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spk00: If you have a question, you will need to press star and then the number one on your push button phone. I would now like to turn the conference over to Eric Violin. Please go ahead, sir.
spk03: Thank you, Rachel. Good afternoon and welcome to Netgear's second quarter of 2021 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 second quarter, provided by Brian, followed by details and commentary on the business, provided by Patrick, and finished with third quarter of 2021 guidance, provided by Brian. You will then have time for any questions. If you have 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.
spk05: Thank you, Eric, and thank you, everyone, for joining today's call. Net revenue for the quarter ended June 27, 2021, was $308.8 million, up 10.3% year-over-year, driven primarily by strong S&B growth and growth in the retail portion of CHP, with offset coming from the expected decline in service provider revenue relative to last year. While our team managed to deliver double-digit year-over-year growth, with net revenue within our guiding range, Our top line results came in below our expectations. As worldwide supply chain constraints limited, what could have been an even better performance, in particular on the SMB side of the business? As we continue to navigate through a dynamic environment, we remain confident in our long-term strategy of providing premium Wi-Fi products to drive the growth of the consumer networking market and our paid subscriber base. Even with employees returning to the office, the need for pervasive, high-speed wireless connectivity in the home remains strong as hybrid and remote work models become the norm. And we now see the U.S. consumer networking market settling in at about 20% higher than where it was in 2019. With our improved supply position of CHP products in the channel entering the quarter and performance led by our premium mesh portfolio, We added another three points to our U.S. consumer Wi-Fi market share in the quarter, a clear validation of our strategy. This translated into mid-single-digit growth year-over-year in the retail portion of the CHP business, while our service provider business performed to our expectation, declining from a year ago when we experienced opportunistic demand brought about by the pandemic. Meanwhile, our SMB business is riding the wave of businesses reopening worldwide, growing 58% year-over-year and bearing the fruit of investments made over the last couple of years in areas such as ProAV and our leadership in moving SMB wireless products to Wi-Fi 6, despite being held in check by the aforementioned supply constraints. While we have to navigate some top-line challenges for the rest of 2021, we do expect to achieve the full-year non-GAAP operating margin guidance that we provided at last year's analyst day. In the second quarter, we generated non-GAAP operating income of $26.5 million. This translated into non-GAAP operating margin of 8.6%, slightly below our guidance range, which was an improvement of 110 basis points over the second quarter of 2020. Component shortages, elongated delivery times, and unforeseen factory closures due to COVID-19, all of which we've navigated successfully at varying times over the past year, came together in a way that we could not overcome, thus hindering our ability to drive our SMB top line higher and, correspondingly, improve our margin performance. We delivered year-over-year revenue growth in all geographies, with meaningful SMB growth globally, For the second quarter of 2021, net revenue for the Americas was $212.6 million, which is up 5.1% year-over-year and down 3% on a sequential basis. In the net revenue, the $61.8 million, which is up 27.7% year-over-year and up 1.1% quarter-over-quarter. Our APAC net revenue was $34.4 million, which is up 16.8% from the prior year comparable quarter and down 8.7% sequentially. For the second quarter of 2021, we shipped a total of approximately 3.9 million units, including 2.6 million nodes of wireless products. Shipments of all wired and wireless routers and gateways combined were about 1.4 million units for the second quarter of 2021. The net revenue split between home and business products was about 74% and 