NETGEAR Inc (NTGR) 2007 Q4 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the NETGEAR, Inc. fourth-quarter 2007 results conference call. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Joseph Villalta of The Ruth Group. Thank you. You may begin.

Thank you. Good afternoon, and welcome to NETGEAR's fourth-quarter 2007 results call. Joining us from the Company are Patrick Lo, Chairman and Chief Executive Officer of and Christy Gorjanc, Chief Financial Officer.

The format of the call will be a brief business review by Patrick followed by Christy providing detail on the financials. We will then have time for any questions.

If you have not received a copy of today's earnings release, please call The Ruth Group at 646-536-7026 or go to NETGEAR's corporate web site at www.NETGEAR.com.

Before we begin the formal remarks, the Company's attorneys advise that today's conference call contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. The forward-looking statements represent NETGEAR Inc.'s expectations or beliefs concerning future events and including statements, among others, regarding NETGEAR's expected revenue, earnings, operating income and tax rate on both a GAAP and non-GAAP basis; anticipated new product offerings; current and future demand for the Company's existing and anticipated new products; willingness of the consumers to purchase and use the Company's products; and ability to increase distribution and market share for the Company's products domestically and worldwide.

These statements are based on management's current expectations and are subject to certain risks and uncertainties, including, without limitation, the following -- future demand for the Company's products may be lower than anticipated; consumers may choose not to adapt the Company's new product offerings or adapt competing products; the Company may be unsuccessful or experience delays in manufacturing and distributing its new and existing products; telecommunication service providers may choose to slow their deployment of the Company's products or utilize competing products; the Company may be unable to collect receivables as they become due; the Company may fail to manage costs, including the cost of developing new products and manufacturing and distribution of its existing offerings. Channel inventory information reported is estimated based on average number of weeks of inventory on hand on the last Saturday of the quarter as reported by certain of NETGEAR's customers.

Further information on potential risk factors that could affect NETGEAR and its business are detailed in the Company's periodic filings with the Securities and Exchange Commission, including but not limited to those risks and uncertainties listed in the section entitled Part 2, Item 1A, "Risk Factors," pages 27 through 38 in the Company's quarterly report on Form 10-Q for the quarterly period ended September 30, 2007 filed with the SEC on November 9, 2007. NETGEAR undertakes no obligation to release publicly any revisions to any forward-looking statements contained herein to reflect events or circumstances after the date thereof, which reflect the occurrence of unanticipated events.

In addition, several non-GAAP financial measures will be mentioned on this call. Information related to the corresponding GAAP measures and reconciliation of the non-GAAP and GAAP measures can be found in our press release in the investor relations site at www.NETGEAR.com.

At this time, I would now like to turn the call over to Patrick Lo. Please go ahead, sir.

Thank you, Joseph. Thank you, everyone, for joining today's call.

We had a solid revenue quarter, and we believe we made market share gains in all three regions. Net revenue in Q4 increased 21% to $198.3 million compared to the year-ago period and up 3% sequentially.

On a geographic basis, we saw robust growth in the U.S. year-over-year and fantastic growth in Asia Pacific. EMEA growth year over year was low, due to a very strong Q4 2006, in which there was significant ramp of shipment to BSkyB. Our North American net revenue was $69.5 million in Q4, a sequential decrease of 9%, while Europe, the Middle East, and Africa or EMEA, net revenue was $107.1 million, a sequential increase of about 12%. And our Asia Pacific net revenue was $21.7 million, up about 10% over Q3.

Comparing to Q4 of 2006, our North American net revenue increased 35%; EMEA net revenue increased 7%; while Asia Pacific was up about 72%. With 21% net revenue growth over Q4 of 2006, we believe we continue to gain share globally. Especially encouraging is the performance of our emerging markets, including China, India, Eastern Europe, the Middle East and Brazil. The growth of this group on a percentage basis is significantly higher than our corporate average in Q4, and we expect that growth to continue.

