Founder, BWS Financial Inc

Hamed Khorsand

Founder

Independent Stock Specific Research

BWS Financial Inc

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Equity Bottom-Up

<ul>
<li>NTGR is relying on the back-to-school shopping season to help sell through some of its lingering wireless router inventory as it transitions to higher end models</li>
<li>We continue to believe the retail market remains challenging for NTGR and the Company could have experienced difficulty in selling down inventory to desired levels</li>
<li>During the third quarter NTGR used Prime Day as an opportunity to reduce inventory for certain Nighthawk wireless routers. We expect the same again during Prime Day on October 11</li>
</ul>


NTGR is relying on the back-to-school shopping season to help sell through some of its lingering wireless router inventory as it transitions to higher end models
We continue to believe the retail market remains challenging for NTGR and the Company could have experienced difficulty in selling down inventory to desired levels
During the third quarter NTGR used Prime Day as an opportunity to reduce inventory for certain Nighthawk wireless routers. We expect the same again during Prime Day on October 11


<ul>
<li>NTGR is reaching the inflection point of rebalancing its channel inventory after deciding to transition away from lower priced wireless routers</li>
<li>Upgrading to Buy Rating from Neutral with inventory rebalancing near the end, strong SMB sales trends momentum, and growth within service provider</li>
<li>The higher sales performance from the SMB segment was not expected and should contribute to NTGR growing revenue in 2023 with upcoming release of WiFi 7 on deck</li>
</ul>


NTGR is reaching the inflection point of rebalancing its channel inventory after deciding to transition away from lower priced wireless routers
Upgrading to Buy Rating from Neutral with inventory rebalancing near the end, strong SMB sales trends momentum, and growth within service provider
The higher sales performance from the SMB segment was not expected and should contribute to NTGR growing revenue in 2023 with upcoming release of WiFi 7 on deck


<ul>
<li>NTGR spent the Q12022 reducing channel inventory of lower priced wireless routers, but there is still a lack of catalyst for consumers to upgrade after buying a router in 2020</li>
<li>NTGR's balance sheet makes the stock look attractive at current levels, but the first quarter has too many variables to push us off the sidelines</li>
<li>During the first quarter of 2022 it was visible the degree of discounting NTGR had undertaken in the channel to remove lower priced wireless routers, or sub $299 price point</li>
</ul>


NTGR spent the Q12022 reducing channel inventory of lower priced wireless routers, but there is still a lack of catalyst for consumers to upgrade after buying a router in 2020
NTGR's balance sheet makes the stock look attractive at current levels, but the first quarter has too many variables to push us off the sidelines
During the first quarter of 2022 it was visible the degree of discounting NTGR had undertaken in the channel to remove lower priced wireless routers, or sub $299 price point


<ul>
<li>NTGR used its annual investor day to describe the current state of the business and why management has chosen to focus on the premium and super premium</li>
<li>The high end of the market consists of customers who are willing to pay for the best quality wireless networks and it is where NTGR is turning its attention to</li>
<li>NTGR’s objective from the new strategy is to generate greater gross margin than prior years from customers who would be loyal and willing to purchase higher end devices and service</li>
</ul>


NTGR used its annual investor day to describe the current state of the business and why management has chosen to focus on the premium and super premium
The high end of the market consists of customers who are willing to pay for the best quality wireless networks and it is where NTGR is turning its attention to
NTGR’s objective from the new strategy is to generate greater gross margin than prior years from customers who would be loyal and willing to purchase higher end devices and service


<ul type="disc"><li>
NETGEAR (NTGR) is reimaging itself from a leading mainstream home networking company to a luxury, or as NTGR refers to itself as “super-premium”, home connectivity brand. NTGR’s management has been referring to this submarket for the past year, and as demand for Wi-Fi routers has started to wane NTGR has put greater emphasis on moving up market.</li></ul> <ul type="disc"><li>The transition is creating an inventory backlog for the US retail market that could take more time than originally projected. While NTGR’s ambitions to leave the lower end of the market could prove profitable, it could create revenue headwinds in the process.</li></ul> <ul type="disc"><li>We are moving to the sidelines as this new story could take more than another quarter of inventory digestion. We are downgrading to Neutral from Buy.</li></ul> Our Buy Rating returned 49.1 percent over 17 months.


NETGEAR (NTGR) is reimaging itself from a leading mainstream home networking company to a luxury, or as NTGR refers to itself as “super-premium”, home connectivity brand. NTGR’s management has been referring to this submarket for the past year, and as demand for Wi-Fi routers has started to wane NTGR has put greater emphasis on moving up market. The transition is creating an inventory backlog for the US retail market that could take more time than originally projected. While NTGR’s ambitions to leave the lower end of the market could prove profitable, it could create revenue headwinds in the process. We are moving to the sidelines as this new story could take more than another quarter of inventory digestion. We are downgrading to Neutral from Buy. Our Buy Rating returned 49.1 percent over 17 months.

United States

NETGEAR, Inc. provides networking products designed for small businesses and homes.  The Company's suite of products enables small businesses and homes to share Internet access, peripherals, digital content, and applications among multiple personal computers and other Internet-enabled devices.  NETGEAR markets and sells its products through distributors to a network of resellers.

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