26% respectively. The net revenue split between wireless and wired products was about 65% and 35% respectively. Products introduced in the last 15 months constituted about 32% of our second quarter shipments. While products introduced in the last 12 months contributed about 27% of our second 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 second quarter of 2021 was 30.4%, which is up 80 basis points compared to 29.6% in the prior year comparable quarter, and down 480 basis points compared to 35.2% in the first quarter of 2021, primarily a result of our planned increased promotional activities. Total Q2 non-GAAP operating expenses came in at $67.4 million. which is up 8.7% year-over-year and down 3.2% sequentially. Our headcount was 769 at the end of the quarter, down from 775 in Q1. We continue to manage our headcount, but we'll continue to add resources and invest in areas that we believe will deliver future growth. Our non-GAAP R&D expense for the second quarter was 6.9% of net revenue, as compared to 6.9% of net revenue in the prior year comparable period, and 7.1% of net revenue in the first quarter of 2021. To continue our technology and subscription service leadership, we are committed to continued investment in R&D. Our non-GAAP tax rate was 23.4% in the second quarter of 2021. Looking at the bottom line for Q2, we reported non-GAAP net income of $20.8 million. a non-GAAP deleted EPS of 66 cents, each more than 20% higher than the prior year comparable period. Turning to the balance sheet, we ended the second quarter of 2021 with $335.3 million in cash in short-term investments, down $35.3 million from the prior quarter. We've made substantial progress replenishing our inventory on the CHP side of the business in recent quarters. but expect supply to remain constrained on SMB products. During the quarter, $5.2 million of cash was used by operations, which brings our total cash provided from operations over the trailing 12 months to $97.5 million. We used $3 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 $11.2 million. In Q2, we spent $25 million to repurchase approximately 654,000 shares of Net Year Common stock at an average price of $38.21 per share. Since the start of our repurchase activity in Q4 2013, we have spent $577.5 million to repurchase 16.3 million shares. Our fully diluted share count is approximately 31.5 million shares as of the end of the second quarter. With a meaningful portion of our targeted inventory position established, we plan to continue to opportunistically repurchase shares in the future quarters. Now, turning to the second quarter results for the product segment. The connected home segment, which includes the industry-leading Nighthawk, Orbi, Nighthawk Pro Gaming, and Mural Brands, generated net revenue of $229.9 million during the quarter. which is flat on a year-over-year basis and down 4.6% sequentially. The year-over-year performance was driven by growth in the retail business being offset by service provider returning to anticipated levels. With our premium mesh segment leading the way, our leadership position in the U.S. consumer Wi-Fi market improved again, up 3 percentage points to 46%. With the progress we've made in replenishing CHP inventory, we fully expect we can grow our share further in Q3. The SMB segment executed well against the supply constrained environment and generated net revenue of $78.9 million for the second quarter of 2021, which is up 57.8% on a year-over-year basis and up 2.5% sequentially. This is the highest quarterly revenue level for our SMB business in two years. The growth was driven primarily by exceptionally strong demand, believed by new business formations, businesses reopening, and demand for flexible working environments. We continue to see our SMB wireless solutions and low port count switches performing very well. We also continue to gain traction in our ProAV business, which experienced meaningful year-over-year growth as we see activities resuming across venues, such as those focused on sports and entertainment. Our market share in switches sold through the U.S. retail channel grew 5 percentage points to 61% in Q2. I'll now turn the call over to Patrick for his commentary, after which I will provide guidance for the third quarter of 2021.
