NETGEAR, Inc., a global networking company that delivers innovative products to consumers, businesses and service providers, reported financial results for the fourth quarter and full year ended December 31, 2012.

Net revenue for the fourth quarter ended December 31, 2012 was $310.4 million, as compared to $309.2 million for the fourth quarter ended December 31, 2011, and $315.2 million in the third quarter ended September 30, 2012. Net income, computed in accordance with GAAP, for the fourth quarter of 2012 was $16.1 million, or $0.41 per diluted share. This compared to GAAP net income of $22.8 million, or $0.60 per diluted share, for the fourth quarter of 2011, and GAAP net income of $23.8 million, or 0.61 per diluted share, in the third quarter of 2012.

Gross margin on a non-GAAP basis in the fourth quarter of 2012 was 30.0%, as compared to 31.1% in the year ago comparable quarter, and 31.6% in the third quarter of 2012. Non-GAAP operating margin was 11.4% in the fourth quarter of 2012, as compared to 12.4% in the fourth quarter of 2011, and 11.5% in the third quarter of 2012. Non-GAAP net income was $0.55 per diluted share in the fourth quarter of 2012, as compared to non-GAAP net income of $0.69 per diluted share in the fourth quarter of 2011, and non-GAAP net income of $0.65 per diluted share in the third quarter of 2012.

Our non-GAAP tax rate was 39.4% in the fourth quarter 2012, as compared to 30.5% in the fourth quarter of 2011, and 30.3% in the third quarter of 2012. The higher fourth quarter 2012 tax rate reflects a shift in revenues and profits, to the Americas where tax rates are higher. The fourth quarter 2012 non-GAAP tax rate also did not include any one-time tax rate benefit which was included in the tax rate for the third quarter of 2012, and which accounted for an incremental $0.05 per diluted share of earnings for the third quarter of 2012.

Net revenue for the full year 2012 was $1.27 billion, a 7.7% increase as compared to $1.18 billion for 2011. Non-GAAP income from operations for the full year 2012 was $147.7 million, as compared to non-GAAP income from operations of $145.8 million for the full year 2011. Net income, computed in accordance with GAAP, for 2012 was $86.5 million, or $2.23 per diluted share. This net income was a 5.4% decrease compared to net income of $91.4 million, for 2011. Earnings per share, computed in accordance with GAAP, was $2.41 per diluted share for the full year 2011.

The differences between GAAP and non-GAAP financial measures include adjustments, net of any tax effect, for amortization of purchased intangibles, stock-based compensation, restructuring and other charges, acquisition related compensation and expense, impact to cost of sales from acquisition accounting adjustments to inventory, litigation reserves, and gain on sale of cost method investment. The accompanying schedules provide a reconciliation of financial measures computed on a GAAP basis to financial measures computed on a non-GAAP basis.

Patrick Lo, Chairman and Chief Executive Officer of NETGEAR commented, “The worldwide macroeconomic environment proved challenging for us during the second half of 2012. In the fourth quarter, we witnessed reduced spending among our service provider customers and Commercial Business Unit customers. Despite this, our Retail Business Unit experienced the best fourth quarter sequential growth in the last three years. We are very pleased with the share gain against our retail competitors worldwide. We introduced 32 new products in the fourth quarter of 2012 and once again, we were a double honoree this year in the CES Innovations Design and Engineering Awards competition.”

“Our fourth quarter 2012 Retail Business Unit net revenue was up 12% sequentially, and up 5% for the full year. The fourth quarter was a record quarter in terms of net revenue for our Retail Business Unit driven by strong share gain in the U.S. and other international markets. Our fourth quarter 2012 Service Provider Business Unit net revenue was down 12% sequentially, but up an impressive 25% year-over-year for the full year of 2012. Upon closing, we expect our recently announced acquisition of the Sierra Wireless, Inc. AirCard business to drive global growth for our Service Provider Business Unit by combining a world-class LTE engineering team with our world-class Wi-Fi engineering team. We believe that fixed mobile broadband gateways will be the internet access device of choice for the estimated four and a half billion people currently not connected to high speed broadband internet because of poor wireline telecommunications infrastructure. The AirCard acquisition is a significant step forward in addressing this nascent market. Our fourth quarter 2012 Commercial Business Unit net revenue was down 7% sequentially and down 7% for the full year due to cautious spending for information technology in the uncertain business climate, especially in Europe.”

Christine Gorjanc, Chief Financial Officer of NETGEAR, said, “While the slowdown faced in the second half of 2012 has been challenging, we remain committed to pursuing the growth opportunities we see in Smart Homes, Next Generation Service Providers and 21st Century SMBs. We are maintaining financial discipline while continuing to drive innovation with historically higher expenditures in research and development. Our research and development expenditure allows us to execute our first-to-market strategy and consistently meet the demand for next generation wireless connectivity products within the markets that we serve. We maintain a strong balance sheet and continue to closely manage our expenses, inventory and cash.”

Mr. Lo added, “Looking forward, our plan for 2013 calls for organic growth in revenue and profits with further incremental growth once the AirCard acquisition is complete. We expect the first half of 2013 to be tempered by reduced spending from our service provider customers and macroeconomic uncertainty with growth in the second half of the year. Specifically, we expect first quarter 2013 net revenue to be in the range of $290 to $305 million and non-GAAP operating margin between 11% and 12%, which does not include revenues or costs associated with the AirCard acquisition. For the full year 2013, we expect our annualized non-GAAP tax rate to be approximately 33%.”

“In 2013, we expect to continue to drive growth via aggressive new product introductions. We currently expect our 802.11ac WiFi equipment, 4G LTE fixed mobile gateways, Home Automation and Monitoring systems, 10Gigabit Ethernet switches, and Unified Storage to be key new revenue drivers. From a long-term perspective, we are confident in the growth prospects we see in providing Internet connectivity devices for homes, and small and medium businesses. As the number of connected devices worldwide grows at an increasing rate, we expect to expand our business to meet the demands of our customers in each of the markets that we serve.”