NTGR

NETGEAR, Inc. (NTGR)

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NETGEAR, Inc. (NTGR)

Q3 2009 Earnings Call Transcript

October 22, 2009 5:00 pm ET

Executives

Joseph Vitalta – IR, The Ruth Group

Patrick Lo – Chairman and CEO

Christine Gorjanc – CFO

Analysts

Lin Yang [ph] – Barclays Capital

Hamed Khorsand – BWS Financial

Woo Jin Ho – Bank of America/Merrill Lynch

Sam Wilson – JMP Securities

Maynard Um – UBS

Presentation

Operator

Greetings and welcome to the NETGEAR Inc. third quarter 2009 results conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Joseph Vitalta of The Ruth Group. Thank you, Mr. Vitalta. You may begin.

Joseph Vitalta

Thank you, Jennifer. Good afternoon and welcome to NETGEAR's third quarter 2009 financial results conference call. Joining us from the company are Mr. Patrick Lo, Chairman and Chief Executive Officer; and Ms. Christine Gorjanc, Chief Financial Officer. The format of the call will be a brief business review by Patrick, followed by Christine 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 646-536-7003 or you can go to NETGEAR's corporate website at www.netgear.com. Before we begin the formal remarks, the company's attorneys advise us that today's conference call contains forward-looking statements within the meaning of the US 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 the statements are not forward-looking.

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, growth and operating income, margin and tax rate on both a GAAP and non-GAAP basis.

The effect of the global economic environment on the company's business, our position in the market relative to our competition, the long-term future of NETGEAR's business, our ability to innovate anticipated new product offerings, current and future demand for the company's existing and anticipated new products, willingness of the consumers to purchase and use the company's products and the 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 demands 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.

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 cost of developing new products, and manufacturing and distribution of its existing offerings.

Channel inventory information reported and estimated based on average number of weeks of inventory on hand on the last Saturday of the quarter as reported by NETGEAR's customers, changes in the level of NETGEAR's cash resources and the company 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 expressed or forecast in such forward-looking statements.

Further information on potential risk factors 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 35 to 49 in the company's quarterly report on Form 10-Q for the quarter ended June 28, 2009, filed with the SEC 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 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 on the Investor Relations website at netgear.com.

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

Please go ahead sir.

Operator

Mr. Lo, your line is live.

Patrick Lo

Yes.

Operator

Please go ahead, sir.

Patrick Lo

Okay. Thank you everybody for joining the call. Sorry about some technical difficulty just now. The third quarter of 2009 was a solid quarter for NETGEAR, while making significant progress in our business among the improving macroeconomic environment; we are extremely pleased to achieve net revenue of $171.1 million in the third quarter exceeding expectations.

By holding down our expenses, we were able to capitalize on the upside on the top line to generate extra operating profit thus exceeding our prior operating margin guidance by a healthy margin.

The third quarter showed a robust back-to-school demand and market share gain in the US, resulting in our year-over-year growth in the US net revenue. We reduced our on-hand inventory sequentially to $73.9 million and we increased our non-GAAP operating margin to 10.6%.

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