We continue to execute on our growth plans in three directions, expansion in product offerings, channel diversification and penetration as well as new geographic market entries. We again made good progress on all three fronts in Q4 of 2007. We introduced an additional 15 new products in the fourth quarter, making it a total of 48 new products for 2007.

The initial market reception of our new RangeMAX N line of Wi-Fi products based on the latest Metamaterial multi antenna technology is very robust, and we continued to see the ramp-up of our ReadyNAS product lines.

Our leadership in innovation continued to be recognized by the industry and our customers through a series of awards. We recently received four awards at CES in Las Vegas, which are as follows. PC WORLD magazine gave our Digital Entertainer HD the Top Ten Most Innovative Product award. We were awarded the Best of Innovation in Home Networking by the CES show. Laptop magazine selected us as the best of show in Wi-Fi home networking for CES. And we were selected by Popular Mechanics magazine as the Editor's Choice for CES.

We continued to do well in service provider sales. Overall, our net revenue from service providers accounted for approximately 23% of total net revenue in the fourth quarter of 2007 as compared to 22% of total net revenue in the third quarter of 2007 and 28% in the fourth quarter of 2006. In Q4, we also increased the number of active Value Added Resellers by almost 10% to close to 40,000. We increased our retail footprint by 20% in Q4 2007 to over 22,000 retail outlets worldwide.

We were also able to successfully hire an experienced country manager for Russia. He has started to build our team in Moscow and Saint Petersburg. We believe we can start making inroads into this vast market and we expect to see results in 12 to 18 months.

We were not able to achieve our operating margin target of between 11 and 12% in Q4. We underestimated the airfreight charges for the quarter for reasons such as -- higher than historical peak season rates and oil surcharges. And thus, we had to spend more in airfreight than forecasted in order to supply to our customers around the world. We were forced to strike a balance between not short shipping to our channel partners while minimizing the overrun in airfreight costs. We expect to bring the costs in line in coming quarters. We will also be more conservative on the peak season freight rate forecast in Q4 of this year.

Overall, Q4 was a successful quarter in executing our channel programs and product promotions across all three regions. We are pleased with the market's overwhelming acceptance of our ReadyNAS product line, our service provider revenue momentum and healthy end market demand. We continued to see good market reception in our Smart Switches and our RangeMax G and RangeMax N Wi-Fi products. We believe the momentum will continue in 2008.

Let me now turn the call over to Christine for details on our financials.

Thank you, Patrick. Let me now provide you with a summary of the financials for Q4.

As Patrick just noted, net revenue for the fourth quarter ended December 31, 2007 was $198.3 million, a 21% increase as compared to $164 million for the fourth quarter ended December 31, 2006 and an increase of 3% as compared to $191.7 million in the third quarter ended September 30, 2007. Net revenue in the fourth quarter of 2007 by geography was $69.5 million for North America, $107.1 million for the Europe, Middle East and Africa region and $21.7 million for the Asia-Pacific region.

We shipped about 4.4 million units in the fourth quarter, including 3.6 million nodes of wireless products. Shipments of all wired and wireless routers and gateways combined were up sequentially 16% to about 2.3 million units.

Moving to the product category basis, the fourth-quarter net revenue split between wireless and wired was about 61% and 39%, respectively, relatively unchanged from the third quarter of 2007. The fourth-quarter net revenue split between home and small business products was about 65% and 35%, relatively the same as the third quarter of 2007.

Products introduced in the last 15 months constituted about 25% of our fourth-quarter shipments while products introduced in the last 12 months constituted about 22% of our fourth-quarter shipments.

Non-GAAP gross margin in the fourth quarter of 2007 was 32.4% as compared to 32.5% in the year-ago comparable quarter and 34% in the third quarter of 2007.

Moving to non-GAAP operating expenses, total non-GAAP operating expenses, which excludes litigation reserves and acquisition-related retention bonuses, as well as non-cash stock-based compensation costs, came in at $42.8 million for the fourth quarter of 2007. This compares to non-GAAP operating expenses of $34.3 million in the fourth quarter of 2006 and $42.8 million in the third quarter of 2007.

