Netgear's Net Income Gears Up

Sometimes numbers that look good on the surface just don't meet muster by the Street's standards. A case in point is fourth-quarter results from Netgear (Nasdaq: NTGR  ) , which reported adjusted earnings per share a penny short of analysts' expectations. The network equipment maker reported a 16% jump in revenues of $121.8 million. After subtracting $278,000 in stock compensation, options costs, and taxes, earnings came in at $9.1 million or $0.27 per share, which equates to a 17% increase on a year-over-year basis.

Looking a bit deeper, you'll find that the numbers were constrained because of inventory difficulties. The company had some trouble getting networking products out the factory doors. Netgear sells its products primarily through a sales channel network of retailers like Staples, Best Buy, and Amazon.com. And unfortunately, you simply can't make as much money if your goods can't reach the store shelves.

A glance at the company's opportunities reveals that up to this point Netgear's product mix was routers, switches, network interface cards, and adapters for use in broadband Internet service. But in 2004, the company made a deal to supply wireless routers equipped with phone adapters to Vonage, the soon-to-be-public VoIP telephone service provider. However, Cisco's (Nasdaq: CSCO  ) Linksys has muscled in on Netgear's turf. Now Vonage only offers Linksys brand routers for its VoIP service.

But this market still seems to hold some promise. A new deal announced earlier this year with eBay's (Nasdaq: EBAY  ) Net calling giant Skype -- to build new WiFi phones for its users -- may give the company a new revenue stream. The first of its kind, Netgear's WiFi phone comes loaded with Skype software, allowing customers to log in for access and make free calls to other Skype users. Callers can also dial people outside the network for a fee. To date, these super cordless phones only work within rather limited WiFi zones or hotspots like coffee shops and airports, but big cities across the country have plans to install citywide WiFi networks. So the potential reach to a larger customer base is in the early stages of growth.

While competition is an issue, as it would be with any company, it's my opinion that Netgear's early entry into this market gives the company a bit of a competitive edge.

Netgear has made its mark early in this expanding area of telecommunications, so investors have good reason to watch how the company delivers on its new products. It's my opinion that if Netgear can meet demand without bottlenecks in the supply chain, it stands a good chance of continuing its recent growth trajectory.

Best Buy, Amazon, and eBay areMotley Fool Stock Advisorpicks. To give more of Tom and David Gardner's favorite stocks a spin, sign up for a free 30-day trial subscription.

Fool contributor Kelvin Taylor does not own shares of any of the companies mentioned.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 511917, ~/Articles/ArticleHandler.aspx, 8/23/2014 5:47:42 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement