NETGEAR Inc (NTGR) 2013 Q3 法說會逐字稿

Greetings and welcome to the NETGEAR, Inc. Third Quarter 2013 Earnings Conference Call. At this time all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. (Operator Instructions).

It is now my pleasure to introduce your host, Christopher Genualdi, Investor Relations Manager. Thank you, Mr. Genualdi. You may now begin.

Thank you, operator. Good afternoon and welcome to NETGEAR's Third Quarter 2013 Financial Results Conference Call. Joining us from the Company are Mr. Patrick Lo, Chairman and CEO, and Miss Christine Gorjanc, CFO.

The format of the call will be a brief business review by Patrick followed by Christine providing detail on the financials and other information. We will then have time for any questions. If you have not received a copy of today's release, please call NETGEAR Investor Relations or go to NETGEAR's Corporate website at www.netgear.com.

Before we begin the formal remarks, the Company advises that today's conference call contains forward-looking statements. Forward-looking statements include statements regarding expected revenue, operating margins, tax rates, cash generation and other projected financial results, expected market share gains, market trends and opportunities, competition, research and development efforts, sales and marketing efforts, new product introductions and our growth strategy.

Forward-looking statements are made during the call are being made as of today. If this call is replayed or reviewed after today, the information presented in the call may not contain current or accurate information.

Further, certain forward-looking statements are subject to certain risks and uncertainties and are based on assumptions as to future events that may not prove to be accurate. Therefore, actual outcomes and results may differ materially from what is expected or forecast in such forward-looking statements. Information on potential risks factors are detailed in the Company's periodic filings with the SEC including but not limited to those risks and uncertainties listed in the Company's most recent Form 10-Q filed with the SEC.

NETGEAR undertakes no obligation to release publically any revisions to any forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the accuracy of unanticipated events.

In addition, several non-GAAP financial measures will be mentioned on this call. Information relating to the corresponding GAAP measures as well as a reconciliation of the non-GAAP measures and GAAP measures can be found in our press release, both on the Investor's Relations website at www.netgear.com.

At this time I would now like to turn the call over to Mr. Patrick Lo. Please go ahead, sir.

Thank you, Christopher, and thank you, everyone, for joining today's call. Before we begin I'd like to invite you all to join us for our 2013 Analyst Day being held in New York City on November the 7th.

The Analyst's Day will provide an excellent opportunity to meet our Management Team including our new Commercial Business Unit General Manager, Mr. John McHugh. We will discuss our vision for the future and what technologies we believe we can master to win and thus grow our business for the long term.

For additional details on this event, please reach out to NETGEAR Investor Relations on the Investor Relations portion of our website.

Moving on to our financial results, for the third quarter of 2013 NETGEAR net revenues were $361.9 million, which is up 14.8% on a year-over-year basis and slightly above our guided range.

Non-GAAP diluted EPS came in at $0.58 per diluted shares. Please see the third quarter 2013 Earnings Press Release for a full reconciliation of GAAP to non-GAAP financial results.

During the third quarter, net revenue for the Americas was $220.5 million, up 24.1% year-over-year and up 9.8% quarter-over-quarter. The sequential results include full quarters of the AirCard acquisition in both Q2 and Q3 quarters, but the year-over-year results do not.

The Americas continue to show modest strength in an uncertain global economy and the third quarter marked another successful back-to-school season for NETGEAR.

Europe, the Middle East and Africa, or EMEA, net revenue was $97.2 million, down 6.8% year-over-year and down 10.3% quarter-over-quarter. The unfavorable economic climate in Europe continues to weigh on all three business units and we expect continued headwinds in coming quarters.

Our Asia-Pacific, or APAC, net revenue was $44.2 million, which is up 33.1% from the prior year's comparable quarter and down 8.9% quarter-over-quarter. Note that this also includes full quarters of the AirCard acquisition in both the Q2 and Q3 quarters, but the year-over-year results do not. The sequential decline in APAC is typical of seasonality in Australia when Q3 is the start of their financial year.

In Q3 we maintained a high level of shipments with 7.4 million units shipped. We also introduced 21 new products during the quarter. By the end of the third quarter of 2013 our products were sold in approximately 45,000 retail outlets around the world and our number of value added resellers stands at approximately 39,000.

Now let's turn to our review of the third quarter results for our three business units, Retail, Commercial and Service Provider.

