NETGEAR Q2 Earnings Call Highlights

Key Points

• Q2 revenue reached $168.6 million, down 1.2% year over year but above guidance, while non-GAAP operating margin improved to 2.4% and the company returned to non-GAAP operating profitability.
• Enterprise led performance: revenue rose 7.7% to $89 million, supported by strong Pro AV switch demand, record 54.1% gross margin and growing software and recurring-revenue initiatives such as Align and Insight.
• Consumer revenue fell 9.4% amid weaker margins, higher memory costs and aggressive promotions. NETGEAR forecast third-quarter non-GAAP operating margins between negative 3% and 0% as supply constraints and component costs weigh on results.

NETGEAR NASDAQ: NTGR reported second-quarter 2026 revenue of $168.6 million, down 1.2% from a year earlier but up 6.1% sequentially, as growth in its enterprise segment offset continued pressure in consumer products. The company said revenue and non-GAAP operating margin exceeded the high end of its guidance range.

Chief Executive Officer CJ Prober said the quarter reflected progress in NETGEAR’s shift toward a “software-differentiated, enterprise-led business.” Enterprise accounted for more than half of total company revenue and about 69% of gross profit during the period, he said.

NETGEAR generated non-GAAP operating income of $4 million, compared with a non-GAAP operating loss in the prior-year quarter. Non-GAAP net income was approximately $4.4 million, or $0.16 per diluted share. The company’s non-GAAP operating margin was 2.4%, improving 310 basis points year over year and 140 basis points sequentially.

Enterprise Growth Led by Pro AV Switches

Enterprise revenue totaled $89 million, rising 7.7% year over year and 6.1% from the first quarter. The segment represented approximately 53% of company revenue, an increase of more than 400 basis points from a year earlier.

Chief Financial Officer Bryan Murray said demand for the company’s Pro AV managed-switch products grew by double-digit percentages both sequentially and year over year. Enterprise growth was supported by the Americas and Europe, the Middle East and Africa, while Asia-Pacific remained a drag as NETGEAR restructures its go-to-market approach in the region.

During the question-and-answer session, Prober said enterprise revenue in the Americas rose 15% year over year and EMEA revenue increased 9%, while APAC revenue declined 16%. He said the company expects APAC to resume sequential growth in the fourth quarter as it applies its channel strategy from the Americas and EMEA to the region.

Enterprise non-GAAP gross margin reached a record 54.1%, up 740 basis points from the prior-year period. Contribution margin rose 660 basis points year over year to 25.9%, its highest level in more than seven years, according to management. Murray said the results reflected the mix of Pro AV products, regional mix improvements and a prior acquisition of a perpetual license for the operating system used in its managed switches.

The license acquisition contributed roughly 150 basis points to consolidated gross margin compared with the year-ago quarter, Murray said. NETGEAR’s overall non-GAAP gross margin was 41.4%, up from 37.8% a year earlier.

Software, Services and Partner Initiatives

Prober highlighted the launch of Align, a cloud-managed platform intended to consolidate AV infrastructure services, host applications including NETGEAR’s Engage network-management platform, and support third-party AV applications. Align was introduced at the InfoComm trade show, where Prober said it received seven industry awards, including a Best of Show recognition.

The company also introduced updates to its Insight platform, including a redesigned user experience, licensing changes intended to support recurring revenue, an initial integration of Exium security services, and a framework for AI-powered network operations and AI-defined networking.

NETGEAR reported annual recurring revenue of $41.6 million, up 15% year over year, and exited the quarter with 558,000 recurring subscribers. Prober said Align’s cloud-management capabilities will require an Insight license and are expected to support enterprise recurring revenue.

The company said it had surpassed 600 Pro AV manufacturing partners and added more than 125 certified APEX partners, its highest tier of partner status. Its support and services organization added customers including National Geographic, Shopify and Salesforce, while the company won business in 86 school districts for the 2026 E-Rate season.

NETGEAR also said it has expanded internal software development capabilities following acquisitions of VAAG, Exium and source code related to its managed-switch operating system. Prober said the enterprise unit now employs more than 200 software engineers and has largely reduced its reliance on external contractors.

Consumer Pressure and Supply-Chain Costs

Consumer revenue was $79.6 million, down 9.4% from a year earlier and up 6.1% sequentially. The company said it is prioritizing gross profit over revenue in the segment amid higher memory costs and aggressive retail promotions from competitors.

Consumer gross margin was 27.3%, down 210 basis points year over year. However, management said U.S. direct-to-consumer revenue increased more than 20% from a year earlier, supported by the company’s Wi-Fi 7 product lineup and growth in recurring services.

Service-provider and related-product revenue remained in decline as NETGEAR harvests that business, falling about 13% year over year in the second quarter. The company said a service-provider partner increased inventory because of concerns about rising component costs.

Management said it has secured memory supply through the first half of 2027, but expects elevated costs and tighter component availability to affect the second half of 2026. The company expects approximately 200 basis points of combined gross-margin pressure in the second half compared with the first half, with a greater effect in the third quarter. A manufacturing-partner execution issue also led the company to use more air freight for Pro AV products, though Prober said the issue has been addressed.

Third-Quarter Outlook and Capital Returns

For the third quarter, NETGEAR forecast revenue of $165 million to $175 million. It expects service-provider and related-product revenue of about $22 million, a decline of approximately 19% from the third quarter of 2025.

The company projected a GAAP operating margin between negative 12% and negative 9%, and a non-GAAP operating margin between negative 3% and 0%, citing memory costs, supply constraints and related mitigation measures. Murray said the company expects a sequential improvement in non-GAAP operating margin in the fourth quarter, supported by seasonally higher revenue and lower near-term supply-related costs.

NETGEAR ended the quarter with $267.9 million in cash and short-term investments, down $28.6 million sequentially. During the quarter, it repurchased about 560,000 shares at an average price of $23.04, spending $12.9 million. The company said approximately $75 million remained under its share-repurchase authorization.

NETGEAR also appointed Douglas Murray to its board of directors and hired Surajit Sen to lead its APAC transformation efforts.

About NETGEAR (NASDAQ:NTGR)

NETGEAR, Inc NASDAQ: NTGR is a global provider of networking solutions for consumer, business and service provider markets. The company designs, develops and markets a comprehensive portfolio of products that enable high-speed connectivity, data storage and network security for homes, small to medium-sized businesses and large enterprises.

Its product lineup includes Wi-Fi routers, mesh networking systems, cable modems, mobile broadband gateways and Ethernet switches—offered in both managed and unmanaged configurations.

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