NETGEAR, Inc.

Ladies and gentlemen, thank you for standing by. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. At that time, if you have a question, you will need to press the star 1 on your push-button phone. I would now like to turn the conference over to Eric Violin. Please go ahead, sir.

Thank you, David. Good afternoon, and welcome to Netgear's fourth quarter and full year 2020 financial results conference call. Joining us from the company are Mr. Patrick Lowe, Chairman and CEO, and Mr. Brian Murray, CFO. The format of the call will start with a review of the financials for the fourth quarter and full year provided by Brian, followed by details and commentary on the business provided by Patrick, and finish with our first quarter of 2021 guidance provided by Brian. We'll then have time for any questions. If you've not received a copy of today's press release, please visit Netgear's investor relations website at www.netgear.com. Before we begin the formal remarks, we advise you that today's conference call contains forward-looking statements. Forward-looking statements include statements regarding expected revenue, operating margins, tax rates, expenses, and future business outlook. Actual results or trends could differ materially from those contemplated by these forward-looking statements. For more information, please refer to the risk factors discussed in Netgear's periodic filings with the SEC, including the most recent Form 10-Q. Any forward-looking statements that we make on this call are based on assumptions as of today, and Netgear undertakes no obligation to update these statements as a result of new information or future events. In addition, several non-GAAP financial measures will be mentioned on this call. Reconciliation of the non-GAAP to GAAP measures can be found in today's press release on our Investor Relations website. At this time, I would now like to turn the call over to Mr. Brian Murray.