spk02: Thank you, Brian. As we enter the second half of 2021, with the specter of the Delta variant not raising its head, we're seeing the signs of a return to normal. as portions of the world begin to reopen. Businesses, small and large, are opening their doors to the public once again. And new businesses are being created at a higher pace than before the pandemic. Both offices and homes continue the transition to flexible working environments, embracing a new hybrid work-from-everywhere model that carries a multitude of benefits. Offices are reopening to accommodate varying levels of capacity, while employees continue to outfit their homes to function as workspaces for the days they work from home in the new normal. This means that for employees joining a video conference call from home, their bandwidth must be able to handle the capacity at least as well as if they were in the office. This home office requirement to get up with an increase in a myriad of activities being performed virtually cements the need for higher speed, more pervasive mesh networks, as these are the solutions capable of offering greater bandwidth capacity, faster internet speed, and wider coverage. This continues to drive unprecedented bandwidth demands in the home, And to accommodate this, we're the only company focused on delivering premium Wi-Fi solutions to the market. Defined by Wi-Fi 6 mesh with tri-band architecture, NetEar's premium mesh products are the cornerstone of this rapidly growing segment of the market. And we continue to draw more consumers into this segment. as it grew from 30% of the national market in Q1 to 34% in Q2, compared to only 8% a year ago. Clearly, this is where the market is headed, so our strategy of expanding the market with premium tri-band Wi-Fi together with strong attach of our validated subscription services is sound. Additionally, Our Nighthawk RAXE500 tri-band Wi-Fi 6E router that was introduced last quarter has won acclaim from tech experts at Gizmodo, Tom's Guide, Android Central, Digital Trans, Gadgetflow, and TechHive, who have referred to the RAXE500 as the fastest Wi-Fi 6E router best performing Wi-Fi 6E router and the fastest router on the planet. We are honored by this outstanding reception and believe this is incredible validation of the superior design and best-in-class experience offered by this leading edge product. This $599 router is part of a premium Wi-Fi 6 router segment which provides the technical features that Nighthawk followers crave. These high-end offerings will fuel the continued expansion of our recurring revenue business, as we are more likely to see those purchasing premium Wi-Fi products also buying services accompanying them. I'm pleased to share that our smart parental control service that got its accolades at CES earlier this year is now available on select MIHOC Wi-Fi routers and with availability on Wi-Fi 64B mesh Wi-Fi systems coming this month. This rollout enables us to make continued progress in paid subscriber acquisitions. as we drive towards our goal of 650,000 subscribers by year-end. We reached a significant milestone in this journey in Q2 as we surpassed half a million subscribers, ending the second quarter with 514,000 paid subscribers. We remain excited about the long-term profitability impact that this will have on our business. We also plan to bring the features of a gaming router lineup to the market through a service offering later this year for the online game-loving customers of our premium Wi-Fi 6 thriving Orbit systems. Turning to an update on our S&B business, demand is surging and has surpassed pre-pandemic levels in our more traditional channels as businesses reopen and new businesses start at the fastest pace in recent years. Again, this is validating our strategy of providing premium business Wi-Fi solutions for home and small offices as the hybrid working model is becoming the norm. Also, our focus on Pro AV, meaning audio, video over IP, is paying dividends as the AV industry is reopening and accelerating the transition from analog to digital AV over IP. We are limited by what we can supply, though, as component shortages and COVID-induced limitations at certain factories compounded by transportation delays have all conspired to constrain revenue growth. Despite these challenges, the team executed well to deliver strong 58% year-over-year growth driven by acceleration in our Wi-Fi 6 access points and our low port count switches for small and home offices, and continued progress in Pro AD. In Q2, we further expanded our SMB Wi-Fi 6 product portfolio with several new additions. First, we released both dual-band and tri-band Insight managed Wi-Fi 6 multi-gate access points. the WA620 and WA630, respectively, optimized for businesses and home offices that have a growing need to offer faster, more reliable internet while supporting a multitude of devices over greater coverage areas and secured VLANs. These are available now for just $229 and $329, respectively, attractive price points for the industry's highest performing dual and tri-band wi-fi 6 access points we also announced the wi-fi 6 mini dual band mesh system model s5k30 another wi-fi 6 addition to our orbi pro ecosystem this latest mesh system is available now for 299 dollars and is well suited for users who want to upgrade to the latest wi-fi technology with ease we continue to see our investments in pro 80 paying dividends with growth continuing to accelerate our efforts to certify our associated products for the most important audio and video standards in the industry HDBaseT, AVB, Dante, MISA, and NBI continues to pave the way for the transition that is underway to upgrade the way audio and video are played. Accordingly, we're now doing business with over half of the top 50 professional AV integrators in North America. Before I hand it back to Brian, I would also like to take a moment to welcome Dave Henry to the Netgear Board of Directors and congratulate him on his promotion to President and General Manager of Connected Home Products and Services. David's impressive tenure at Netgear has proven him to be extraordinary strategies leader. His continuous focus on driving service revenue will be amplified by closer collaboration with the full board I would also like to thank Gregory Rossman, who will transition off our board in December after nearly 20 years of service on the board. He has been an instrumental part of our leadership for a very long time and we wish him the best. And with that, I'll turn it over to Brian Murray to comment on our opportunities and obstacles in the coming quarter.
