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NETGEAR, Inc. Q1 2010 Earnings Call Transcript

NETGEAR, Inc. Q1 2010 Earnings Call Transcript


F1Q10 Earnings Call

April 21, 2010; 5:00 pm ET


Joseph Villalta - IR, The Ruth Group

Patrick Lo - Chairman & CEO

Christine Gorjanc - CFO


Sanjit Singh - Wedbush Morgan Securities

Doug Ireland - JMP Securities

Jeff Kvaal - Barclays Capital

Hamed Khorsand - BWS Financial



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Greetings and welcome to the NETGEAR Inc. first quarter 2010 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.

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

Joseph Villalta

Thank you, Operator. Good afternoon and welcome to NETGEAR's first quarter 2010 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 release please call The Ruth Group at 646-536-7028 or you go to NETGEAR's corporate website at

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 does not mean that these 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, gross and operating income, margin and tax rate on both 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, the company’s strategy for innovation and 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 maybe 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 maybe 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 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'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 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 I - Item 1A. Risk Factors,” pages 10 to 27, in the Company's Annual Report on Form 10-K for the year ended December 31, 2009, filed with the Securities and Exchange Commission on March 1, 2010.

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, which will 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 or on our Investor Relation site at

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‘re extremely pleased to start 2010 by exceeding our own expectations and reporting year-over-year net revenue growth in all three geographic regions, especially in the America and Asia Pacific, which grew 63% and 91% respectively year-over-year.

Our worldwide net revenue growth of 39% over the same quarter of the prior year was driven primarily by increased end market demand and further market share gains. We also increased our non-GAAP operating margin to 13.5% this quarter, from 11.2% in the prior quarter. Thus, we are pleased to be making significant progress in our business amidst the challenging and improving macro economic environment.

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