In our Retail Business Units, or RBU, net revenue came in at $130.3 million, up 5.5% year-over-year and up 11% sequentially. RBU's strength during the third quarter was driven by increased sales for the back-to-school season and a continued AO2.11 AC upgrade cycle.

Additionally, WiFi range extenders continued to be a market success for us growing significantly above average RBU growth on a quarter-on-quarter and year-on-year basis. We expect consumers will continue to upgrade their home WiFi as they purchase more and more connected devices and increasingly engage in data intensive activities such as media streaming and online gaming.

These upgrades mean more 11ac Routers and more WiFi range extenders among households worldwide.

On October 1st we introduced the release of the Nighthawk ac1900 Smart WiFi Router. The Nighthawk is our latest addition to the 802.11 ac family and practically across the board according to multiple independent reviews the best WiFi router in the world today. It uses high power WiFi amplifiers and three specially designed external antennas to provide outstanding range, while sporting a one gigahertz dual-core processor and advanced upstream [Qo amp] software optimized for online gaming and video streaming. We look forward to having this product on retail shelves during the upcoming holiday season.

We will be demonstrating the Nighthawk at the Analyst Day in New York City in November 7th. We believe that far superior products this will further strengthen our market leadership position and thus allow us to continue to gain share against our competitors worldwide even in the emerging markets.

Turning to our Commercial Business Unit, or CBU, net revenue came in at $77 million for the third quarter of 2013. That's down 2.9% on a year-over-year basis and down 13% sequentially. We experienced weaker than expected storage sales during the quarter, which led to the CPU revenue slow down.

We continued to strengthen our storage lineup by refreshing two Rackmount Ready NAS products during Q3 and we will increase our marketing program activities in the following quarters to promote the superior data protection capabilities of our storage devices.

Growing storage sales and regaining our market share in storage continues to be a top focus area for the Commercial Business Unit. This includes expanding on the cloud capabilities of our ReadyNAS products.

We have recently released iPhone apps to access and manage our storage products and plan to continue innovating in this area. In an increasingly mobile world it is important that customers have the ability to remotely access and configure the NAS device using mobile apps.

Beyond storage we are committed to growing our switching and wireless access solutions for small businesses. On the switching side, we have seen SMBs continue to upgrade the network capabilities from one gigabit to 10 gigabits. In the not too distant future, we will see them moving up to 40 gigabits and 100 gigabits switching.

In addition, NETGEAR has been successful in offering easy-to-use and reliable power over Ethernet switches to SMBs at price points that are within their budgets.

We recently launched the ProSafe 16-port gigabit smart switch featuring power over Ethernet capabilities as well as PD or powered device capabilities. This switch is an industry first for the SMB market, as we are providing flexible power options so that businesses do not need to be constrained by the lack of ac power outlets in close proximity when deploying the networks. It is a perfect example of how NETGEAR works to make products simpler, easy to use, easier to use and more affordable for SMBs.

On the wireless access side, we are seeing increased wireless deployments in the K-12 Hospitality and Healthcare verticals. BYOD trends are making smarter and more capable wireless solutions increasingly necessary. We are very focused in these industries and we want to be the first stop for connectivity and capacity for commercial wireless implementations in these sectors.

For our Service Provider Business Unit, or SPBU, net revenue came in at $154.6 million for the third quarter of 2013, up 37.4% year-over-year and up 1.8% on a sequential basis.

During the quarter we received an unexpected order from one of our customers and I'd like to take this opportunity to congratulate on our team on delivering that order with a shortened lead time.

That being said, we continue to expect the service provider business to be lumpy; specifically we believe the active consolidation among the service providers in Europe will cause weakness in SPB's business during the fourth quarter of 2013.

The third quarter marks the second full quarter of NETGEAR owning the AirCard business purchased from Sierra Wireless in April of this year.

Results for the quarter were in line with expectations and we continue to work on integrating the two businesses. We're especially pleased with the release of the NETGEAR Zing mobile hotspot, which has been a hit with Sprint's subscribers. It can keep you connected for up to 10 hours of continuous use on a single charge. It's perfect for the family on the go with multiple devices or the traveling business person who needs constant contact with the office.

Based on reviews from the press we believe we have a much better product than our competitors. We remain positive on the product opportunities we have from combining AirCard's engineering strength in LTE and NETGEAR's strength in WiFi. We expect this will be an area of excitement in 2014.

As always, we remain focused on long-term growth driven by our mission to connect everyone to the high speed internet. We will continue to invest in growth markets of the Smart Home, access networks with cloud computing and LTE gateways.

