This Just In: NetGear Killed It at CES

Who says you can't play and win against bigger, better-funded competitors? NetGear (Nasdaq: NTGR  ) just did. Last night, the company destroyed first-quarter estimates and in the process shamed peer Cisco (Nasdaq: CSCO  ) .

We'll get into the details of NetGear's Q1 results momentarily. First, here's a closer look at the business from a Foolish perspective:

Metric

NetGear

Operations

Makes routers and other networking gear for connecting home consumer electronics to each other and the Internet.

CAPS stars (out of 5)

****

Total ratings

2,384

Percent bulls

96.8%

Percent bears

3.2%

Bullish pitches

333 out of 346

Highest-rated peers

Digi International, Spirent Communications, Network Engines

Data current as of April 29.

Revenue grew 32% year-over-year to $278.8 million, while adjusted profits soared 35% to $0.65 a share. Wall Street wasn't even close, having predicted $256.5 million and $0.52, respectively. NetGear seems to be hitting Cisco's Linksys group where it hurts.

For all the hype over Android and Motorola Mobility's (NYSE: MMI  ) mediocre-selling Xoom tablet, it now appears that NetGear was the big winner of this year's Consumer Electronics Show. The networker showed off 20 new products in January.

In February, management raised guidance on the belief its double-barrel blast of geekery would attract a flood of new buyers. Now it turns out they were lowballing. Much more of this and analysts will be forced to raise their projections for 20% annual earnings growth over the next five years.

Do you agree? Disagree? Use the comments box below to tell us what you think about NetGear's report, approach, and competitive differentiation. You can also rate NetGear in Motley Fool CAPS.

The Motley Fool recently introduced a free My Watchlist feature that allows users to stay ahead of the curve and receive up-to-date news on companies like NetGear, or any of its peers or competitors. To get up-to-date news and analysis, add these companies to your watchlist today:

NetGear is a Motley Fool Stock Advisor selection. Motley Fool Alpha LLC owns shares of Cisco. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the Rule Breakers stock-picking team. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has created a bull call spread position in Cisco and is also on Twitter as @TheMotleyFool. Its disclosure policy hasn't come down from its caffeine high. Yet.


Read/Post Comments (2) | Recommend This Article (1)

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.

  • Report this Comment On April 29, 2011, at 9:54 PM, BradReeseCom wrote:

    Hi Tim,

    I think Mark Sue - Managing Director of RBC Capital Markets said it best:

    "If closing Flip is the scope of Cisco's restructuring, investors may be disappointed considering that it doesn't really move the needle and there are larger issues to tend to within the organization. Cisco paid approximately $590M to acquire Flip, probably at its peak. Cisco will also refocus its home networking business and move Umi to a different division, all constructive actions, but in the grand scheme of things, we believe it's still not enough considering in aggregate these business add up to ~$750M in revenues annually and we're estimating $45B in revenues for CY11.

    "Cisco's consumer segment has gross margins in the low 30%'s and has been weighing on corporate gross margins which peaked at 70% and were 62% in the recent quarter. What else can Cisco do? In our view, an aggregate reduction of 10% of the business may help Cisco focus and stabilize its gross margin trends. Important since Switching (30%) is under constant attack from new competitors."

    Sue continued, "Other options include shedding the set-top box business (~$2B), all of home networking (~$500M), and other segments where Cisco's market share is low. In aggregate a target of ~$4B per year with very low margins and no clear signs of margin improvements. The best way to improve overall margins is to further divest and we believe private equity may be keen on the set-top box business, considering its healthy cash flow. We do not believe Motorola would be interested in Cisco's set-top box assets. The global market for set-top boxes is about $9B, with Cisco having ~25% market share."

    Sue added, "The requirements for portfolio pruning for Cisco is not just a simple exercise on gross margins nor operating margins but rather whether there are synergies across customers, technologies and channels. There are financial benefits in being #1 or #2 in key markets so we think Cisco needs to make tougher decisions on whether it can scale in application delivery networking, optical, WAN optimization, and wireless."

    Sue concluded, "Cisco currently trades at 11x consensus CY11E EPS, below the large cap tech average of 12x. Large cap tech companies with multiples higher than Cisco include Apple, Google, IBM and Oracle."

    -----------------------------------------------

    Sincerely,

    Brad Reese

  • Report this Comment On April 30, 2011, at 8:44 AM, tdsbkk wrote:

    Enough BradReese propaganda. This article was about Dlink and the explosion of the networked home environment. It's really tiring to see BR slam Cisco at every chance by merely quoting other articles when it doesn't relate at all. Tell me BR, what does FLIP and Cisco UMI have to do with DLink's sales numbers. You are a clown.

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