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Q4 2008 Earnings Call

February 12, 2009 5:00 pm ET


Joseph Villalta – Investor Relations, The Ruth Group

Patrick C. S. Lo – Chairman and Chief Executive Officer

Christine M. Gorjanc – Chief Financial Officer


Maynard Um - UBS

Samuel Wilson - JMP Securities

[Jeff Scoval] – Barclays Capital

Hamed Khorsand - BWS Financial

Ryan Hutchinson - Lazard Capital Markets

Rohit Chopra - Wedbush Morgan Securities Inc.

[Stanley Coldler] – Bank of America Securities



Greeting and welcome to the NETGEAR, Inc. fourth quarter and full year 2008 conference call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Joseph Villalta of The Ruth Group. Thank you, Mr. Villalta. You may now begin.

Joseph Villalta

Thank you. Good afternoon and welcome to NETGEAR’s fourth quarter and full year 2008 results call. Joining us from the company are Patrick Lo, Chairman and CEO and Christy Gorjanc, CFO.

The format of the call will be a brief business review by Patrick followed by Christy providing detail on the financials. We’ll then have time for any questions. If you have not yet received a copy of today’s earnings release please call The Ruth Group at 646-536-7026 or you can go to NETGEAR’s corporate website at www.netgear.com.

Before we begin the formal remarks the company’s attorneys advise that today’s conference call contains forward-looking statements within the meaning of the 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, operating income and tax rate on both a GAAP and non-GAAP basis; the effect of the global economic environment on the company’s business; the possibility that NETGEAR may repurchase its shares under the repurchase program; our position in the market relative to our competition; the long term future of NETGEAR’s business; our continued success in the SMB market; our ability to innovate; anticipated new product offerings; current and future demand for the company’s existing and anticipated new products; willingness of consumers to purchase and use the company’s products; and 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 and are subject to certain risks and uncertainties; future demand for the company’s products may be lower than anticipated; consumers may choose not to adapt 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 adversely [react] affected by real world operation conditions; delays in manufacturing; distributing its new and existing products; telecommunication 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 costs of developing new products; and manufacturing and distribution of its existing offerings; channel inventory information reported is estimated based on an average number of weeks of inventory and on hand of 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; developments in the business that could increase the company’s cash needs; and fluctuations in foreign exchange rates.

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 expected or forecast in forward-looking statements. Further information on the potential risk factors that could affect NETGEAR and its business are detailed in the company’s periodic filings with the SEC including but not limited to those risks and uncertainties listed in the section entitled “Part 2, Item 1A, Risk Factors”, pages 31 through 44 in the company’s quarterly report on Form 10-Q, quarterly period ended September 28, 2008 filed with the Securities and Exchange Commission on November 7, 2008.

NETGEAR undertakes no obligation to release publicly any revisions to any forward-looking statements contained here and to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. In addition, several non-GAAP financial measures will be mentioned on this call. Information relating to the corresponding GAAP measures and reconciliation of the non-GAAP and GAAP measures can be found in our press release in the Investor Relations site at www.netgear.com.

At this time I would now like to turn the call over to Patrick Lo. Please go ahead sir.

Patrick C. S. Lo

Thank you Joseph and thank you everyone for joining today’s call. As we entered the global recession, Q4 became a challenging quarter characterized by declines in end market demand and negative foreign exchange trends. Fourth quarter profit and revenue were heavily weighted down by rapid declines in foreign currencies against the U.S. dollar; 13% in the British pound; 10% in the euro; and 17% in the Australian dollar.

During the quarter we experienced a foreign exchange loss of $6.6 million on the re-measurement of our net assets primarily related to accounts receivable and cash, denominated in foreign currencies. We achieved net revenue of $161.4 million in line with our initial guidance. Given the current economic environment we are embarking on a cost reduction effort with the aim of cutting $10 million of operating expenses in 2009 when compared to the Q4 2008 run rate.

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