Q4 2007 operating expenses represented 21.6% of net revenue. This is an increase of 70 basis points compared to the fourth quarter of 2006, primarily due to investments in R&D, as well as in our emerging markets and it is a decrease of 70 basis points compared to the third quarter of 2007, primarily due to expense reductions.

Non-GAAP sales and marketing expenses were $30.5 million. As a percentage of net revenue, sales and marketing expenses were 15.4% in Q4 of 2007 as compared to 14.9% in Q4 of 2006 and 15.5% in Q3 of 2007. The increase year over year in sales and marketing expenses is due to our investment in footprint in the emerging markets.

Non-GAAP R&D expenses were $6.4 million. This represents 3.2% of net revenue in Q4 of 2007 as compared to 2.8% in Q4 of 2006 and 3.6% in Q3 of 2007. Non-GAAP G&A expenses in the fourth quarter were $5.8 million or 2.9% of net revenue compared to 3.2% in the year-ago period and 3.2% in the third quarter 2007.

Operating income on a GAAP basis was $17.9 million, which includes $1.2 million in charges for amortization of purchased intangibles and acquisition-related retention bonuses, a $35,000 reduction in litigation reserves, as well as non-cash stock-based compensation of $2.3 million. This compares to GAAP operating income of $17.3 million in the year-ago fourth quarter and $18.5 million in the third quarter of 2007.

On a GAAP basis, the Company recorded net income of $12.5 million or $0.35 per diluted share for the fourth quarter 2007 compared to net income of $13.4 million or $0.38 per diluted share for the fourth quarter of 2006 and $13.3 million or $0.37 per diluted share in the third quarter 2007.

Net income on a non-GAAP basis for the fourth quarter of 2007 was $14.8 million as compared to non-GAAP net income of $14.9 million for the fourth quarter of 2006 and non-GAAP net income of $16 million for the third quarter of 2007. Non-GAAP net income was $0.41 per diluted share in the fourth quarter of 2007 compared to $0.43 per diluted share in the fourth quarter of 2006 and $0.44 for the third quarter of 2007.

For calculating EPS, we used a fully diluted stock count of 36.1 million shares for Q4 versus 36 million shares for the prior quarter and 35 million shares for Q4 of 2006.

In Q4 of 2007, there was a currency gain of $146,000 compared to a gain of $1.9 million in Q4 of 2006 and a gain of approximately $1.7 million in Q3 of this year. The non-GAAP tax rate was 37.4% in the fourth quarter of 2007 compared to 34.9% in the prior-year fourth quarter and 38.4% in the third quarter of 2007. The reconciliation of GAAP to non-GAAP is detailed our financial statements released earlier today.

Moving on to the balance sheet, we ended the fourth quarter with $205.3 million or approximately $5.69 per diluted share in cash, cash equivalents and short-term investments compared to a total of $177.2 million at the end of the third quarter or approximately $4.93 per diluted share and $197.5 million at the end of the fourth quarter of 2006, or approximately $5.64 per diluted share.

Please note that in May 2007, we paid approximately $60 million in cash for the acquisition of Infrant Technologies.

In terms of inventory trends, we ended the fourth quarter 2007 with inventory at $83 million and ending inventory turns of 6.5 compared to 5.7 turns at the end of the fourth quarter 2006 and 6.5 turns at the end of the third quarter 2007. Days sales outstanding were 73 in the fourth quarter of 2007 compared to 66 days in the fourth quarter of 2006 and 66 days ended the third quarter of 2007. This remains within our historical range of 65 to 75 days.

As outlined in our earnings release, our channel inventory came in line with our targets, slightly lower in retail and slightly higher in distribution channels.

Total assets were approximately $551 million at the end of the fourth quarter 2007 compared to $438 million at the end of the fourth quarter of 2006 and $500 million at the end of the third quarter of 2007.