Thank you, Eric, and thank you, everyone, for joining today's call. Net revenue for the fourth quarter into December 31, 2020, was $367.1 million, up 45.1% year-over-year and down 2.9% on a sequential basis. The strong demand for our leading Wi-Fi 6 offerings continued in the fourth quarter, which drove exceptional growth in our CHP business. With service provider delivering on our expectations, both the retail and service provider channels of the CHP business grew in excess of 60% in the fourth quarter, as compared to the prior year period. Additionally, The work we've done to focus on the right products in support of the work-from-home networking market led to a strong rebound for our SMB business, with 16% sequential growth and also yielding a return to year-over-year growth. For the full year of 2020, Netgear net revenues were $1.26 billion. which is up 25.7% compared to the full year into December 31, 2019. Our team did an exceptional job navigating the many challenges brought about by COVID-induced lockdowns to deliver strong growth and revenue, while producing leverage in the business model to drive considerable margin expansion. We continue to see the same market growth trends we discussed at our recent analyst day, and expect 2021 revenue to grow in the mid to high single digits off of the strong growth we experienced in 2020. Our non-GAAP operating margin for the fourth quarter came in at 11%, an improvement of 660 basis points over the fourth quarter of 2019. Full-year non-GAAP operating income was $110.8 million. resulting in a non-GAAP operating margin of 8.8%. We adjusted quickly to manage through a complicated supply chain environment to deliver strong leverage on our revenue growth, with non-GAAP operating profit up by more than 70% as compared to the prior year. For the fourth quarter of 2020, net revenue for the Americas was $259.6 million. which is up 53.5% year-over-year and down 6.6% on a sequential basis. Americas, again, benefited from strong year-over-year growth for CHP products from both retail and service provider channels. As expected, the service provider sequential downtick from Q3's lofty levels, coupled with continued supply constraints, created a moderate sequential decline for the Americas region. Indian net revenue was $67.5 million, which is up 33.6% year-over-year and up 5.9% quarter-over-quarter, with strength in S&B adding to the strong year-over-year growth for CHP products from both the retail and service provider channels. Our APAC net revenue was $40 million, which is up 19.9% from the prior year comparable quarter, driven by strong growth of CHP products in the retail channel and up 9.5% sequentially. For the fourth quarter of 2020, we shipped a total of approximately 4.5 million units, including 3.6 million nodes of wireless products. Shipments of all wired and wireless routers and gateways combined were about 1.8 million units for the fourth quarter of 2020. The net revenue split between home and business products was about 81% and 19% respectively. The net revenue split between wireless and wired products was about 74% and 26% respectively. Products introduced in the last 15 months constituted about 34% of our fourth quarter shipments, while products introduced in the last 12 months contributed about 29% of our fourth quarter shipments. From this point on, my discussion points will focus on non-GAAP numbers. The reconciliation from GAAP to non-GAAP is detailed in our earnings release distributed earlier today. The non-GAAP gross margin in the fourth quarter of 2020 was 30.6%, which is up 270 basis points compared to 27.9% in the prior year comparable quarter and up 30 basis points compared to 30.3% in the third quarter of 2020. While we continue to spend heavily on air freight to deliver incremental profitable revenue, a combination of lower promotional activities and improved product margins from our premium Wi-Fi systems products combined to produce strong year-over-year gains in gross margin. Total Q4 non-GAAP operating expenses came in at $72 million, which is up 21.1% year-over-year and down 1.6% sequentially. Our team again navigated a challenging operating environment while adding proportionately less incremental spend to deliver considerable leverage on our 45% revenue growth, allowing for a more than 250% increase in our operating profit year over year. As always, we manage our expenses prudently while also ensuring we adequately fund the growth portions of our business so that they have the resources they need to succeed. Our headcount was 818 as of the end of the quarter. We continue to manage our headcount, but we'll add resources to invest in areas that we believe will deliver future growth. Our non-GAAP R&D expense for the fourth quarter was 6% of net revenue as compared to 7.2% of net revenue in the prior year comparable period and 6.2% of net revenue in the third quarter of 2020. To continue our technology and subscription services leadership, we are committed to continued investment in R&D. Our non-GAAP tax rate was 24% in the fourth quarter of 2020. Looking at the bottom line for Q4, we reported non-GAAP net income of $31 million and non-GAAP deleted EPS of 99 cents. each coming in at roughly three times what we delivered in the prior year comparable period. Non-GAAP diluted earnings per share for the full year of 2020 was $2.88, up 54% from 2019. Turning to the balance sheet, we ended the fourth quarter of 2020 with $353.3 million in cash and short-term investments, up $46.5 million from the prior quarter, and up $157.6 million from the beginning of the year. We were also able to strengthen our inventory position incrementally in the quarter, adding $27.8 million of our stock. However, we remain supply constrained in the quarter across both businesses. We also believe that within the first three quarters of 2021, we will be able to return to normalized historical inventory levels. During the quarter, we generated $46.1 million in cash flow from operations, which brings our total cash provided from operations over the trailing 12 months to $181.2 million. We used $4.2 million in purchases of property and equipment during the quarter, which brings our total cash used for capital expenditures over the trailing 12 months to $10.3 million. These efforts yielded an impressive free cash flow for the year of $170.9 million, equivalent to 193% of our non-GAAP net income. As we move into 2021, where we plan to reestablish normal carrying levels of our own inventory, we expect to be below our normal conversion ratio of 85% to 100% of non-GAAP net income by a fair amount, but we remain confident in our ability to continue to generate cash on a full year basis. Now, turning to the fourth quarter results for our product segments. The Connected Home segment, which includes the industry-leading Nighthawk, Orbi, Nighthawk Pro Gaming, and Mural Brands, generated net revenue of $296.1 million during the quarter, which is up 61.1% on a year-over-year basis, and down 6.5% sequentially. We again saw strong year-over-year growth driven by heightened demand across both service provider and retail channels. In the fourth quarter, despite supply headwinds for our Wi-Fi 6 products, we again held a strong leadership position in U.S. market share in consumer Wi-Fi, coming in at 41%. And we fully expect we can grow our share once again once we overcome the Wi-Fi 6 supply constraints in the coming quarters. The SMB segment continued its recovery with another strong sequential increase and generated net revenue of $70.9 million for the fourth quarter of 2020, which is up 2.7% on a year-over-year basis and up 15.6% sequentially. Our efforts to shift channel and product mix is paying dividends with revenue and profitability improvements. On the product front, our SMB wireless products and PoE switches continue to perform well in the market. Our market share in switches sold through the US retail channel came in at 55% in Q4. I'll now turn the call over to Patrick for his commentary. Afterwards, I will provide guidance for the first quarter of 2021.

