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NetGear, Inc. (NTGR): The Pain Is Temporary

NetGear, Inc. (NASDAQ:NTGR)Two weeks ago, NetGear, Inc. (NASDAQ:NTGR) warned already beaten-down investors not to expect too much from its first quarter of 2013.

More specifically, the relatively small networking hardware specialist said it ran into trouble transitioning its new line of ReadyNAS network storage products. As a result, NetGear, Inc. (NASDAQ:NTGR) lowered its revenue guidance to between $290 and $295 million, down from the previous range of $290 million to $305 million. In addition, Netgear said it was expecting non-GAAP operating margin of just 9.5% to 10%, and non-GAAP earnings for the quarter from $0.45 to $0.50 per diluted share.

Over the course of the next few days, the market naturally punished NetGear, Inc. (NASDAQ:NTGR) for its misstep by pushing the stock down more than 12%, thus helping it set a fresh 52-week low.

Survey says?
As promised, NetGear, Inc. (NASDAQ:NTGR) released its official numbers on Thursday, and net revenue for the quarter came in at $293.4 million, down 9.9% form the year-ago period. Non-GAAP net income was just $19.4 million — a decrease of 31.5% year over year — and non-GAAP operating margin was indeed just 10%, down from Netgear’s previously expected range of 11% to 12%.

NetGear, Inc. (NASDAQ:NTGR) CEO Patrick Lo also confirmed that the issues were primarily due to a combination of difficulties securing components for the new ReadyNAS line, as well as “some last minute bug fixes” leading to unanticipated delays late in the quarter. At least, however, the company “learned a valuable lesson in engineering and manufacturing planning.” On a positive note, the company says its supply is now “in full swing and customer feedback on the new product has been very positive.”

In addition, keep in mind while the first quarter revenue numbers were lower than Netgear had hoped, they weren’t all that bad and actually came in at the bottom range of Netgear’s original guidance provided last quarter.

Here's Why NetGear, Inc. (NTGR)'s Pain Is Only Temporary

Netgear ReadyNAS storage product. Image source: Netgear.

A world of growth opportunities
As I suggested when the initial warning was issued, it’s far better that NetGear, Inc. (NASDAQ:NTGR) makes these mistakes now as a $1 billion company than down the road when it hopes to rival other networking behemoths including the $112 billion Cisco Systems, Inc. (NASDAQ:CSCO) . After all, you can bet investors would be much less forgiving if the mammoth Cisco made the same mistakes.

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