Netgear shares tumble after profit drops on US, UK woes

NEW YORK—Shares of Netgear Inc. hit a two-year low Friday, after the computer networking products maker said first-quarter profit dropped 20 percent and an analyst slashed his rating.

The stock lost $3.38, or 16.8 percent, to $16.75 in the afternoon session.

For the period ended March 30, the Santa Clara, Calif., company posted profit of $11.2 million, or 31 cents per share, compared with profit of $14 million, or 40 cents per share, in the year-ago period.

Excluding certain one-time charges, including bonus expense, income was $14.1 million, or 39 cents per share. Revenue rose about 14 percent to $198.2 million from $173.6 million.

Analysts polled by Thomson Financial, who typically exclude one-time charges, forecast, on average, earnings of 43 cents per share on revenue of $198.8 million.

Operating expenses jumped 20 percent and inventory levels rose.

Chairman and Chief Executive Officer Patrick Lo cited significant market weakness in the U.K. and a slowdown in U.S. retail sales, due in part to a weak economy, for the results.

BWS Financial analyst Hamed Khorsand downgraded Netgear to "Buy" from "Strong Buy" after the results and lowered his price target to $22 from $35.

The new target implies he expects the stock to rise about 9 percent over Thursday's $20.13 close.

Stiff competition -- especially after a price cut at Linksys -- led to the downgrade, Khorsand said.

"The current industry conditions warrant a reduced rating, as we believe Netgear shares remain a compelling value," he said in a note to clients.