Our vision for the future has not changed. In the developed world, smart homes will be enabled by whole-home high-speed WiFi coverage. SMB will have the same technological advantages as enterprises through the cloud.

In the developing world Internet access will be available to all enabled by the rollout of LTE. We think that over the next two to four years there are large opportunities for NETGEAR to enter additional new markets and gain market share in existing markets. We will go more in depth on this vision in our Analyst Day on November 7 in New York City. We look forward to speaking with you all about it then.

I will now turn the call over to Christine for further details on our financials for the past quarter.

Thank you, Patrick. I will now provide you with a summary of the financials for the third quarter of 2013.

As Patrick noted, net revenue for the third quarter ended September 29, 2013 with $361.9 million as compared to $315.2 million for the third quarter ended September 30th, 2012 and $357.7 million in the second quarter ended June 30th, 2013.

We shipped a total of about 7.4 million units in the third quarter including 5.8 million nodes of wireless products. Shipments of all wired and wireless routers and gateways combined were about 3.5 million units for the third quarter of 2013.

Moving to the product category basis, third quarter net revenue split between wireless and wired was about 70% and 30% respectively.

The third quarter net revenue split between home and business products was about 78% and 22% respectively.

Products introduced in the last 15 months constituted about 40% of our third quarter shipments, while products introduced in the last 12 months constituted about 31% of our third quarter shipments.

From this point on my discussion points will focus on non-GAAP numbers. As mentioned previously, the reconciliation from GAAP to non-GAAP is detailed in our preliminary financial statements released earlier today.

Non-GAAP gross margin in the third quarter of 2013 was 28.9% compared to 31.6% in the year ago comparable quarter and 29.8% in the second quarter of 2013. The margin decrease as compared to the prior year quarter is due to the higher mix of service provider revenue in the current period.

Total non-GAAP operating expenses came in at $68.7 million for the third quarter of 2013. We continue to invest in research and development in order to drive innovation in all three business units.

Our non-GAAP R&D expense for Q3 was 6.2% of net revenue as compared to 5.3% in the year ago comparable period and 6.4% of net revenue during Q2. We continue to spend carefully on the key initiatives that we expect will drive the future growth for the Company.

Our headcount increased by net five people during the quarter bringing our total headcount to 1,100 at the end of Q3.

The non-GAAP tax rate was 37.2% in the third quarter of 2013 as compared to 30.3% in the third quarter of 2012 at 32.9% in the second quarter of 2013. The tax rate increase in the third quarter of 2013 is due to geographical mix in profits, which are weighted more towards North America.

Looking for the bottom line for Q3, we reported non-GAAP net income of $22.9 million and non-GAAP EPS at $0.58 per diluted share.

Looking at the balance sheet, we ended the third quarter of 2013 with $301.4 million in cash, cash equivalents and short-term investments compared to $288.1 million at the end of the second quarter of 2013.

Our balance sheet and our ability to generate cash remains strong. During the second quarter of 2013 we generated approximately $16.6 million in cash flow from operations. Over the last four quarters we've generated $90.3 million in cash flow from operations.

DSOs for the third quarter of 2013 were 68 days as compared to 72 days in the third quarter of 2012 and 73 days in the second quarter of 2013. As always, we closely manage our collections and try to effectively mitigate collection risk.

Our third quarter net inventory ended at $211.3 million compared to $178.9 million in the third quarter of 2012 and $185.4 million at the end of the second quarter of 2013.

Third quarter ending inventory turns were 4.9 as compared 4.9 turns in Q3, 2012 and 5.5 turns in the second quarter of 2013.

Let's turn to our channel inventory. Our channel partners report inventory to us on a weekly basis and [weighs] a six-week trailing average to estimate weeks of stock. Our US retail inventory came in at 11.5 weeks of stock. Current distribution inventory levels are 9.9 weeks in the US, 4.5 weeks stock for distribution in EMEA and 8.2 in APAC.

Our short and immediate term visibility remains limited caused by the continued economic headwinds facing Europe and the lumpiness of the service provider business. We are focused on continuing to launch new products and improving the operational efficiencies within NETGEAR.

For the fourth quarter of 2013 we expect to incur a restructuring charge between $3 million and $4 million as we will be realigning resources to better focus on the key growth markets we are pursuing. We expect fourth quarter 2013 revenue to be in the range of approximately $340 million to $355 million. As the consolidation activities of cable operators in Europe continues to delay purchasing among our customer base.

