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Q4 2009 Earnings Call Transcript

February 9, 2010 5:00 PM ET


Joseph Vitalta - IR, The Ruth Group

Patrick Lo - Chairman and CEO

Christine Gorjanc - CFO


Jeff Kvaal - Barclays Capital

Samuel Wilson - JMP Securities

Hamed Khorsand - BWS Financial

Woo Jin Ho - Bank of America-Merrill Lynch

Maynard Um - UBS

Min Park - Goldman Sachs Group

Rohit Chopra - Wedbush Morgan Securities

Jeff Kvaal - Barclays Capital



Greetings and welcome to the NETGEAR Inc. fourth 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, Joseph Vitalta of The Ruth Group. Thank you, Mr. Vitalta. You may begin.

Joseph Vitalta

Thank you, Operator. Good afternoon and welcome to NETGEAR's fourth quarter and full year 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 could 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 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 should not mean that 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 same time, such statements were made and include statements among others regarding NETGEAR's expected revenue, earnings, gross 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 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 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.

Telecommunication service providers may choose to fill 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 is estimated based on 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 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 forecasted in such forward-looking statements.

Further information on potential risk factors 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 2, Item 1A, risk factors, pages 36 through 50 in the company's quarterly report on Form 10-Q for the quarter ending September 27, 2009, filed with the Securities and Exchange Commission on November 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.

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 Relation site at netgear.com.

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

Patrick Lo

Thank you, Joseph and thank you everyone for joining today's call. We are extremely pleased with our fourth quarter business performance. We exceeded expectations and recorded net revenue of $218.8 million in the fourth quarter of 2009, a new record of net revenue during any quarter since NETGEAR's inception.

Revenue upside was driven by better than expected market share gains in the U.S. year-over-year growth in the European market and higher than expected revenue contribution from new products.

During the fourth quarter, we increased our non-GAAP operating margin to 11.2%, thus we are pleased to be making significant progress in our business during the improving macroeconomic environment. During the fourth quarter, we had very strong shipments increasing 41% on a unit basis over the prior quarter, which resulted in market share gains globally. We're pleased to be selected to fulfill a one-time $18 million order from a service provider customer.

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