Deferred revenue decreased slightly to $7.6 million as compared to $7.8 million at the end of the prior quarter and $8.2 million at the end of the fourth quarter of 2006.

We are optimistic that 2008 will be another growth year for the industry and, particularly, for NETGEAR. We expect normal seasonality in Q1 of 2008. Specifically, we expect first-quarter net revenue to be approximately $201 million to $205 million, with non-GAAP operating margin in the range of 11% to 12%. Finally, we expect the non-GAAP effective tax rate to be approximately 39%.

Operator, that concludes our comments, and we can now take any questions.

(OPERATOR INSTRUCTIONS). Inder Singh, Lehman Brothers.

Thanks very much for taking my question. Looks like you had a pretty solid quarter there, Patrick, in terms of revenue. Despite some of the fears around consumer slowdown etc. hanging over the market, it looks like your revenues came in nicely. Obviously this freight cost issue, would love to get a little bit more color on what drove that; but certainly it looked like December quarter you were able to get the numbers there and you're looking for a seasonal quarter in March. How confident are you about the consumer hanging in there, giving you exposure to that part of the market and to what extent do you think that emerging markets that you talked about as well as some of your European business will be able to offset any consumer weakness that may happen that perhaps you haven't seen so far?

Thank you. I think there are three parts to the question. The first part, regarding when coming in, in the revenue at the high end of our guided range. Yes, that's true. The end-market demand in Q4 was very robust across the world in all three regions that we operate. Had we not really under-forecast airfreight rates, we would have been able to ship even more to the customers, as exemplified by our much lower than what we would like retail channel inventory.

So as we mentioned in many a time, our business is primarily driven by our target customers' adoption of broadband services. And we still believe that even in a developed world like in the U.S. and Western Europe, that is still hovering around 40%, and that is still low. If you look at the penetration of mobile phones or TVs, that's in the 80, 90% or even 100% in some countries. So we still have a long way to go. And if you look at the emerging market, then the broadband service adoption rate is even lower. So there is a long way to go.

So unless there is a drastic happening in the world that all of a sudden people stop adopting broadband, we have not seen a slowdown in end market demand for our products yet. And so that's why we feel pretty good that in the year 2008, the adoption of broadband services and thus various home networking gears among our customer base around the world will still be very, very encouraging.

Especially, we see, as you probably saw in our figures, that Asia-Pacific has grown very nicely on a year-on-year basis and we expect that to continue. And also, we also mentioned just now that growth also in Eastern Europe, in southern Europe, and in Middle East, are also doing very well for us. And we have yet to really start in Russia, which will probably bring in results 12 to 18 months from now. So we feel pretty confident that the broadband adoption will continue to go and that will benefit our industry as well as our sales in particular.

In terms of your third part of the question, which is a little bit of color on the freight charges, as you probably know, the past three, four months have seen a significant -- I mean above historical surge in oil prices. I think we are too naive to believe that historical Q4 airfreight rates could be applied with an annual uptick, but then this year we were surprised that the uptick was actually significantly higher than we thought it would be, so we completely missed that part. And we had to really scale back in airfreight -- the amount of airfreight we've got to do -- so that hurts our channel inventory as well as some of our revenue.

But even so, we still are spending a lot more airfreight expenses than we would like to. I think right now, we have struck the best compromise between not short shipping even more to our channel versus not overrun even more on airfreight charges.

Going forward, we are taking actions. A few things. One, we are beating all the air forwarder services out so that we would be able to probably get a more favorable rate going forward. Secondly, we are tweaking our model, so coming this year, we probably will be a lot more conservative in estimating the oil surcharges and peak season surcharges for Q4. And thirdly, we probably will be taking a mix shift that will take on more inventory ahead of time to reduce the amount of airfreight we need to do for Q4. So that's pretty much that gist of what happened.

If I could just clarify, on the airfreight, is it fair to assume, therefore, that the increase in air fare cost was primarily rate and not volume shipped? Or was it a mix of both?