Thank you, Brian, and hello, everyone. 2020 was an unprecedented year in many ways that would change the way we live and work forever born of necessity virtual communication quickly became the norm and people certainly conducted the vast majority of the interactions digitally online has supplanted in person for many activities such as watching movies and exercising Work from home is here to stay for many professionals for at least two, three days a week or even more post pandemic. These trends have driven an unprecedented requirement for expansive, premium, ever higher performance Wi-Fi throughout the world. Our team has done an outstanding job to fulfill the explosive demand that fueled our impressive revenue and profit growth in 2020. In the face of significant supply chain challenges, the team at Netgear maneuvered through multiple obstacles to surpass what we thought was achievable, while still remaining efficient. As a result, Netgear revenue grew 26% to more than $1.26 billion. And through diligence and discipline, non-GAAP operating profit grew more than 70% to over $110 million. There is a portion of the population that clearly demands more from their Wi-Fi connection. In these homes, everyone in the family is consuming high bandwidth through the likes of Zoom or 4K video streaming, and they're connected at the same time from the farthest reaches of the home. To compound this, the number of connected devices from thermal steps to security to lighting to electrical vehicles is growing exponentially. This has driven a new segment in Wi-Fi systems, the premium segment, that is defined by products comprised of Wi-Fi 6 standard, a mesh configuration, and tri-band architecture. Only these premium Wi-Fi systems can meet the demands of families that are now doing so much more from home. By pushing the leading edge of Wi-Fi forward, Netgear pioneered this category, and coming into 2021, we retain a commanding share of this segment of the market. The settlement represented 25% of the Wi-Fi mesh North America market in Q4, rising from 16% in Q3, and almost nothing in the beginning of 2020. Even though we remain supply constrained, our sales in the premium category were up 42% sequentially in the fourth quarter. Not only is this category growing quickly, It garners the highest prices, use the healthiest margin, and has the highest prospects of attaching our value-added services, which we are already clearly seeing the benefits of in our Q4 performance. These are the customers who demand the fastest speed available. With Samsung including Wi-Fi 6E in their latest Galaxy S1 Ultra phone, and Apple remembered to follow suit with their annual release later this year, it's clear the market is ready for the speed of Wi-Fi 6E, the next Wi-Fi standard, which can almost double that of Wi-Fi 6. To cater to this ultra premium set of customers, We recently announced the world's first all-purpose Wi-Fi 6E router, the Nighthawk RAX-E500 tri-band router, which will debut in the market next month at a price of $599. With speeds of 2 gigabit available from cable operators in the U.S. now, 6E products are harness the ability of high-quality video downloads and uploads, and 8K gaming. We will look to expand our product portfolio with Wi-Fi 6E technology with releases of additional routers, NAS systems, cable gateways, and mobile gateways for the rest of this year. And importantly, I'm proud to share we won a CES Innovation Award for our service, Smart Parental Control, which is our first such award for software. This is an incredible validation, not only for our offering, but for the importance of managing how Wi-Fi is used in the house. Our success in the premium market and validation with CES awards both bode well for our subscription business, and we again produced outstanding results in growing our recurring revenue stream. In the fourth quarter, we added 68,000 subscribers to end the year with 437,000 paid subscribers, more than 80,000 about our goal for the year. We have our sights set on getting to 650,000 subscribers by the end of this year and keeping pace towards our long-term goal of acquiring 2 million subscribers. One of the many ways we plan to achieve our target this year is to introduce new services. The recent strong reception of our new XL1000 Wi-Fi 6 gaming router introduced at the end of Q3 2020 clearly validates that the gaming-specific features it offers are of value to the many gamers out there. Accordingly, we plan to bring these features to the market in the form of a subscription service offering in the second half of this year for those online game-loving customers of our premium Wi-Fi 6 tri-band OB systems. On the SMB front, in Q4, we continued to see the driving forces of working from home and running a small business from home. This resulted in strong sequential revenue growth of 16% in business that does not normally grow Q3 to Q4. This is evidence that our strong brand recognition for both consumers and small businesses coupled with the ideal products needed to segregate networks in homes between business and personal use is gaining traction. As many of you are probably experiencing, A single office with 20 employees has become 20 offices, each with a single employee. The need to secure the home office connection has never been more imperative. While their spouse and kids have to share the same pipe, the work-at-home professional demands an always-on, separate, and secured connection, unlike ever before. Our Orbit Pro with VLAN management or our access points coupled to plug and play VLAN switches are probably the easiest and most cost effective solutions in the market. As a result, we saw 15% year on year growth in low end switches and 36% growth in our SMB wireless offerings. In the quarter, We had success with several marquee organizations in the health, personal fitness, and sports industry as they deployed next-generation AV systems that transport audio and video signals over Ethernet. Despite installation of big projects being hampered by the limitations put on us due to the pandemic, we saw year-over-year growth in our pro-AV business. With an ongoing transition from 1080p to 4K to 8K video and broadcast moving towards multicast streaming, we expect ProAV to continue to be a growth driver for our SMB business for 2021 and beyond. We plan to seize the opportunity to innovate and lead in the work-from-home network market. With our PoE VLAN switches, as well as our OB Pro and wireless access points, coupled with paving the way for the transition from HDMI networks to AV over Ethernet with our Pro AV lines of products, we believe our SMB business is poised for double-digit growth this year. I will now turn the call back to Brian for first quarter guidance.