We expect non-GAAP operating margin to be in the range of 9.5% to 10.5% and our non-GAAP tax rate to be approximately 39% for the fourth quarter of 2013.

As Patrick mentioned, we look forward to seeing you on November the 7th in New York City at our 2013 Analyst Day.

Operator, that concludes our comments and we can now take questions.

(Operator Instructions). Our first question comes from Rohib Chopra from Wedbush Securities.

Patrick, I just want to get a sense on the CVU. What specifically was the cause of the weakness there? You already had some problems I think a couple of quarters ago. I thought those were resolved with some of the storage products. And then, related to that, when do you expect a rebound in the CVU? That's my first question.

Yes it's pretty clear that our competitors have upped the game and then we just have to continue to up our game as well so that's why we refreshed two right now storage in Q3 and we just introduced the first mobile app that provides really, really good user friendly cloud access to our storage. There is no other way to win in this market by better products and that's one.

The second one is that we believe that even though we have a superior product, I think our marketing program has not been effective in Q3 so we are revamping the marketing programs. We are going all out in on line and social media and installed base, digital marketing to really get the message out and certainly we have just hired a very experienced commercial business unit General Manager and I think by combining all those areas we're looking forward to a much improved performance in the coming quarters.

Okay a question for Christie, have you guys thought or has the Board been able to bring up a buyback again? Is that being thought about?

You know, it's discussed every quarter and we're definitely looking at our cash balances at how we're going to deploy that and we will move forward with that with acquisitions with a buyback. We'll continue to look at that to make appropriate decisions.

Okay the last question was on AC. I think you gave some metrics for Q1 and Q2. What was AC as a percentage of the sales in Q3?

Yes as we -- I would like to give you a little bit more color on that one. In the market today in the latest NPD report AC is about 37% of the US retail market and we're pretty much in line with that. However, with the just rollout the Nighthawk, 11ac router, which is the best in the world, I believe that we would one, accelerate the market even further; two, gain more market share.

Thank you.

Tavis McCourt, Raymond James.

Thanks for taking my questions. Christine, just a technical one for you and then a couple for Patrick; the 39% non-GAAP tax rate, just to be clear, that was a non-GAAP number? And, as long as the geographic mix remains similar to where we are today, is that a reasonable going forward rate beyond 2013?

Yes as long as the geographic mix remains the same and when we see Europe recover you will see the rate come down but right now you can see that North America is the biggest piece of the pie and drives more towards the higher rates.

And is there any portion of your cash that is inaccessible?

No we really don't have -- we don't have anything really locked off shore at this point, given the fact that our structure hasn't been in place for but maybe about four years.

And then, Patrick, for you I was wondering if you could give an update on the commercial wireless LAN business. I think you guys have launched more scalable controllers this year. Is that meaningful as a percentage of the commercial business yet and do you see an opportunity to take your share up or is it still going to be a business unit driven mostly by switching?

It is definitely a meaningful portion of our commercial business unit, which is primarily composed of three product lines, switching, storage and wireless and yes we tend to be in of ourselves in our own segment because we're really targeting three segments, K-12 schools, hospitalities, primarily small to mid-sized motels and hotels as well as small, mid-sized healthcare, particularly hospitals and retirement homes.

And we see continued ramp, continued increase in our sales of our scalable wireless controllers and particularly we see success in North America, in China, in Benelux as well as the UK. We certainly continue to see that we can ramp to more countries as well as to more regions in the US and we do believe that it will become a bigger and bigger portion of our CVU revenue.

However, I mean we don't consider ourselves really competing against the usual enterprise competitors because we're not really in that particular segment. We're really focused in three, these three vertical markets, which require lower cost, easier load of operations and the applications primarily providing free WiFi Internet access for their residents or their visitors.

Got you and then I wonder if you could give a little more clarification on the impact of the cable consolidation in Europe? I think you guys had guided last quarter for Q3 to be impacted by that. Was this just delayed one quarter or did Q3 see an impact but was offset by other things in service provider? And then is there a potential carry on impact in 2014 or is it the numbers getting to relatively low estimates by 2000 -- or by the end of this year?

