Netgear’s revenue rose to $223.2 million following a 6% QoQ growth in Q2 2022, however it still decreased by 27.7% YoY. The latest results are the first recovery indication as the revenue rose for the first time QoQ in the past seven quarters (although Q1 was particularly bad). Demand for business products coupled with positive response from customers for Orbi Mesh Wi-Fi and 5G Mobile Hotspots were key contributors to the revenue increase.
SMB grew 18% QoQ, records best ever segment revenue for a quarter
- The SMB segment reported its best ever quarter performance with a record revenue of $94.4 million. It grew by 18% QoQ and 20% YoY in Q2 2022 due to increased demand for Pro AV switches and Wi-Fi 6 cloud-managed mesh access points. Netgear has been able to distinguish itself from competitors by providing an enhanced level of customer support.
- It offers design consulting teams across all of its operating regions and major countries to offer a better level of customization and differentiated product ranges based on applications. The Pro AV range of switches has been a revenue-driving force in the SMB segment for Netgear, and it has been able to manage the supply constraints efficiently in Q2 2022 to minimize the delays in product deliveries.
- Netgear’s Insight Remote Management software which comprises subscription-based services such as Netgear Meural and Armor grew to a base of 654,000 subscribers in Q2. The brand is confident to reach a total of 750,000 subscribers by the end of 2022.
Connected Home segment disappoints again with a decline of 44% YoY
- The lack of demand in the lower and mid-segment of routers has hurt the segment revenue again for Netgear. Its retailers are experiencing higher weekly inventory levels, which Netgear has committed to bring down in H2 2022.
- Netgear is undergoing a strategic change, positioning itself as a premium brand for consumer networking devices. It is seeing some success indicated by increased demand for Orbi 8 and Orbi 9 premium mesh Wi-Fi solutions and 5G mobile hotspot routers.
- It has experienced double-digit growth for its Orbi Premium mesh Wi-Fi lineup which it is following up with continued investment in R&D in this category. The improvement on the supply side and increased consumer awareness through mentions in leading technology websites and influencers has helped the brand cement the top spot in the premium networking device segment (>$1000).
- The improvement in supply also helped the 5G mobile hotspot routers to benefit from sales to both service providers and retail customers. The markets are now increasingly opening up in many regions with more people traveling for work and opting for work-from-anywhere flexible working, which has led to increased demand for 5G mobile hotspot routers.
Service Provider revenue grew 89% QoQ
- Revenue from service providers was reported at $36 million mostly due to the better sales performance of the 5G hotspot router. Netgear has recently launched its M6 and M6 Pro 5G mobile hotspot routers in partnership with AT&T and Dish in the US, as well as Telstra in Australia. It is also signing up other service providers across APAC and EMEA to further grow with this segment.
Supply eases for SMB and Connected Home, but margins continue to fall
- In Q2 2022, Netgear managed to overcome the supply chain constraints and was able to fulfill orders on time, especially for SMB products, Orbi Mesh Wi-Fi, and 5G mobile hotspot routers. This resulted in a better performance for these products which marginally offset earnings marred by weak demand for other connected home products such as routers, lower-end mesh, and range extenders.
- However, logistics costs are rising due to macro-economic headwinds, including rising fuel costs which, given the company’s use of air freight to hit delivery targets, has hurt operating margins. The trend continues negatively.
Shipments of routers, gateways down 10% QoQ; EMEA, APAC revenue gain more than 15% QoQ
- Netgear shipped around 2.2 million units of wired and wireless networking devices. It shipped around 700,000 units of all types of routers and gateways. Wireless remains the dominant segment, driving the revenues with a 58% share.
- EMEA and APAC have shown signs of recovery with improved demand in Q2 2022, as the supply constraints further improved and it expects to drive the momentum in these regions. Revenues in the Americas region dropped by 32% YoY, primarily due to weakening demand for connected home products in the low and mid-range gateways.
Pro AV, 5G Hotspot & Orbi to drive momentum further
- Netgear is working closely with retailers to drive down the inventory levels which stood at 18.2 weeks, down from 19.6 in the previous quarter. The aim is to bring down the inventory level to 8 weeks and it is working hard on this by slowing the inventory push in the coming quarters for connected home products.
- Its efforts in improving supply are visible with positive QoQ growth and Netgear expects the revenue to be in the range of $240 – $255 million in Q3 as it sees service provider revenue to touch $40 million and SMB revenue to grow sequentially.
- It invested $22 million in R&D this quarter to build intellectual property and the ecosystem around Pro AV, 5G mobile hotspot router, and Orbi premium mesh Wi-Fi solutions. Going forward, these areas will form the key competencies for Netgear which will help the brand to return to profitability in 2H 22.
- The services revenue was up by 4% at $8 million which shows healthy signs for the brand looking to add more subscribers to its paid services. It expects the consumer using Orbi 8 and 9 premium mesh Wi-Fi users to subscribe to these services to have greater control over the internet inside their homes.
- After a dismal show in the last few quarters, Netgear has been able slightly to recover by focusing on the premium end of the consumer segment and managing supplies to enhance its SMB business segment.
- Netgear is realigning itself to become a premium networking hardware OEM, as more consumers become aware of the home network and its potential security threats, the more likely they will opt for a better, secure, and trusted networking brand.
- Recently, more internet users across North America are opting for faster internet by switching to fiber networks, ISPs are working hard to meet the demand and therefore, there is an opportunity for Netgear to target a set of premium users looking to upgrade to better networking devices.
- As the markets are opening up again, and businesses are returning to normalcy, there will be a huge demand to upgrade existing Wi-Fi 5 networks, which were in use in most of the offices before Covid-19. It presents an opportunity for Netgear to expand its SMB user base as offices will be looking to upgrade devices to Wi-Fi 6/6E and then Wi-Fi 7.
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