Netgear misses Q2 expectations, cites supply chain constraints

Supply chain challenges brought on by the pandemic held back the company's revenues

Netgear missed top and bottom-line expectations for the second quarter, citing "a perfect storm of factors" that held back revenue and saw the networking company fall short of its operating margin goals. 

Second quarter 2021 non-GAAP net income per diluted share came to 66 cents on revenue of $308.8 million, an increase of 10.3 percent from the year prior. The company posted an operating margin of 7 percent. 

Analysts were expecting earnings per share of 71 cents on revenue of $314.84 million.

"Worldwide supply chain constraints... such as component shortages, increased freight costs and transit times, and factory closures due to COVID-19, led to a perfect storm of factors that held back our revenue number and saw us fall short of our operating margin goals," CEO and Chairman Patrick Lo said in a statement. "As we continue to navigate through this rapidly changing environment, our long-term thesis that premium WiFi will drive the growth of the consumer networking market and our service subscriber base remains intact. With vaccination rates rising and businesses reopening, work from anywhere and hybrid work models are here to stay."

In Q2, Netgear gained three points of market share in the US. consumer WiFi market, ending the quarter at 46 percent. In addition, the company added 33,000 subscribers in the quarter. Its goal is to reach 650,000 subscribers by the end of the year. 

The US consumer networking market grew 40 percent in the first half of 2021 over the same period in 2019 -- 10 percent below Netgear's expectations. Looking ahead to the second half of 2021, Netgear now expects the market growth to moderate further to approximately 20 percent above second half 2019 levels. 

"As such, we plan to proactively work with our channel partners to optimize their inventory levels in the third quarter," CFO Bryan Murray said in a statement. 

Meanwhile, demand for Netgear's SMB products rebounded in the second quarter as businesses reopened post-COVID. Despite supply constraints, SMB net revenue grew approximately 58 percent year-over-year.

However, the company expects SMB to continue to be supply-bound and thus expects third quarter net revenue to be in the range of $285 million to $300 million. 

Netgear also announced the promotion of David Henry to President and General Manager of Connected Home Products and Services, as well as his appointment to the board of directors.