spk05: Thank you, Patrick. We expect SMB to continue to be limited by supply in the third quarter. With hindsight, the first half of 2021 saw the U.S. consumer networking market grow 40% over the same period in 2019. Follow very strong showing, this turned out to be 10% lower expectations. As such, we plan to proactively work with our channel partners to optimize their inventory levels in the third quarter. Looking ahead to the second half of 2021, we've seen market growth moderating further to approximately 20% above second half of 2019 levels. Accordingly, our net revenue for the third quarter is expected to be in the range of $285 million to $300 million. Primarily as a result of this loss in leverage from the top line, GAAP operating margin is expected to be in the range of 2.1% to 3.1%. non-GAAP operating margin is expected to be in the range of 5% to 6%. Our GAAP tax rate is expected to be approximately 27.5% and our non-GAAP tax rate is expected to be 24.5% for the third quarter of 2021. While we now believe our second half revenue performance will be roughly flat relative to the first half of the year, We do believe our full-year non-GAAP property margin guidance of 9% to 10% for the full year, provided at last year's analyst day, remains intact. 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 challenges related to closure of our manufacturing partners' operations, or transportation delays into any of our regional distribution centers, or actual results could differ from the foregoing guidance. We would now like to answer any questions from the audience.
spk00: Thank you. At this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. Again, just press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Our first question comes from the line of Adam Tindo from Raymond James. Your line is open.
spk01: Good afternoon. I just want to start, Patrick, on the inventory clear out and CHP in the coming quarter. Could you maybe just give us some more color on what's being cleared out? Because I think previously you said you were focused on Wi-Fi 6 while others were focused on Wi-Fi 5, and that's why you were losing share. that would come around as the market shifts to wi-fi 6. so i presume chp inventory is wi-fi 6 heavy and why would you need to optimize that versus just waiting for it to sell through is there any asp degradation in wi-fi 6 or you know just a little bit more color on what's going on there thanks yes um so
spk02: Every channel partner has their own financial metrics and open to buy is based on that financial metrics. Even on Wi-Fi 6, we have new products coming online very soon in the second half involving some Wi-Fi 6E products. and involving some more new cable products. So we need to make way for these new products to come into the channel so that we could continue to improve on our margin profile. As you probably know, that component cost has been going up. So this continuous renewal of product lineup is very important for us to improve on our margin profile. So that's why to prepare for these new products coming into the channel, especially for the very important Christmas season, we intend to adjust the channel inventory of our partners so they will have a better open to buy for the Christmas season for these new products.
spk01: Okay. Okay. And I guess maybe as a follow-up, if Brian wants to take it, you talked about expecting to achieve the analyst day operating margin for the fiscal year. That's going to imply a big uptick in Q4. What gives you the confidence to go out that far right now, given what you're unexpectedly experiencing here in Q3? And maybe you can unpack the key drivers to that uptick. I'd imagine this channel inventory optimization is a big part of that. So if you could help us quantify that, that would be helpful. Thanks.
spk05: Yeah, you got it right there. I mean, at this point, we said supply is still going to be limited for SMB. So we're expecting very modest uptick from what you saw in Q2. And we still reiterate that we'll deliver the whole $140 million of service provider revenue for the full year. So it's down to KCHP. And Patrick's just kind of walked through the logic of why the channel needs to be optimized from an inventory standpoint in Q3. We think that's a Q3 phenomenon, and as I said earlier, it's going to certainly put some top-line leverage pressure on the Q3 result. With that being corrected in the Q3 period and moving on to Q4, we expect that we'll regain some of that top-line leverage. So that's why we believe that we'll hit that full-year 9% to 10% property margin value.
