Looks like Cisco Systems (CSCO) is dead serious about turning the screws on the competitors of its Linksys line of products. Today, Netgear (NTGR) announced its first-quarter 2008 financial results and they were, to put it mildly, terrible. Sure, revenues were up 14 percent on a year-over-year basis, but operating income, net income and earnings per share took a big dip. Netgear stock is tanking this morning — down 10 percent as Wall Street cuts estimates and turns sour on the company.
Why? Because Cisco is waging a price war on the company and its brethren. In a press release, Netgear CEO Patrick Lo said,”We also observed a slowdown in the U.S. retail market, prompting our primary competitor to lower prices below ours for certain consumer products.” Who might be that primary competitor? Mark Sue of RBC Capital Markets points to Cisco.
Lo seems confident that Netgear can weather the attack and plans to introduce a whole new slew of products “that we believe will strengthen us further in the SMB market.” The company introduced 11 new products in the first quarter and aims to introduce 12 more in the second. For Cisco, SMB has been a good area of growth, and it wants to rev up the revenues, never mind the low margins. Of course, all this will come to naught if the company kills the Linksys brand and shoots itself in the foot, as our poll suggests.