Founder, BWS Financial Inc

Hamed Khorsand

Founder

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BWS Financial Inc

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Equity Bottom-Up

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NETGEAR (NTGR) used the third quarter to push through some of its excess channel inventory through several promotions. The Company should report third quarter results at the end of October. NTGR is anticipated to report softer sales than the usual third quarter sequential increase the firm experiences, but it’s inventory level that would matter.</li></ul> <ul type="disc"><li>When NTGR reported second quarter results the Company had asserted the consumer was more interested in traveling and being outside than in purchasing a wireless router. NTGR had oversupplied the channel with wireless routers. The strategy was to run promotions during the third quarter to prompt consumers to buy routers for back to school.</li></ul> <ul type="disc"><li>Continued government mandated closures related to new outbreaks in Southeast Asia could have resulted in lower production and shipments of wireless routers to end markets. We believe this delay could help NTGR in the overall need to run promotions.</li></ul> Focus has turned to operating margin as units sold per quarter normalizes.


NETGEAR (NTGR) used the third quarter to push through some of its excess channel inventory through several promotions. The Company should report third quarter results at the end of October. NTGR is anticipated to report softer sales than the usual third quarter sequential increase the firm experiences, but it’s inventory level that would matter. When NTGR reported second quarter results the Company had asserted the consumer was more interested in traveling and being outside than in purchasing a wireless router. NTGR had oversupplied the channel with wireless routers. The strategy was to run promotions during the third quarter to prompt consumers to buy routers for back to school. Continued government mandated closures related to new outbreaks in Southeast Asia could have resulted in lower production and shipments of wireless routers to end markets. We believe this delay could help NTGR in the overall need to run promotions. Focus has turned to operating margin as units sold per quarter normalizes. 

• NETGEAR (NTGR) surprised to the downside citing slower than anticipated sell through of products in the second quarter causing a buildup of channel inventory. The second quarter is seasonally the slowest time of the year, but this year it included Amazon Prime Day, which could have played a role in how much inventory retailers were willing to stock. Unfortunately for NTGR, Prime Day was towards the very end of the quarter giving the Company very little time to react. • The fallout from the disappointing second quarter revenue leads to the third quarter experiencing a sequential decline in revenue versus a seasonal lift. • We have lowered our estimates for the rest of the year bringing our non-GAAP EPS down to $2.89 from $3.50. • Our price target is now $43 from $54 to reflect the weakness in the third quarter and the reduced valuation the shares would likely receive until NTGR proves the inventory situation is a one-quarter event.

• NETGEAR (NTGR) surprised to the downside citing slower than anticipated sell through of products in the second quarter causing a buildup of channel inventory. The second quarter is seasonally the slowest time of the year, but this year it included Amazon Prime Day, which could have played a role in how much inventory retailers were willing to stock. Unfortunately for NTGR, Prime Day was towards the very end of the quarter giving the Company very little time to react. • The fallout from the disappointing second quarter revenue leads to the third quarter experiencing a sequential decline in revenue versus a seasonal lift. • We have lowered our estimates for the rest of the year bringing our non-GAAP EPS down to $2.89 from $3.50. • Our price target is now $43 from $54 to reflect the weakness in the third quarter and the reduced valuation the shares would likely receive until NTGR proves the inventory situation is a one-quarter event. 

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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Netgear Inc (NTGR US)

NTGR: Routing to Operating Margin

The imposed shut down in Vietnam could have resulted in fewer products being made, which would have a positive impact on overall inventory levels....

BWS Financial Inc

NTGR: Missing a Gear, PT to $43

Too much channel inventory is causing retailers to pause more orders. Demand slowed in June and should pickup as back to school kicks into high...

BWS Financial Inc

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