spk01: Okay. And just to clarify on capital allocation, I mean, it looks like you're clearing out inventory that typically generates cash. You already have over $10 a share in cash. I'd imagine there's going to be pretty significant downside volatility in the stock given the forecast here. You had quarters in the past where you did like $50 million of buyback. Would you consider that sort of supersized type of buyback level to defend that stock down here? Thanks.
spk05: Well, we're going to continue to be opportunistic buyers of our stock, and we'll factor a number of things in. I think from this point for the balance of this year, we'll probably be free cash flow neutral, given the timing of revenue and the implied move from Q3 to Q4 and some of our seasonal dating programs that occur in that fourth quarter. So I think we'll be free cash flow neutral, more or less be about where we're at today. But yes, we're going to continue to evaluate all these factors in terms of how we allocate our cash.
spk01: Okay. Thank you.
spk00: Thank you. Your next question comes from the line of Jeffrey Rand from Deutsche Bank. Your line is open.
spk04: Hi. Thanks for taking the question. It seems like the demand environment on the consumer side has changed a lot in the past quarter. Can you give us some insight on what you think changed and what gives you the confidence that there wasn't a lot of demand pull-in during kind of the main part of the pandemic?
spk02: Yes. What we saw in the first half, especially in the second quarter when we have practically huge supply of the CHP products into the channel was the real market demand. So in the first half, the market grew about 40% over the pre-pandemic level. Now, as we know, in the first half, there was still quite a few COVID restrictions and people could not travel. So in our planning, we were planning that it would be a 50% growth over the 2019 first half. So that is, you know, certainly, I mean, because of the vaccine and all that. So we're lower than our 50%. It turns out to be 40%. So the gap becomes extra channel inventory that we need to help our partners to optimize. Now going forward, we see the vaccine inoculation has significant good positive effect on the reopening. And originally we anticipated in the second half of this year, the growth will moderate because we factor into the reopening trade. We were thinking that in the second half, the market would grow about 35 to 40% over 2019 pre-pandemic level. Now, a few weeks into the second half, the market seems to be pointing to roughly about 20% over the pre-pandemic level. 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're getting on the road to travel and to see the families as well as to take vacations. And as a result, the demand for the home networking is not as high as what we originally thought at 40% over the pre-pandemic level. So that's why we're also suggesting the ongoing CHP e-market sales expectation as well. But then the reverse is true. The reverse is because of the reopening is in a bigger way than we originally thought. So the SMB business side gave us the positive surprise on the strength as we all are probably surprised by the pace of new business startup opening. I mean, we read in many news reports that the business startups in the U.S. is the fastest in many, many years in the history. And they all set up Wi-Fi as well as networking, and they're buying our products and units. And same thing, when the reopening trade stopped going, we are seeing a lot of the sports as well as entertainment venues are revolutionizing their audio-media systems with IP technology rather than the old analog technology. So, for example, a lot of the sports events like 1.10, like NFL, are now using our pro-AV solutions to do umpiring. So these, on the positive upside of SMB, is actually offsetting some of the downside of the growth rate of the CHP. So overall, so we've got push and take, and that's how we see the second half is shaping up.
spk05: great thank you and just as my follow-up as you try to optimize your inventory levels in the channel how do you think about about the increasing promotional activity and how that will impact your margins yeah we're going to continue to be promotional we talked about this heading into q2 we see it's an opportunity to continue to gain back share which is important in terms of keeping that mind share with our channel partners But more importantly, for now and in the long run, it's our means for acquiring subscribers and aggressively pursuing that first major milestone, you know, being the end of this year, hitting 650,000, quickly after chasing that million mark, and then, you know, follow on to the 2 million long-term target that we put out there.