Thank you, Patrick. As supply is expected to remain constrained and with an anticipated sequential step down in sales to service providers, our net revenue for the first quarter is expected to be in the range of $300 million to $315 million. Gap operating margin is expected to be in the range of 4.5% to 5.5%. And non-gap operating margin is expected to be in the range of 8% to 9%. Our gap tax rate is expected to be approximately 28%, and our non-gap tax rate is expected to be 24.5% for the first quarter of 2021. While we are confident in our ability to provide guidance at this time, we do so with the caveat that considerable uncertainty remains in the market due to the COVID-19 pandemic. And should unforeseen events occur, in particular related to transportation delays in Southern California, where our main distribution center is located, or actual results could differ from the foregoing guidance. We would now like to answer any questions from the audience.

At this time, I would like to remind everyone, in order to ask a question, press star, then the number 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Adam Tindall with Raymond James. Your line is open.

okay thanks good afternoon and congrats on a strong q4 i think you also said that you still expect mid to high single digit growth in fiscal 21 off of this higher number and i wanted to touch on that because um brian the q1 guidance that you just went over is starting a little bit below i think what you thought from the analyst day um it's supposed to be down 10 percent sequentially now down a little over 15 percent sequentially U.S. channel inventory at retail and distribution increased for the first time all year. So, you know, a couple of data points that suggest that things are cooling a little bit. I guess the question is why maintain or really raise that 2021 year guidance while guiding down Q1, given everything around you?

Yeah, Adam, in terms of the guidance that we gave with regards to Q1 in this year for 2021 at the analyst day, Uh, I think we did not quite realize how well we would do in Q4, right? So that was an expected lower revenue in Q4 when you're building off that number, but obviously with the outperformance, uh, in Q4, you know, largely different driven by the success that we saw in the SME business. Uh, I think we had originally thought that we would be flat, uh, in terms of CHP X service provider. Uh, I think we did a little bit better than that. Maybe two, 2% growth there. I think we outperformed on the Q4 side. So naturally, I think Q1 is going to be a little bit off because as we've been saying for the last several quarters, we are supply constrained, right? So we're doing everything we can to accelerate that. But based on the visibility we have today, we are supply constrained continuing going forward on the CHP side and to some extent on some of the SMB products, right? So that would be with regards to the Q1 steer. And as I said earlier, we do think that the trends in the markets are still pointing us towards that mid to high single-digit growth for the full year of 2021. Okay.

And I think you also alluded to some inventory build that will occur during the year that should likely help you out a little bit. Can you maybe help us quantify that? Does the channel inventory get back to, you said, normalized levels? Is that 10 plus days at U.S. retail? Maybe some color around how much inventory built benefit there should be during the year.

Yep. It's really twofold, starting with the channel, as you were just mentioning. We think that the channel not only has to get back to where it was historically, but maybe even beyond to be able to support a growth market at the pace that we're seeing today. So historically, retail had operated in that eight to 10 level. We think it may need to go even higher. So we'll be working to build that back up. We're not there obviously right now, but also our own inventory. We want to get out of the business of having to air freight a significant portion of our inbound supply. And the visibility that we have today, we think that's going to take us probably into the third quarter to reestablish our normal carrying levels of inventory, which is typically about three months.

Okay, that's helpful. Maybe just one for Patrick on the market share dynamic in consumer Wi-Fi. Obviously still very healthy, but it's been in decline throughout the year. You were an early mover on Wi-Fi 6, so would have thought the opposite. So maybe just speak to the competitive landscape and why there seems to be a disconnect between your innovation or tech leadership and the market share trends coming down over the year.

