Solomon Wang

Solomon Wang, on behalf of Tore Svanberg from Stifel, asked for additional color on the lower gross margin guidance for the March quarter despite healthy top-line momentum, and the company's long-term strategy to achieve its 30% gross margin target. He also inquired about the specific R&D programs being funded by the Chongqing JV proceeds and the revenue scale at which this increased R&D investment will begin to offer operating leverage.

Answer

CFO Yifan Liang attributed the March quarter's lower gross margin to reduced utilization during the Lunar New Year period, expecting a rebound in the June quarter to prior levels. He reaffirmed the midterm target of $1 billion revenue, 30% non-GAAP gross margin, and 20% OpEx, driven by new products, better mix, and a favorable pricing environment. CEO Stephen Chang elaborated that R&D investments are focused on AI opportunities (expanding product breadth and customer base, including medium-voltage solutions), PC total solutions, and smartphone battery protection, with quicker returns expected in AI medium voltage this calendar year and a larger impact in 2027.

Solomon Wang inquired about the current state of channel inventory for consumer products, specifically if retailers are maintaining lean levels in anticipation of Wi-Fi 7 or if legacy Wi-Fi 6 inventory still needs to be cleared. He also asked for an update on the Pro AV managed switches, including backlog clearance and the ability to meet unconstrained demand in 2026.

Answer

CFO Bryan Murray explained that retail inventory tightening in Q1 post-holidays is typical and not a wholesale reset, aligning with POS velocity. CEO C.J. Prober confirmed that NETGEAR is on track to clear buffer stock and achieve a safety stock position for Pro AV managed switches by the end of Q1 2026, enabling them to match sell-in with sell-through after over 25% sell-through growth last year. Murray added that managed switch end-user sales hit an all-time high, supported by a $10 million QoQ inventory increase.

Solomon Wang inquired about the current health of channel inventory, specifically whether retail partners are holding lean inventory in anticipation of Wi-Fi 7 rollout or if legacy Wi-Fi 6 inventory still needs to be cleared. He also followed up on the ProAV managed switches, asking if the sales backlog has been cleared and if NETGEAR is now in a position to ship unconstrained end-market demand for 2026.

Answer

CFO Bryan Murray stated that retail inventory tightening in Q1 is typical post-holidays and aligns with expectations. CEO C.J. Prober confirmed NETGEAR is on track with ProAV managed switches, having burned down most buffer stock and expecting a safety stock position by quarter-end, enabling matching sell-in and sell-through after significant sell-through growth (over 25%) last year. Murray added that Managed Switch end-user sales reached an all-time high, and inventory increased by $10 million quarter-over-quarter to improve positioning. Prober highlighted customer wins like Topgolf, International Criminal Court, and NATO.