Certainly, there was a volume involvement because Q4 is significant volume over Q3. As you could see, our volume increased by 10%. It went up from 4 million units shipped to 4.4 million units shipped. So, clearly, I mean naturally, there is at least a 10% increase in volume for airfreight sequentially. And when you compare to Q4 of last year, that growth is even higher. But then, the rate also is significantly higher than last year.

Great, thank you.

Samuel Wilson, JMP Securities.

One, a little bit more major question and then just some small questions. First, I know this is a little bit difficult, but do you have any way of sort of quantifying how much extra you had to pay in airfreight just so that we can get a sense of what gross margins would have been without the extra charge? Sort of what were you generally targeting for margins, I guess is another way of saying it?

It is very difficult to say that -- what I could say is, it is significantly higher than we originally budgeted. So we have been trying to rein in expenses in some other areas to compensate for the extra airfreight that we need to put in. However, at the end of it, I think we're still falling short to where we want to end in operating margins. So if you figure, hey, we would like to end the operating margin 11.5%, we missed it by 0.8 of a point, and that's pretty much the amount that we cannot recover from any further expense reduction. Or, alternatively, we could short ship to our customers. That would reduce the airfreight as well. But I think the scale is basically in the range that we're missing in what we would like it to be in the operating margin range.

Got it. And then can I just get sort of head count, cash from operations, CapEx and a tax update? Because I know it's been several years since you've created your offshore subsidiary.

Sure. Cash provided by operations -- operating activities for the quarter is about $29.1 million. CapEx is $3.2 million. And headcount at the end of Q4 is 517. Tax rate, as you saw, non-GAAP, was 37.4% at the end of this quarter. And I think I'd say that our international operations were operating in all the different regions and trying to maximize our tax positions around the world. And Q4 is clearly a quarter where we have actual numbers, and we're not doing any estimating at that point. So I think we are pleased with our progress in that area.

Right. But your guidance says you're bumping up to 39 and isn't the expectation here over the next few years, you should be getting down to the low 30s at some point?

I think when in any case like that, the rate doesn't come down for about four, 4.5 years. So expectation is at about 39, and what I would say is tax rate these days, given the new FIN 48 adoption were up or down 100 basis points within the quarter. So right now as we walk into the beginning, it's one quarter of actual and it will be three quarters of forecast. So we're probably being a little conservative on that number.

Okay. Okay. Thank you very much.

Maynard Um, UBS.

Just related to the shipping, you indicated that the costs will come back in line in the coming quarters and your guidance of 11 to 12% doesn't seem to reflect an ongoing impact there. Or I guess you said you are going to get cost savings elsewhere. Can you just talk about where those cost savings are coming from to offset? And should we expect a greater than 11 to 12% operating margins once you get those freight costs coming back in line?

And then secondly, related to that, I think you said that you short some shipments to minimize costs. Can you help quantify the amount that you pulled back on unit volumes as well in the quarter? Thanks.

On the first one, as I mentioned, we are rebidding the airfreight services. So hopefully we can get better rates out of that. Secondly, once you pass Q4, that peak season surcharge is gone. So we're just phasing facing the ordinary oil charges. But luckily, as you probably know, the oil has retreated back into the $80 range, so that helped us a little bit. But of course, we cannot depend on that forever.

So what we're doing is that hopefully -- we have instituted a software -- a new forecasting software, Dementra, that will help us to increase our accuracy of forecasting the mix; and that would help us to reduce the amount of airfreight that we need to do going forward, so we expect that investment on that software to pay off. And certainly, and the big test is going to be Q4 this year, when they peak season rate is going to be snapped on us again.

But in the meantime, what we're trying to do is one, reduce the cost by rebidding the services. Secondly, continue to improve on the accuracy of the forecast and mix with the new software. So that's where we are heading.