Well, I mean, clearly our technology pushes faster than what the foundries could produce. From a chip perspective, I think I mentioned it last time in our call as well as on the MSA, Wi-Fi 6 and now Wi-Fi 6E requires a more advanced fabrication technology for the chips. So while we are the most aggressive in moving towards Wi-Fi 6, we are the biggest sufferer of supply-constrained chips. So that's why, I mean, while a lot of our competitors are still selling the older Wi-Fi 5 technology at a very low price with heavy promotion, you know, we decided to push all in for Wi-Fi 6. That's why you see, you know, if we are losing share, that means the market is growing faster. That means if we've got more supply, then clearly we'll be able to gain back more share. And that's why we're bullish about the share, because the market indeed is growing really fast. And people want Wi-Fi 6, except that we cannot supply them. And then if they don't get Wi-Fi 6, they'll get whatever is available in the market. So we believe that our early innovation helps us in positioning ourselves into the future. It hurts us a little bit for the time being because of supply constraint, but as always, you look at it, the glass is half full, and when the glass is half full, you're going to fill it up as the year goes by.

Okay. Just one last one for me. Cash continues to build. Net cash per share is over $10. I understand that there's going to be some dip, but it sounds like still positive cash generation on a full-year basis in 2021. Correct me if I'm wrong. So if that's the case with such a clean balance sheet, so much liquidity, maybe Brian can just update us on thoughts on uses for cash.

Sure. Maybe just to kind of frame and kind of go a little bit deeper on what I said with regards to the generation in 2021, and I think I mentioned this last quarter, that we're going to have to reestablish our carrying levels of inventory, and we think we'll use roughly $100 million in the first half of the year. Normally, we're used to converting cash at a rate of 85% to 100% of non-GAAP net income. Obviously, 2020 was a phenomenal year at 193%. I think we're probably steering to something like 25% for this year. So operationally, we're going to have to use some cash in the first half of the year to reestablish inventory. Beyond that, we continue to evaluate other strategic uses. We continue to evaluate M&A, and we'll continue to discuss stock repurchase as we move forward.

Thank you.

Your next question comes from the line of Hamid Khorshan with BWS Financial. Your line is open.

Hi. So first off, could you just talk about, are you seeing other component shortages beyond Wi-Fi 6? I mean, you've been pushing out the normalization period. Now it's Q3. Are you suggesting that it's the industry growing faster that you're preparing for, or is it just lead times are just expanding greater than you thought?

The two are related. It's pretty clear that because everybody's moving towards online, and also people are driving more EV. And even for the old cars, there are more electronics in it. The overall market demand for chips have gone way up. But the supply actually has, you know, come down because you probably know. I mean, some of the lower-end foundries have been taken out of commission because of the sanctions. And so the new fabrication, the foundries are not going to be online. The next one is from the TSMC in Arizona. It's probably in 2024. So the chip supply is going to continue to be constrained while the demand is continuing to ramp up. so the lead times lengthen because supply is long uh the demand is high so you're right chip supply has gone to almost like 50 weeks now uh does it spill over to the other things well whenever is chips involved yes for example there's tremendous uh you know tightness on on memory as well so that again is also in the tight supply um the other ones are not so much i mean it seems like um from the big factories of china uh pcb is not a problem capacitors transistors not a problem but then for some of the wi-fi 50 you know special antennas and futures uh we do see uh you know constrained there as well okay and then you just mentioned 50 weeks here are you okay for the year as far as meeting the annual guidance

Have you been able to get allocation

That's a good question, as a matter of fact. I mean, the reason why we're – that we died for the overall year of mid-to-high single-digit growth is because, you're right, we secured the supply, right? And we still believe that. I mean, given the fact that we have a lot of market share to gain and get more supply, this year is all supply-bound. I mean, if we could somehow pull out all the tricks to get more supply, we'd be better. But, of course, if there is some more disruptions in supply, then we'll be disappointed. But from a demand and from a supply planning standpoint, we're pretty confident on our three-year guidance.

Okay. And then just last question is just how are you internally managing the allocation of chips between different price points? Is there particular models that you're more focused on with the tight supply constraints?

Clearly, I mean, we are favoring chips. I mean, a chip is a chip is a chip, right? So we definitely favor chips that give us a higher price point. So an example like Wi-Fi 6, all right, it's all under constraint. Of course, we will favor those that would be tri-band, higher speed versus the dual-band, lower speed, lower price point. That's for sure. And... So as we discussed already, our major ask from our chip suppliers are primarily on the Wi-Fi 6 side, and thus we have lesser allocation on the 11AC side, but that's by design.