spk04: Great.
spk05: Thank you.
spk00: Thank you. Your next question comes from the line of Hamid Korsant from BWS Financial. Your line is open.
spk07: Hi. So first off, I just want to ask about inventory. Just given that you've increased it so much and the demand has dropped off more than you thought, what kind of obligations do you have as far as the components that you were pre-ordering earlier on this year and last year? Does that, you know, cause any kind of bloating as to Wi-Fi 6 when the market's going to Wi-Fi 6E?
spk02: Well, we believe that Wi-Fi 6 has got to last for a long time, at least another three, four years. And Wi-Fi 6E is at the very high end of that. So we don't believe that our booking of components will be wasted. So that's why we were the first to get rid of the Wi-Fi 5 products. And we do believe that Wi-Fi 6 will continue to have a pretty long life from here on out.
spk07: Okay. And then if the market was slowing down so much, why weren't you more aggressive with promotions in Q2? And are you going to be a little bit more proactive with promotions in Q3 to just clear out some inventory?
spk02: We actually did. I mean, as you probably know, still today, about 75% to 80% of products are sold in physical venues, breaking multiple scores. And those promotion plans were planned way ahead. We just could not turn on a dime and make it happen. So, I mean, we executed our plan in Q2 as far as promotion is concerned. And then in Q3, of course, and as you heard from Brian, we continue to aggressively promote in order to acquire more users that would attach services and when they purchase hardware.
spk07: Are you seeing any competitive pressures given the slowdown in demand?
spk02: Well, I mean, we don't see particularly any change of behavior from any of our competitors. As a matter of fact, throughout the pandemic, our competitors have been promoting Wi-Fi 5 products heavily. And that's why we have been losing share until just the last two quarters that we were gaining share and when we have better supply and in a better position to promote as well. So on the reverse, you could argue that our competitors are seeing our behavior change. We stopped promoting for a while and now we're back in litigation.
spk07: Last question on the SMB side. Are you a beneficiary of some of your larger competitors not having stock, or is this a clear-cut, better product? You're seeing natural transition to the next-year brand in SMB.
spk02: So there are two big growth area on the SMB side. One is to work from home solutions. So we're not really directly competing with American vendors because they're more focused on enterprise. So in this work-from-home environment, the only competitors are all Asian vendors. But when you try to run a business at home or you do your corporate work at home, I think our brand carries through. So that's why our 5-port, 8-port switches, 16-port switches, our wireless access parts at home, our robust VLAN base. phone network is far superior than asian suppliers and certainly it's unique in the market because none of them are together there's only that kind of solution so that's one area the other areas for av basically is avo.it a lot of our major competitors take that offering so we are in a very unique position to capitalize on this industry transition uh from south and a lot to IT media. Okay. Thank you. Sure.
spk00: Thank you. Once 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 of Common. Your line is open.
spk06: Thanks, guys. I appreciate you taking the question. To the extent the quarter doesn't offer strong, if any, support for the overall market thesis, let me ask you the obvious question. If I look at the Del Oro market numbers, they're projecting a market $200 million of growth over the five-year period from 2020 to 2025 for solar Wi-Fi, going from $8.0 billion to $8.3 billion. That's with a 5 million unit decline over that five-year period. And I recognize it's still early. I recognize each iteration of Wi-Fi is different. And perhaps with the different iterations of Wi-Fi 6, this will be truly different in terms of more expansive duration and in magnitude. But that's certainly not what the prominent industry analyst seems to believe. We already know our numbers. Now the question, Patrick, you're in the trenches. Given what you're seeing, why do you believe? I mean, one would think, The extent this quarter was a disappointment when we're still in the pandemic. I understand things are improving. I understand there's been some return to work. But one would think that if, in fact, the number is going to be meaningfully better than what Delora is projecting, you should have seen better growth than what you saw. What informs your view that the market, putting aside competitive factors, Google, Amazon, et cetera, but that the market is going to be stronger than what it appears to be, and to be clear, over a longer duration?
