NETGEAR® Reports Record Third Quarter 2011 Results

NETGEAR, Inc. (NASDAQGM: NTGR), a global networking company that delivers innovative products to consumers, businesses and service providers, today reported financial results for the third quarter ended October 2, 2011.

Net revenue for the third quarter ended October 2, 2011 was $301.8 million, as compared to $236.0 million for the third quarter ended October 3, 2010, and as compared to $291.2 million in the second quarter ended July 3, 2011. Net income, computed in accordance with GAAP, for the third quarter of 2011 was $26.7 million, or $0.70 per diluted share. This compared to GAAP net income of $13.1 million, or $0.36 per diluted share, for the third quarter of 2010, and to GAAP net income of $20.6 million, or $0.54 per diluted share, in the second quarter of 2011.

Gross margin on a non-GAAP basis in the third quarter of 2011 was 32.4%, as compared to 32.7% in the year ago comparable quarter, and 31.7% in the second quarter of 2011. Non-GAAP operating margin was 12.5% in the third quarter of 2011, as compared to 11.0% in the third quarter of 2010, and 11.9% in the second quarter of 2011. Non-GAAP net income was $0.79 per diluted share in the third quarter of 2011, as compared to non-GAAP net income of $0.45 per diluted share in the third quarter of 2010, and non-GAAP net income of $0.65 per diluted share in the second quarter of 2011.

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 charges, acquisition related compensation and transitional expenses, 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, “We are extremely pleased with our Q3 2011 financial performance amid a challenging macroeconomic environment. Despite the uncertainty in Europe, we were able to achieve record revenue, profit and EPS, based on our strength in new product innovation and distribution. We are particularly pleased with our 9% sequential revenue growth in Europe and our double digit sequential revenue growth worldwide in our Retail and Commercial businesses. Our European retail consumer business was led by an uptake in home networking products, following the trend in the U.S., as more tablets and WiFi enabled devices are being used at home. Our strength in the commercial business was led by the strong market reception of our switches with 10 Gigabit or Power over Ethernet capabilities, and our innovative Plus switches which are manageable via simple PC utility software.”

“Our Retail Business Unit revenue was up 18% sequentially, and up 10% over the prior year quarter, while the Commercial Business Unit revenue was up 18% sequentially, and up 21% over the prior year quarter. As expected, the Service Provider Business Unit revenue was down 21% sequentially, reflective of a one-time order from a major service provider in the previous quarter. On a year-over-year basis, service provider revenue was up 85%.”

“We introduced another 22 new exciting products in the third quarter 2011 as we continue to build on our new product momentum. Notable new products include: the industry’s first 900 Megabits per second WiFi router; the new WiFi router with ReadySHARE® Cloud storage which enables smartphone access to content stored on USB drives at home; the NETGEAR NeoTV™ Player which streams Netflix, Vudu, YouTube and many other online content sources to TVs; the Universal Push2TV® which transposes any laptop screen display wirelessly to a TV; the NETGEAR ProSecure® UTM9S, the industry’s first Unified Threat Management (UTM) gateway with both vDSL and WiFi capability, and the 52 port high density Power over Ethernet Smart switch.”

Christine Gorjanc, Chief Financial Officer of NETGEAR, said, “We ended the third quarter of 2011 with $321.1 million in cash, cash equivalents and short-term investments driven by a record quarter of cash flow from operations of $43.2 million. Our net inventory ended at $136.0 million, with 6.0 turns, and DSO’s of 66 days in the third quarter 2011 remained at the low end of our historical range of 65 to 75 days. Additionally, our tax rate in the third quarter 2011 reflects a one-time benefit which accounts for an incremental $0.09 per diluted share of earnings.”

Looking forward, Mr. Lo added, “Our success through turbulent economic times has been driven by product innovation and we will continue to focus on new product introductions in the fourth quarter 2011 with another 20 new products expected. We are cautiously optimistic on holiday sales in both North America and Europe. Specifically, for the fourth quarter of 2011, we expect net revenue in the range of approximately $300 million to $310 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 2011 results and discuss management’s expectations for the fourth quarter of 2011 today, Thursday, October 27, 2011 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, November 3, 2011 by telephone at (858) 384-5517 and via the web at http://investor.netgear.com. The account number to access the phone replay is 380966.

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 27,500 retail locations around the globe, and through more than 37,000 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.

© 2011 NETGEAR, Inc. NETGEAR, the NETGEAR logo, ReadySHARE, NeoTV, Push2TV and ProSecure are trademarks or registered trademarks of NETGEAR, Inc. 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.