Dang vaccines dented our bottom line in the connected home sector, says Netgear

Swings and roundabouts: They also drove a 58% boost to business revenue


Netgear has blamed a noticeable slump in one market sector on a surprising cause: the COVID-19 vaccination programme in the UK and US.

In results published late yesterday, the computer networking outfit boasted of double-digit revenue growth and a 58 per cent boost in products aimed at small and medium-sized businesses year-on-year. The company's numbers were pushed down, however, by ongoing component shortages affecting the whole industry and an admitted misstep in forecasts following the unexpected success of the ongoing vaccination programme.

"We were planning that it would be a 50 per cent growth over 2019 first half," chief exec Patrick Lo told folk on the earnings call regarding its projections for the lucrative connected home product market – revenue from which ended the quarter down 12.6 per cent sequentially and flat year-on-year.

"That is certainly, I mean, because of the vaccine and all that, lower than our 50 per cent," Lo admitted.

"Now going forward, we see the vaccine in operation has a significant positive effect on the reopening. And originally we anticipated in the second half of this year the growth will moderate, because we factored into the reopening trade.

"Now, clearly, we see a lot of people in the developed world, especially in the UK as well as in the US, getting vaccinated. And they are getting on the road to travel and to see their families. As a result, the demand for home networking is not as high as what we originally thought at 40 per cent over the pre-pandemic level."

While the vaccination programme may have had a deleterious impact on Netgear's bottom line for consumer products, the same can't be said for its business arm. The company's small-to-medium business revenue grew 58 per cent year-on-year as the market saw less focus on remote work and more staff returning to the office, again a direct impact of the vaccination programme – and what Lo described as "a positive surprise" in "push and take" between the two segments.

The company isn't just sitting around waiting for the market to improve, though. At the same time as announcing its earnings, Netgear confirmed an executive shake-up which promoted David Henry to president and general manager of the company's underperforming connected home division. Henry also replaced Gregory Rossman, the company's longest-tenured member who is leaving for unspecified pastures new, on the company's board.

Netgear isn't the first company to blame the vaccine programme for poorer-than-expected financials. Late last year Dell and HP confirmed struggles to find air freight space for components and blinking boxes as cargo holds filled with vaccines – though Dell struggled to find anyone to support it in later claims that the ongoing semiconductor shortage is caused, in part at least, by precious silicon having been "consumed" to make glass vaccine vials.

Overall, Netgear reported quarterly revenue of $309m (£225.7m) for 10.3 per cent growth year-on-year, and projected a $285m-$300m revenue for the coming quarter. This is due to a need to, in Lo's words, "work with our channel partners to optimise their inventory levels," or sell some of the overstock caused by the missing growth in the quarter just ended.

It recorded a net profit of $17.83m versus $5.98m a year earlier.

The company's share price, meanwhile, dropped a hefty 16 per cent in pre-market trading.

Netgear was approached for further comment, but was not able to reply in time for publication. ®

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