Patrick, excuse me, I think you misunderstood me or I talked mistakenly, is that I was referring to your own router models where those Wi-Fi chip 6 6E chips would end up, and the Wi-Fi 6 chips would end up within your own models, not the... I already understood that it's the same chips. No, I don't quite exactly understand... Sure, are you just going towards the high end of your ecosystem as far as routers go, or are you putting more emphasis on getting as many Wi-Fi 6 chips to or be tri-band, or are you... evenly allocating your Wi-Fi 6 chips between all your router models?

Well, that's what I just said. I mean, within the complete supply of Wi-Fi 6 chipsets, all right, we would allocate more to the higher-end models. It doesn't matter whether it is Orbi or is it routers or cable gateways. That's what I meant.

Okay, great. Thank you.

Your next question comes from the line of Jeffrey Rand with Deutsche Bank. Your line is open.

Thanks, and congrats on a good quarter. You're guiding your operating margins down sequentially in 1Q. Is that mostly from lower revenue levels, or are there other dynamics you should be aware of?

No, that's right. It's primarily coming from top-line leverage. And just, you know, adding to it, and I shared some of this – With regards to Adam's earlier question, you know, obviously we're supply constrained on the CHP side, but service providers are expected to take a step down. We knew it was going to be elevated in the back half of 2020. We saw a phenomenal result in Q3, followed on with strong results in Q4 for service provider. But as we've been guiding for 2021, we said it would have returned to an on average $35 million a quarter. We know that business is very lumpy. It so happens that first quarter is going to be a slightly down quarter. We see that steering towards $25 million. But to your question on terms of the operating margin, the step down is all driven by top line leverage.

Great. And then obviously you've done very well with adding paid subscribers. Have you noticed any changing trends with new subscribers as we go through the pandemic?

No, actually, as a matter of fact, it's pretty consistent. And generally, the most popular services are those that are doing control, such as cyber protection and parental control. And they generally skew towards the high-end models. The more expensive the product is, the higher propensity of those buyers going to subscribe to the services. So that trend hasn't really changed much. And then the recent introduction of our high-end Wi-Fi 6 gaming router gives us a hint that, you know, gaming service will be really popular with these high-end models of mesh as well as we introduce it in the second half of this year.

Great. Thank you.

Sure. Again, if you would like to ask a question, press star, then the number one on your telephone keypad. Your next question comes from the line of Paul Silverstein with Cowan. Your line is open.

Paul Silverstein Nice, Patrick and Brian. Appreciate you taking the questions. I'm going to apologize up front. Just ask you to repeat anything you said in the call. I hadn't been paying attention, but perhaps I missed some of the numbers. And I'm going to apologize and then I'm going to ask you to speculate on one particular question. So for the questions, Patrick, if I recall, I think you started 24 to 30 week lead time 90 days ago, up from historical normal into 13 weeks, and you're now studying 50 weeks. So I have these numbers accurate. Has there been a yes, about 20 to 26 weeks in the last 90 days?

No, you haven't fantastic memory. You're telling a nightmare.

Okay, um, in you, you feel that you've secured enough supply over the course of this year to drive the 5% to 10%. You're hoping that the supply constraints, if I understood you, ease by the fourth quarter. But how much confidence do you have as to supply constraints easing that time frame? And what's the opportunity either for those supply constraints to ease faster and more or alternatively to persist longer and worse?

Well, I mean, we don't think that it would actually ease until, as I just mentioned, the new factories in Arizona come online. I just don't see the demand for Internet connection to go down. I don't see the demand for electric vehicles to go down. Right now, we just have to have. A much longer planning horizon. So we plan out the whole year, 52 weeks. And we've got commitment from chip suppliers to provide that kind of planning horizon. That means to place the POs already. They committed to deliver already. If they continue to stick to their delivery schedule, all right, then our revenue plan will materialize. And if there's any disruption, the unforeseen disruption in the chip manufacturing, then of course, all bets are off. And then at the same time, we're already planning for next year. Because we think that next year, the lead time will continue to be the same, but not longer. So we're starting to plan for next year. And then as the saying goes, right, there's no way to predict the future. unless you make the future. And that's what we're going to. And that's why we're pushing all in for newer technology. We're going to make the future. So we got it right. I mean, people want Wi-Fi 6. Now we're going to do it again. We believe that people will want Wi-Fi 60, and we're planning for it for 2022. All right.

