However, in the third quarter we expect that our Retail and Commercial Business Units will benefit from the increased market demand generated by the back to school season. We also expect to introduce about 25 new products in Q3.  Specifically, for the third quarter of 2012, we expect net revenue in the range of approximately $310 million to $325 million, with non-GAAP operating margin to be in the range of 11% to 12%."

Investor Conference Call / Webcast Details
NETGEAR will review the second quarter 2012 results and discuss management's expectations for the third quarter of 2012 today, Thursday, July 26, 2012 at 5 p.m. EDT (2 p.m. PDT). 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 http://investor.netgear.com.  A replay of the call will be available 2 hours following the call through midnight EDT (9 p.m. PDT) on Thursday, August 2, 2012 by telephone at (858) 384-5517 and via the web at http://investor.netgear.com.  The account number to access the phone replay is 397662.

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 to use 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 approximately 32,000 retail locations around the globe, and through approximately 42,000 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://investor.netgear.com or by calling (408) 907-8000. Connect with NETGEAR at http://twitter.com/NETGEAR and http://www.facebook.com/NETGEAR.

© 2012 NETGEAR, Inc. NETGEAR, the NETGEAR logo and VueZone are trademarks or registered trademarks of NETGEAR, Inc. and its affiliates 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:
Christopher Genualdi
The Ruth Group
(646) 536-7032
cgenualdi@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 and operating margin, expectations on the performance of the two recent acquisitions, including expectations regarding VueZone worldwide roll out and achievement of long term objectives, expectations regarding a potential slow down in service provider business unit performance in the third quarter, and expectations regarding retail and commercial business unit performance relating to back to school demand, and the number of new products to be introduced in the third quarter. 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 40 through 58, in the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended April 1, 2012, filed with the Securities and Exchange Commission on May 8, 2012. 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.

-Financial Tables Attached-


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