Netgear (stylized, trademarked, and marketed as NETGEAR), founded in 1996, is a US manufacturer of computer networking equipment and other computer hardware.
The company was incorporated January 8, 1996 as a subsidiary of Bay Networks, to "focus on providing networking solutions for small businesses and homes."[1] In August 1998, the company was purchased by Nortel as part of its acquisition of Bay Networks. Netgear remained a wholly owned subsidiary of Nortel until March 2000, when it began transitioning to third-party ownership. It became fully independent from Nortel as of February 2002.[2][3]
Netgear sells primarily through a sales channel network, which includes traditional retailers, online retailers, direct market resellers, value added resellers, and broadband service providers in North America, Europe, Middle East, Africa, and Asia Pacific. Its main retail competitors are Linksys and D-Link. In 2007, the United States (38% of revenue) and the United Kingdom (52%) were the company's two largest markets; however, EMEA and Asia Pacific were the fastest growing, with growth rates of 28% and 34%, respectively.[4

Netgear Inc. (NASDAQ: NTGR) sells networking equipment - such as switches and routers - to home and small business users.

Netgear is one of the smaller players in the networking industry, with revenues of $727.8M in 2007. The company competes with several larger competitors such as Cisco (Linksys), HP, and Dell. In early 2008, Linksys one of Netgear's main competitiors, lowered its prices in reaction to lower consumer spending in the US.[1] As a result, Netgear was forced to lower its prices as well, resulting in a 10% drop in Q1 2008 net income versus the previous year.

Despite the fact that it competes with much larger players, Netgear has kept operating costs low, and its margins have historically been above 9%-- among the best in the industry.[2] Netgear outsources its manufacturing, logistics, and technical support[3].

The market for home and small business networking products has grown by 15% per year since 2003.[4] Moreover, the company believes that home and small business customers tend to be more brand loyal than institutional customers. [5] The downside to focusing on this market is the company is exposed to extremely short life cycles. Netgear has to produce 10+ products per quarter in order to keep pace with the evolving demand.[6]

Netgear generated 62% of its revenues outside the US in 2007, and revenue growth in its EMEA and Asia Pacific geographies was 28% and 34% respectively in 2007.[7] Despite this geographic diversification, the company is still affected by economic conditions in the US (25%) and UK (38%) which together account for 53% of the company's revenue. In Q1 2008, a slowdown in the UK lowered Netgear's total revenue growth to 14%. At the time, revenue growth in the company's other regions averaged 25%.

Contents
1 Company Overview
2 Trends and Forces
2.1 Growing Demand for Networks
2.2 Over 60% of Revenues come from Outside the US
2.3 Maintaining a Low Cost Structure is Vital
3 Competitors
4 References

Company Overview

Netgear produces wired and wireless devices that enable Ethernet networking, broadband access, and network connectivity.



[8]
Ethernet Networking

Switches
Network interface cards
Peripheral servers
VPN firewalls
Broadband Access

Routers
Gateways
IP telephony products
Wireless gateways
Network Connectivity

Wireless access points
Wireless network interface cards and adapters
Media adapters
Wi-Fi phones
Network attached storage
Powerline adapters and bridges

Netgear's end consumers are home users and small businesses. Netgear uses traditional retailers, online retailers, direct market resellers (DMRs), value added resellers (VARs) and broadband access providers to distribute and sell its products. Netgear deals with these channels directly or works with them through wholesale distributors. The two largest wholesale distributors, and Netgears two largest customers, are Ingram Micro Inc. and Tech Data Corporation. These two are responsible for 17% and 14% of Netgears revenue, respectively.[9]

Trends and Forces

Growing Demand for Networks
The home and small business markets have been growing at a rate of 15% for the past five years.[10] Home consumers are increasing the number of PCs and/or devices they have in their home. As a result, there is increasing demand for network capabilities that can link all these devices. Consumers want greater mobility (i.e. wireless), as well as better security and data protection for these networks. Netgear provides the means to build these networks in the home and for small businesses.



[11]
Over 60% of Revenues come from Outside the US
Netgear gets 62% of its revenue from outside the US.[12] The international market is much larger than the US and, in addition, has a larger growth potential. In 2007, Netgear’s international revenue growth was 28.6% which was higher than the 24% growth in the US. [13] The US networking market is very competitive and Netgear’s ability to expand its operations internationally has helped the company avoid solely relying on such a difficult US market. At the same time, Netgear made 38% of its revenue from the US and 25% of its revenue from the UK in 2007. [14] This means that Netgear is still vulnerable to economic conditions in these markets, as well as its other major markets around the world. In Q1 2008, a slowdown in the UK lowered Netgear's total revenue growth to 14% whereas the company’s revenue growth excluding the UK was 25%.


Maintaining a Low Cost Structure is Vital
Competition is intense, product life cycles are short, and pricing pressure can be huge in the networking industry. Netgear, however, was able to post an operating margin of 9% in 2007, compared to -10.46% and -.38% for competitors 3Com Corp and SonicWall, respectively. [15] Netgear is able to do this by creating a low cost culture within the company. Netgear has made partnerships with its suppliers that enable it to share R&D expenses, corporate executives are not overpaid and always fly coach, and manufacturing and most technical support is outsourced. The outsourcing of its manufacturing and technical support allows for Netgear to focus on R&D and sales/marketing. Over 50% of Netgear’s employees are devoted to sales and marketing and 22% are in R&D (R&D expense was $28.1M in 2007). [16] Being able to devote so much manpower to these sectors is vital when design and distribution are such critical aspects for Netgear.

Competitors

Netgear cites 12 major competitors to its products, the most competitive being Linksys (a division of Cisco) and D-Link. Of those major competitors there are big names such as Apple, HP, Dell, and Cisco (Linksys). It is apparent that Netgear operates in a very difficult competitive environment. The number of competitors puts a lot of power in the hands of the consumers and makes branding, pricing, and distribution very important factors. Things become even more difficult when low barriers to entry and short product cycles are taken into account. Netgear launched 10 products in Q1 2008 and will launch another 12 in Q2.

Netgear's competitors in its small business segment are:

3Com
Allied Telesyn International
Buffalo Inc.
Dell
D-Link
HP
Huawei Technologies
Linksys, a dvision of Cisco
Nortel Networks
SonicWALL
Netgear's competitors in its home segment are:

Apple
Belkin Corporation, a private company
D-Link
Linksys, a division of Cisco
 
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