Netgear® Reports Third Quarter 2010 Results

Third Quarter 2010 Financial Highlights:
- Net revenue of $236.0 million, compared to $171.1 million in the comparable prior year quarter, 38% year-over-year growth
- Non-GAAP net income of $16.1 million, compared to net income of $11.0 million in the comparable prior year quarter
- Non-GAAP diluted earnings per share of $0.45, compared to diluted earnings per share of$0.31 in the comparable prior year quarter
- Company expects fourth quarter 2010 net revenue to be in the range of $240 million to $250 million, with non-GAAP operating margin in the range of 11% to 12%

NETGEAR, Inc. (NASDAQGM: NTGR), a global networking company that delivers innovative products to consumers, businesses and Internet service providers, today reported financial results for the third quarter ended October 3, 2010.

Net revenue for the third quarter ended October 3, 2010 was $236.0 million, as compared to $171.1 million for the third quarter ended September 27, 2009, and as compared to $196.0 million for the second quarter ended June 27, 2010. Net income, computed in accordance with GAAP, for the third quarter of 2010 was $13.1 million, or $0.36 per diluted share. This compared to GAAP net income of $8.5 million, or $0.24 per diluted share, for the third quarter of 2009, and to GAAP net income of $10.5 million, or $0.29 per diluted share, for the second quarter of 2010.

Gross margin on a non-GAAP basis in the third quarter of 2010 was 32.7%, as compared to 33.5% in the third quarter of 2009, and 36.3% in the second quarter of 2010. Non-GAAP operating margin was 11.0% in the third quarter of 2010, as compared to 10.6% in the third quarter of 2009, and 13.1% in the second quarter of 2010. Non-GAAP net income was $0.45 per diluted share in the third quarter of 2010, as compared to non-GAAP net income of $0.31 per diluted share in the third quarter of 2009, and non-GAAP net income of $0.38 per diluted share in the second 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, 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.

Patrick Lo, Chairman and Chief Executive Officer of NETGEAR commented, "For the third quarter of 2010, we are extremely pleased with our strong back-to-school performance in North America, which helped generate 62% yearon- year growth in that region. We also continue to experience a recovery in demand among small business customers worldwide, as reflected in our strong third quarter SMB revenue. Net revenue from service providers was approximately 19% of total net revenue in the third quarter of 2010, as compared to 25% in the third quarter of 2009, and 16% in the second quarter of 2010. We expect our service provider net revenue to continue to increase sequentially in the fourth quarter of 2010 as our service provider customers continue to phase in Docsis 3.0 equipment.

We continue to achieve worldwide market share gains primarily due to the strength of our existing product lineup and our rapid pace of exciting new product introductions. We are the market share leader in networking in U.S. and European retail, and our goal is to become the market share leader in the rest of the world in the coming years. In the third quarter of 2010, we introduced 21 new products into the market. Notable new products introduced during the quarter include the new NETGEAR Roku Player and the ReadyNAS® Ultra series of home network storage devices.

We feel that the home consumer market is moving towards a network that revolves around the television via both streaming and recording of shows on demand over the Internet. Thus, we believe that our products are uniquely situated to take advantage of these market trends. In the SMB category we introduced a wireless controller that brings simplified enterprise-class WiFi setup at a very competitive price. Also, we introduced the UTM50, a Unified Threat Management appliance which provides comprehensive network security to 50 users, joining our UTM 5, 10 and 25 user models."

Christine Gorjanc, Chief Financial Officer of NETGEAR, said, "We ended the third quarter of 2010 with $243.5 million in cash, cash equivalents and short-term investments, compared to $234.5 million at the end of the third quarter of 2009, and $231.0 million at the end of the second quarter of 2010. Our net inventory ended at $110.4 million, compared to $73.9 million at the end of the third quarter of 2009, and $125.7 million at the end of the second 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 expect a strong finish to the year with strong worldwide market demand across all of our product categories. Our success has been driven by innovative product introductions and we will continue to focus on innovation in the fourth quarter with another 20+ new product introductions. Specifically, for the fourth quarter 2010, we expect net revenue in the range of approximately $240 million to $250 million, with non-GAAP operating margin to be in the range of 11% to 12%."

Investor Conference Call / Webcast Details

NETGEAR will review the third quarter 2010 results and discuss management's expectations for the fourth quarter of 2010 today, Tuesday, October 26, 2010 at 5 p.m. EDT (2 p.m. PDT). The dial-in number for the live audio call is (201) 689-8560. 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 EDT (9 p.m. PDT) on Tuesday, November 2, 2010 by telephone at (858) 384-5517 and via the web at www.netgear.com. The conference ID number to access the phone replay is 358821.