Netgear, one of the leading manufacturers of gateways, routers, and enterprise networking solutions, has reported a sharp 31.6% YoY fall in its Q4 2021 revenues to $251.2 million. For 2021, the revenue fell 6.9% YoY to $1.17 billion. This goes contrary to the tremendous growth shown by the router and gateways industry in 2021, driven by the increase in capex for fiber deployment and significant demand for 4G/5G fixed wireless services.
Supply constraints hit revenues
- Despite having a higher demand for premium SMB products, Netgear was not able to fulfil the orders due to factory closures following the outbreak of COVID-19’s Omicron variant.
- The operating margins declined due to higher freight costs, as air passages were used more often to offset the delay due to the variant, and higher component costs owing to supply chain shortages.
SMB segment bright spot in 2021 amid supply constraints
- SMB segment grew 15% compared to pre-pandemic levels. There was a large demand for the brand’s premium wireless solutions.
- Netgear is offering a new suite of cloud-based video analytics solution ProAV, which has seen great demand.
- The overall paid subscriber base for services such as Netgear Armor and Meural grew a healthy 33% annually to reach 584,000.
- The strategic shift in focus to premium offerings helped drive the premium consumer segment revenues by 10% YoY in 2021 but couldn’t offset the overall decline due to supply constraints.
- APAC region grew over 4.4% YoY, while Americas and Europe saw a decline of 38.6% and 25.8% respectively. However each region saw good demand for SMB products, but it was not able to offset the loss incurred by the consumer segment.
- Shipments in Q4 2021 were about 2.7 million units with a third of them coming from gateways/routers.
- Wireless products remained the key revenue driver for Netgear, contributing to 58% of the total revenues in 2021. Wireless products remain the key focus segment for the company going into 2022.
- The brand saw strong demand for ORBI Mesh systems and Nighthawk gaming and non-gaming Wi-Fi 6 routers.
- Netgear experienced a decline in retail and service provider channels due to supply shortages.
Outlook for 2022
- Netgear expects the supply chain to remain constrained in Q1 2022 due to component shortages and factory closures. It expects normalcy in the supply chain from Q2 2022 provided there is no fresh COVID-19 outbreak.
- Netgear will continue to take a hit on operating margins by using air transportation as a method to fulfil its pending orders. However, the brand will increase prices going forward to minimize the effect of transportation costs and increased component costs.
- Netgear has announced a plethora of products this CES and expects its premium line-up of Nighthawk and Orbi Mesh routers to perform well in 2022. It will continue to focus more on higher-margin premium products that offer long-term stability for the company and have seen great demand in recent times. The company is betting big on Wi-Fi 6E routers and plans to ship them in big numbers this year.
- Netgear expects to reach 750,000 more paid subscribers by the end of 2022 for its variety of online services. Since most businesses are opening offline in 2022, Netgear aims to offer cutting-edge solutions to those looking to upgrade their existing Wi-Fi 5 or below systems.
- The brand has taken initiative to improve customer experience by overhauling its online purchase process.
- The focus on increasing revenue through premium offerings should continue for better brand positioning. However, the brand should also focus on low- and mid-range products for developing markets, which have been generating significant revenue in the past.
- Fixed wireless access (FWA) has been gaining momentum in North America for the past year and this year it is expected to grow further, entering more rural territories to bridge the digital divide. Netgear’s recent partnership with T-Mobile to offer 5G FWA products is a good step in promoting FWA. The brand should have more such partnerships to further increase its revenues through the service provider channel.
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