Now, in terms of estimating, we had unlimited amount of airfreight money to spend, how much more revenue we can get. I mean it's pretty easy. We could easily -- you could calculate it. I could easily put another week or two into the retailers. They're all dying for inventory. If you look at, we have not been this low in U.S. retail for a long time.

And I guess also related to that, should we anticipate -- you talked about the inventories that you will probably hold a higher level of inventory. So should we anticipate that going forward for the next several quarters and then coming back down to more normalized levels?

Our current on-hand inventory right now is actually very low. Historically, it's at a turn of 6.5, which is probably one of the highest historically. Yes, we do expect that we will bump it up a little bit in order to reduce the amount of airfreight that we have to use. So going forward, it's an interplay of many things. So let's say if our new forecasting process and software works wonder, then we'll be able to bring it back down.

Okay, thank you.

Stanley Kovler, Merrill Lynch.

Thanks for taking the question. First one is about just the seasonality and what impact you could have had -- what revenues actually you could have had if you were able to get your shipping costs down.

It seems that if we adjust the channel weeks of inventory to a reasonable number, and it looks like the guidance into the first quarter is pretty flattish, and I'm wondering if that reflects a normal pattern.

Yes, generally speaking, Q1 is flat to Q4. But sometimes if you gain a new account or -- that could be better. But generally seasonality-wise, Q1 is flat to Q4.

Right, and building on that subject, I'm wondering if you can also talk about some of the service provider wins, if there were any major ones in the quarter or progress that you made, and whether or not BSky was a 10% customer again.

BSky is not a 10% customer; they have not been for a few quarters. We have not had significant service provider wins in Q4. We did win some really interesting projects. For example, we won a new small -- relatively small project to them, but pretty big to us from China Telecom. And we also won another very good customer, cable operators in Finland. So those are some of the new ones that we added. But no significant ones as big as BSkyB or Charter Communications or Time Warner or Comcast -- that kind of scale.

Great. Thanks. And last one if I can throw it in is about the SMB switching business. Very strong growth over this past year. It looks about well over 30% growth for 2007 and you have in France as well. What's the outlook given the environment? Are you seeing -- this quarter already, you've already provided guidance, but in January, a slowdown in that side of your business?

We don't think so. We believe that there is a tremendous shift in the marketplace among SMB. For the lower end of the SMB, the small business, we continue to gain more traction and preference in our unmanaged switch. And in terms of the medium-sized business, there is tremendous technology shift among them going away from managed layer to layer 3 SMB switches into Smart Switches. So that really is going to continue to benefit us.

Great, thank you.

Jason Ader, Thomas Weisel.

Thanks. Patrick, could you comment at all on some of the products that were in high demand at the end of the quarter that you commented that you do airfreight, but you could have airfreighted more if you were able to. So could you at least give us a sense of which are the products that are sort of the hot products right now that retailers want?

Yes, you hit it right on the head, it's the retailers want. So for example, our best-selling products among the retailers are definitely our RangeMax line of products, the RangeMax G, as well as the [Vanilla] 11g routers and cards. Those are in high demand. As a matter of fact, even our unmanaged switches selling in the retail stores and doing very well and actually some of them are short as well. So those are some of the products primarily on retail shelves. Those are the products that we are short.

Okay. And so in terms of the -- following up on the last question, on the macro environment, obviously we've seen some softness both in the U.S. and the UK on the retail side. You really -- but you're saying you're really not seeing anything at least in terms of your business at this point. Is that correct?

Correct. Not only in our business, but also in our category of products. We don't see the weakness.

Okay. And then on the SMB side, there's -- I think there's some fear, certainly, in that area. You have one month of data. I know that's not a lot, but one month plus of data, and you can say that the SMB side also is -- looks the same. There's really no -- any kind of material change in your view at this point?

As I mentioned just now, the SMB is a little bit different story. I think we're benefiting from a technology shift from layer to layer 3 switches to Smart Switches. And also we're benefiting from the fact that people are galvanizing tours, backing up the data. That's why buying our NAS product. So I think on the SMB side, we're not benefiting so much on the robustness of the market, but on our ability to gain share with our differentiated products.

