Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Netgear (Nasdaq: NTGR) dropped 17% in intraday trading today after an impressive earnings beat was overshadowed by margin deterioration.

So what: Non-GAAP EPS of $0.65 beat the consensus estimate by $0.08 and grew 71% year over year. Last quarter Netgear beat estimates by an even more impressive $0.11. Revenue grew 49% year over year to $291 million, helped by an acquisition and a one-time $10 million order from a service provider customer. GAAP EPS rose 86% year over year to $0.54.

Now what: Netgear is defying years of business school wisdom with its significant diseconomies of scale. Gross margin fell to 31% from 35.5% in the year-ago quarter. Operating margin fell to 9.5% from 10.6% in the year-ago quarter while non-GAAP operating margin fell to 11.9% from 13.1%. Management guided the third quarter to revenue of $290 million-$300 million, up about 25% year over year, with a non-GAAP operating margin of 11% to 12%.

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