spk02: Yes. I mean, the major difference is that we're really putting a lot of effort in a segment that is created by us, which is what we call the premium Wi-Fi. So if you look at the home network, Either you're going down the traditional consumer route, which is the easy setup and just purely mesh, or you go for the more serious business route, which is a switch, a router, plus a bunch of access points. So there are two paths. But in either way, we're providing systems. that are $500 plus to even $1,000 plus. And that is a very unique space. And then we basically target into a very unique segment, which is away from the Google and from the Amazon or the Asian vendors. who are all focusing on the $200 to $300, you know, ordinary market. So our growth is given the confidence. Our confidence of the growth is basically seeing how that segment is expanding. And that's why it is interesting. A year ago, that segment of $500 plus, you know, national system is only 8% of the market. But now it's become 34% of the market. So that gives us a unique position. It's just like on the SMB side, as I mentioned just now, going out to a home office with switch and access points, matched access points, is not anything our American competitors do. And going out to Pro AV is none of our competitors do. So we are kind of in a different segment that is very unique to our position.
spk06: Patrick, let me play devil's advocate. The mesh market goes from 8% to 34% year over year. It goes up four percentage points sequentially. To your point, and recognizing that there's always the risk of significant mis-extrapolation from one quarter's results, but in a vacuum, logically, why shouldn't this quarter have been, not that it was bad, but why shouldn't it have been that much better for you, given your focus on premium, given that while you continue to expand your product set, you already have a rich offering of premium products, given the fact that there's limited competition at the premium end of the market, and the percentage of the total market continues to shift towards premium. Why shouldn't the numbers have been better if what you say is an accurate view?
spk02: Well, first let me clarify that 34% is not of the total market. That 34% represents the premium segment of the total and national market. So that's the same point. Yeah, so that's the same. So 34% of a smaller pie is still less than 34% of a bigger pie. I mean, that's basically what kind of, you know, the difference that we're seeing here. and as as uh as brian mentioned in q2 actually and if our supply is not constrained on the smb side we would definitely have a much better results both from the top line and from the bottom bottom line perspective so we we think that that's that on the cp side we definitely are off the mark from the overall big market sizing uh but then within that market for a smaller market size. However, the shift towards the high-end torque, the premium man, is on track.
spk06: All right. And just to clarify, there is a bit of a dead horse here. You have a supply constraint, which restrained your SMB revenue. It would have been that much stronger, but for supply constraint. But on the other hand, with respect to the 75% of your revenue from consumer revenue, That wasn't a supply constraint issue. All of the disappointment is simply demand not being as strong as you'd expect it in the quarter and as you look forward to the second half of the year.
spk02: That is correct. So, again, I mean, one thing I would like to point out is we have a pretty lofty expectation. 40% growth over 2019, and it's still a year-on-year growth on the very big first half of 2020. It's still respectable. So, of course, it's not as high as we would have liked. It is still a very strong growth off the market. And it's all driven by this premium segment because in the premium segment, it's not the growth in units. It's the growth of P&C of the average selling price. And we see that trend continue.
spk06: Okay. I appreciate the responses. Thank you. Sure.
spk00: Thank you. There are no further questions at this time. Patrick, I turn the call over back to you.
spk02: Thank you for joining us today, everybody. I'm confident that the team will definitely navigate the ongoing market challenges, and that NICU remains well-positioned to steadily capture market share, thanks to our strong brand presence and innovative award-winning product line-up. With flexible work environments and now the norm, the total and best market opportunity will have high performance, high speed, premium network products remain at elevated levels. And we're confident that we'll continue to be a leading market position in both the CXP and the SMB market segments. So thank you so much. Talk to you next week.
spk00: Thank you. This concludes today's conference call. You may now disconnect.
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