Netgear, Inc

April/03/2012

Presentors: Ryo-Seob(Joseph) Kim

Jionghan(JD) Dai

Han(Henry) Yang

Pattharaporn (Pauline) Lertphaiboonsiri

Yen-Hua(Gina) Huang

Overview

Netgear, INC.incorporated in 1996, engages in the design, development, marketing, and

sale of networking products. It offers its products to connect users as well as commercial businesses, and also provides home networking service to customers.

Key FiguresM. Cap 1.44 Bil ROE(2011) 16.04%

Shares Outstanding

38 Mil Net Debt -354 Mil

Current Price 38.20 3yr Avg. Growth in Sales 18%

Trailing PS 1.23 3yr Avg. OP Margin 8%

Trailing PE 15.85 3yr Avg. Growth in OI 62%

PEG Ratio 0.77 3yr Avg. NP Margin 5%

Trailing PB 2.26 3yr Avg. Growth in NI 159%

Netgear’s Market Performance

Source: Yahoo Financehttp://finance.yahoo.com/q/bc?s=NTGR&t=5y&l=on&z=l&q=l&c=

EPS(11)=$2.41EPS(07

)=$1.28

Retail – Home networking products, including Routers, Network Adapters, Range Extenders

Commercial – Business networking solutions, including Network Security, Switches, Network Storage

Service Provider – Made-to-Order and retail proven, whole home networking solutions for residential and business customers.

Business Segments

Source: Netgear homepage http://www.netgear.com

Business Segments

Products

Source: 10-K (2011), revised by Joseph

Geographic Segments

Source: 10-K (2011), revised by Joseph

Important Macro Index

Main customers Companies Individuals

Companies defer unnecessary investment during recession GDP

Individuals with lower income cut expenses in upgrading network Personal income

Important Macro Index

GDP

Personal income

Foreign exchange rateSource: Capital IQ

Sector: technology Industry: networking equipment

manufacturing

Industry

Source: http://clients.ibisworld.com/industryus/default.aspx?indid=745

Revenue Drivers

Key Success Factor

- Decrease in cash 2010 : from ST investment (net Increase 70 M) from 74M to 144M ) and the 2 M cash acquisition of IP and other assets of Leaf Networks, LLC (“Leaf”), a developer of virtual networking software, to boot networking technology research and development initiatives.

- Increase in Cash 2011; from higher net income by 79% and sale of ST investment purchased in 2010.

- 37 million cash acquired for the Customer Networking Solutions division of Westell Technologies, Inc. (“Westell”)

Financial Analysis

Financial ratio

Asset Turnover 2007 2008 2009 2010 2011

Total Asset Turnover 1.32 1.27 1.08 1.16 1.22

Fixed Asset Turnover 64.95 36.63 40.65 51.54 74.35

Accounts Receivable Turnover 4.61 5.38 4.22 3.98 4.52

Day Sales outstanding 79.12 67.90 86.57 91.74 80.76

Inventory Turnover 8.77 6.62 7.58 7.08 7.21

Inventory Days 41.64 55.11 48.16 51.55 50.60

AP Turnover 8.77 8.36 6.95 6.76 6.92

AP Days 41.63 43.65 52.51 53.98 52.75

Short Term Liquidity

Current Ratio 2.67 2.51 2.44 2.39 2.51

Quick Ratio 1.43 1.42 1.30 1.39 1.38

  2007 2008 2009 2010 2011Net revenue Growth   2% -8% 31% 31%

% Gross Margin 33% 32% 30% 33% 31%% Net margin 6% 2% 1% 6% 8%

• The increase in Revenue in 2010 and 2011 driven by revenue from consumers transitioning from wireless-G to wireless-N technology and service provider division.

• The decrease in gross margin in 2011 was attributable to a higher % of revenue from sales to service providers, which generally carry lower gross margins.

• Gross Margin : Retail = 17%, Commercial = 23%, Service Provider = 9%

Business Performance

Dupont Analysis

DuPont Ratios 2007 2008 2009 2010 2011Tax Burden 59.81% 39.81% 28.66% 55.81% 73.56%

Interest Burden 118.01% 91.80% 101.56% 99.85% 99.47%EBIT Margin 8.95% 6.64% 4.67% 10.13% 10.57%

Asset Turnover 132.06% 126.81% 108.45% 115.60% 121.58%Leverage 148.34% 149.94% 152.87% 155.93% 152.07%

ROE 12.37% 4.62% 2.25% 10.17% 14.30%

The competitors

Company Name Ticker stock price Forward P/E EBIT/TA EBIT/EV

NetGear Inc NTGR 38.2 12 23% 11%

Cisco System Inc CSCO 21.15 10.63 19% 10%

Hewlett-Packard Co

HPQ 23.83 5.39 70% 13%

Aruba Network Inc ARUN 22.28 27.17 -227% -44%

Adtran Inc ADTN 30.95 13.75 52% 11%

The Multiples

NTGR CSCO HPQ ARUN ADTN Industry Ave

Market Cap.

1450 113910 47220 2450 1980

Current P/E

15.95 16.45 8.36 46.45 14.59 23.6 13.84

Forward P/E

12 10.63 5.39 27.17 13.75 25.1 15.67

Profit Margin

7.74% 15.61% 4.75% 12.80% 19.32% 5.80% 11.00%

P/B 2.3 2.31 1.2 5.91 2.87 4.4 3.165

P/S 1.22 2.54 0.38 4.67 2.78 N/A 2.318

ROA 10.40% 7.09% 5.33% 0.01% 15.66% 9.40% 8%

ROE 16.00% 14.74% 14.64% 18.81% 21.92% 10.00% 16%

The Target Price from Multiples

Target P/E 13.84

EPS 2.41

Target Price 33.35

Recommendation

Comparable valuation - $33.35 DCF - $28.08 Target price: $30 Current price: $38.44

Final recommendation: put on watch list and review the stock if price drop below $33