Let me shift to market share and demand. I think you said your share of consumer Wi-Fi this quarter was 44%. Did I hear that correctly? Or was that consumer? I'm sorry. What was the share of consumer Wi-Fi, Patrick? Yeah. 41%, and that's down from 44% last quarter.

Is that right? That's correct. So you can see pretty clearly, I mean, while we are doing sequential growth, all right, in the non-carrier channel, almost like 60% quarter over quarter, we're still below the market growth. Right.

Patrick, you and Brian have emphasized that you're focused on the premium end of the market for obvious reasons. Within Wi-Fi 6, what is your share?

Oh, within Wi-Fi 6, including all price points, our internal estimate would be over 50% share. Over 50%? Yeah.

Do you think that went up or down over the last many days? And I appreciate that you were early to market, relatively speaking. You have a broader lineup. You made the point last quarter that Amazon, their era of sixth century, is only dual-band. Are you seeing them? It's Amazon. I was saying it's only dual-band. Are you seeing them have any incremental impact? I know there's not a ton of time since they launched, but how much of an impact are they having, if any?

Oh, they certainly have a significant impact. For example, the market of this high-end Wi-Fi 6 tri-band has expanded from 16% of the market to 25% of the market. So clearly, you know, they help to expand the market. Secondly, whenever you introduce something, even if you sell one piece, you're going to get some market share, right? Because you have gone from zero to one. So they clearly are taking some market share in that market. But at the same time, enlarging the pie for us as well. We just don't have enough supply to enjoy this tremendous growth of the pie.

All right. Well, that leads to the question you're going to ask is maybe you have insight. I suspect it's speculation, but two points here. One, to the extent that your supply constraint cannot satisfy high-end demand because you don't have the products, I suspect that many of those customers are going to buy what's available, which is Wi-Fi 5 or lower than Wi-Fi 6, whether it's a new or someone else. What gives you confidence that those customers are going to wait for the higher-end Wi-Fi 6 to be available. And the other question is, I appreciate when we're talking about high-end, we're talking about relatively more sophisticated customers that want the performance, where the throughput, reach, et cetera. And so they very well may appreciate, be aware of and appreciate the differences between tri-band and dual-band. That said, I suspect there are as many or more customers that they see Wi-Fi 6, they see the throughput, and they really don't appreciate, they're neither aware of nor appreciate the difference between tri-band and dual-band. And so Amazon Aero 6 or Google eventually coming into the market, or yourself, they said, Wi-Fi 6 dual-band, awesome, I'm buying it. And they said, no, I don't have to wait for tri-band from Mitka or somebody else. Any insight you can share on those two issues?

yes definitely okay the first you're absolutely right people need wi-fi upgrade no matter what so if they cannot find wi-fi six well they'll settle for wi-fi five no doubt about it now but you have to understand all the discussion we have been in the last 20 minutes we said we ensure there is enough supply on the high end right so those people who are willing to pay $1,000, they would have it. They definitely would have it. They would not be disappointed. They would buy it and take it home. But for those people who would look to buy a $200 Wi-Fi 6 or even $300 Wi-Fi 6, I mean, too bad, who just don't have enough supply, and then say, okay, I'll settle for a Wi-Fi 5 from your competitor. And that's where we lose shares. All right. So I think generally speaking, people understand Wi-Fi 6 is better than Wi-Fi 5. Otherwise, Apple, Samsung will not all be moving to Wi-Fi 6. All right. And which leads to the second one. While people don't quite exactly understand what is V4 versus V6 versus the V8 versus a, what do you call, high torque electric motor. They all could drive, see the speedometer to see which one is faster. Right? Everybody knows if you're in a Tesla S ludicrous mode and you press the back panel, boom, the speedometer goes pretty fast. So anybody can tell that. So the thing is, once that is that, then everybody would kind of, what a muffin. You know what? That ludicrous mode is really ludicrous. Then everybody knows. That's the fastest car on earth, period. End of story. They don't have to worry about, oh, it's a high torque electric motor versus a V8 engine or whatever. They don't care. Same thing. Everybody knows on their phone to use Okla speed test to see how fast the download speed is. I mean, anybody do that. In China, they do it all day long. And it doesn't matter with Duo band or Tri band. Oh, Tri's got to be better than Duo. But let's do it with the Okla speed test. It's not even comparable. If you do a speed test on our $1,000 system versus a $200 system from Europe, my God, I mean, it's not even close. Everybody could understand that.