Okay. Thank you.

Adam Benjamin, Jeffries.

Thanks. Patrick, can you comment a little bit on the distribution inventory levels? They seem to be a little bit higher as you exit Q4 than historically. Are you concerned about that? Can you just give some more color?

Well, usually in January, our distributors would like to stock up a little bit for a variety of reasons. One, that there is a lot of post Christmas sales on the online site. Especially, for example, like Dell, they end the year in January, so you expect -- they go quite a bit in January. So they are supplied by distributors. So distributors have to stock up to really supply to them. And secondly, because we do our physical stock take in the first week of January, so worldwide, we stop shipping in the first week of January. So that's why most of our distributors will stock up also in preparation for that. So we're not worried about the slight uptick in the distribution inventory.

So you feel if you were to characterize it, you feel it is healthy, very healthy, or just normal?

Yes, it is just normal.

Okay. And then can you talk a little bit about 802.11n adoption, how you are seeing the uptake of your new products that you introduced and kind of as you look out across the rest of this year, how you expect that to phase in as a percentage of your mix versus G. Do you think it's going to be as high as 50% as you exit the year or is it a lot lower than that? Can you give a perspective? That would be helpful.

I think the 11n picture hasn't changed since we discussed last time. 11n is about 25% in revenue share in the retail market in the U.S. and much less than that in Europe. And certainly, our introduction of our Metamaterial antenna, we call it RangeMAX N, is causing a stir, judging from the initial sell-through in Best Buy, and we are very encouraged by that. We believe that the 11n adoption will gradually go forward; it will not be a stepwise jump for a variety of reasons. One, the price point is still not enticing for a stepwise jump. Secondly, IEEE is probably not going to rectify the 802.11n stand until next year. We're talking about 2009 now. So I think the growth of 11n will be gradual. However, with our differentiated technology, which provides extra boost in range and performance and throughput to our customers, we believe that we will continue to win share in this gradual growth category.

Great. Thanks a lot.

(OPERATOR INSTRUCTIONS). Larry Harris, CL King.

Thank you. I believe you indicated that you gained market share in all regions. Can you quantify what you think your current market share is in the various regions and who you might be gaining share from? Thank you.

Well, for example, in the U.S. retail, the latest read that we had from a public reporting company called NPD, we have grown our market share to roughly about 23% to 24% range. And clearly we're gaining share against everybody. You name it, D-Link, Linksys a little bit.

In Europe as well, for example, like in France, Germany and the UK, we're also gaining share against -- for example in the UK, we're now -- in the UK retail we are in the mid 30% market share. We've been gaining against Belkin and the lesser brands like D-Link.

In Germany, our market share is roughly about 17%. We're neck to neck in Germany with a local brand called ABM, and we have been gaining share against D-Link and the smaller brands. In France, we are close to 30% market share in retail. And again, we're gaining share against the D-Link and some of the local brands.

I see. All right. Well thank you very much. That's very helpful.

(OPERATOR INSTRUCTIONS). It appears there are no further questions at this time. Do you have any closing comments?

Yes. Thank you, everybody, for joining us. We feel very good in our product channel and technology execution. We believe that we have really differentiated technologies in, for example, the Wi-Fi products, in our multi antenna Metamaterial, which is patented, that we call -- we actually partner with [Raysband]. And also in the emerging NAS technology, we have our very hot, patent-pending x-ray technology that enhances our NAS above everybody else. And also, the once Smart Switches that we pioneered again is driving the industry shift. So we feel very strongly that our channel -- our product and technology execution is on the right path.

In terms of market execution also, we've seen tremendous growth in all the emerging markets, and we are very encouraged that we have a possibility to make some inroads in the last emerging market that we have yet to get into, Russia, and we believe that we will see some results in that market in 12 to 18 months. So we feel very good about the prospects and we will continue to execute and look forward to talking to you again in another 2.5 months. Thank you.

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.