Okay. Two other quick questions from me. One, and again, I apologize if you already said this, but Wi-Fi 6 is a percentage of your total Wi-Fi sales versus 90 days ago? What's the percentage?

Oh, yeah. I mean, for our sales, if you look at systems and mesh and routers and, you know, our Wi-Fi sales is almost like 60%.

Where do you think it will be 90 days from now or at the end of the year? It really depends on supply.

I would love it to be 100%. All right.

And one last question. Google with their Nest Wi-Fi 6 product, on when that's going to hit the market. Any thoughts on that? I assume it's the same as Amazon, that you're focused on high-end and you're also concerned, but let me let you respond.

We don't have the G2 as yet, but for one thing for sure, you know, Google introduced Nest Wi-Fi in office six months. They actually EOL'd it. They retired it because it did not sell. So they went back to their very original Google Wi-Fi and discounted the hell out of it. I don't know when they're going to come out with the next Wi-Fi or would they ever come out with the next Wi-Fi again.

Okay. I appreciate the response. Thanks, Chris.

Sure.

No problem.

Your next question comes from the line of Woojin Ho with Bloomberg Intelligence. Your line is open.

Great. Thank you for taking my questions. Patrick, so can you just talk a little bit about the Wi-Fi 6E allocations? You were early on Wi-Fi 6 and getting the Wi-Fi chip supplied, and I'm just curious how you're thinking about the Wi-Fi 6 availability, especially given with the iPhone 13 rumor to have a Wi-Fi 6E launch later this year.

Right. I mean, the Samsung S21 Ultra is already 60, and we tested it, and the speed is just amazing. It is incredible. So I think people will be wowed with it, especially now you do have two gigabit internet speeds from Comcast, and both upload and download can be symmetric, which is great. I mean, so you need those phones, and you need our Wi-Fi 60 products to really enjoy that speed. And, of course, the chip allocation is still very, very tight. And being the first in the market, of course, we have the most unfair share of that allocation. And then we'll continue to push for it. So I would say, but still, the overall allocation into Y568 this year is going to be very limited. We don't expect that it will be more than 10% of the total chip supply.

Got it. And then... Typically, when you launch a new product, I mean, you got the Nighthawk Wi-Fi 6E out first to market, but it usually takes about two, three quarters to really gain steam. We're all waiting for the ORB Wi-Fi 6E product. I don't know when that's going to be announced. Let's just say it's in the third quarter. I mean, how should we think about how aggressive you are with that particular product, especially given that you're trying to drive ASPs upwards?

Well, this time it's actually different than previously. When we first introduced Wi-Fi 6, there was no client on the market. So we're selling on the premise for future proof. The clients would come, and as a matter of fact, the Samsung phone that carries Wi-Fi 6 came almost like six to nine months behind our first Wi-Fi 6 router. This time it's different. They're actually a month ahead of us. They're shipping the S21 out to a phone with Wi-Fi 6E already, and you're only going to ship our first Wi-Fi 6E router a month from now. So this is very different. And I'm not going to speculate, but I'm just using your words, right? You said that our Orbi will be two, three quarters behind this. Well, by then, the iPhone 13 with Wi-Fi 6 will be there, too. So this time will be different. This time, again, I'm absolutely confident. Once again, it's purely supply and stay.

Great. Thanks for taking my questions.

Sure. There are no further questions at this time. Mr. Lowe, I turn the call back over to you.

Thank you. Thanks, everyone, for joining us. I'm really proud of what the team in that year was able to accomplish. In 2020, of course, this is a new year, and this market is very exciting. The market is changing very rapidly, and the customers are responding very quickly to new technology, which drive considerable growth in the market and help us to increase our revenue as well as our margin. We're excited to continue to lead the market with our innovation in multiple firms and deliver another year of growth in 2021. Again, thank you once again for joining us today, and we look forward to sharing more with you throughout the year.

This concludes today's conference call. You may now disconnect.