Yes, Tavis, one thing we did mention on the call is we did experience a little bit of slowdown from that consolidation this quarter but it was offset by a couple orders from some other customers that we were able to fulfill, so you see service rider revenue relatively flat if not slightly up quarter-on-quarter. We do expect to see that in Q4 and just recently there's another series of consolidation so we do hope to see that get back on track as they make decisions because we do know ultimately they will buy product and so we're moving forward with that and right now our visibility really is into Q4. We see that that will slow us down until the end of the year, which is included in our guidance.

Hamed Khorsand, BWS Financial.

I just want to touch on a couple things. One is talking about the retail market you're talking about getting more products as far as range extenders and all sorts of different accessories and especially with the AC upgrade but then I am looking at your revenue trend and we're not going anywhere, right? I mean, in 2011 we were at 127. Now we're at 130 and I am very certain in 2011 we didn't -- consumers weren't buying range extenders, so what's the drawback? What's, -- where's the growth gone to?

Well, clearly if you look at a geographic breakdown, I mean EMEA is the culprit. I mean the EMEA economic uncertainty and the recession, the shrinkage is really causing a significant havoc. Even though we have grown tremendously in America as well as in Asia, it was truly negated by the decline in EMEA, which is pretty severe. So and not until we really stabilized the European market we would not see the full benefit of all those things you talked about, explosive growth of the WiFi extender market, the continued upgrade of the 11ac in the North American market primarily yes. I mean we have been fighting this battle of EMEA.

Okay and then in Q3 operating margins were up considerably and it seems like you guys weren't spending a lot on marketing. What was the strategy there and what's the strategy in Q4 that you're guiding operating margins back down to that 10% range?

So this quarter, Hamed, we had 9.9% non-GAAP operating margin and we're guiding 9.5% to 10.5% so I think we're still in that range. Obviously we're careful with what our spending money but a lot of our marketing spend you would see netting out at revenues. You wouldn't necessarily see the dollars and, as we do walk into the back half of the year with retail, we do see marketing promotions in that typically go up a little bit but typically that's affected in your revenue number.

Okay are we going to see any benefit of that, of the CR Wireless acquisition at all this quarter? How is that fitting into the model now?

So we always said that AirCard assets would fit in on the service provider business unit and fit in with service provider contribution margin so we've been seeing that since we picked them up. It also makes service provider a bigger piece of the pie on the revenue side, which then is why we are guiding 9.5% to 10.5%. Now, hoping to see LTE Gateways in that, we'll hope to win some of those in 2014, like we originally said.

Okay thank you.

Ryan Hutchison, Lazard Capital Markets.

Great, I have a couple. Just on the service provider dynamics here at the quarter end, can you talk to specifically if the win was in the US and if it was Telco or MSO and if it was part of AirCard at all? That would be my first question.

Second would be just a clarification on what the AirCard contribution was in the quarter and then I have a third but let's just start there.

As far as where the win goes on service provider, I mean I think what you can see from our overall results is the strength is in North America this quarter as opposed to EMEA so I'll let you draw your conclusion on that but and then secondly, we really don't break out AirCard. It is part of the service provider business unit and I think if you look at any one of the contribution margins to those, which we will publish in our Qs, a four-quarter average will -- it's maintaining right in the average at the regular service provider over the last several years.

So the AirCard piece is within -- it hasn't fallen off significantly below expectations in terms of what the historical run rate's been? Is that fair?

No, no not at all, we've been quite happy at this point.

Okay and then I just wanted to understand the business unit mix going into Q4 so you've touched on it in some previous questions but I just want to be clear about this so the run rate last quarter for service provider was roughly $145 million to $155 million a quarter. You're at the high end of that. What's the expectation going into the fourth quarter? I'll start there and if you're not willing to give some parameters around service provider in general, do we expect retail and commercial to grow sequentially?

Yes well I would say what we really have is in the guidance taken into account service provider. We're expecting it to be down in Q4, you know, seasonal standpoint.

Right, right.

And that's part of our guidance and, as we mentioned on the consolidations it was some of the operators were staying in Europe. As far as retail then, typically up a little bit more in Q4, had a good back-to-school in Q3 and we definitely on the commercial side would like to recover and start moving that business up and really plan to do that.

Okay so if retail and commercial kind of grow roughly in line with historicals or slightly below, we're looking at service provider that's well below that $145 million to $155 million run rate that you've alluded to in the past and something along the lines of probably down 20% to 25% sequentially. Is that fair?

I don't know. I mean I would just say service provider will be down and it will be more or less offset by the retail and the commercial.

Okay and then finally, did the shortened lead times, how much did those impact gross margins with anything Air Freight or anything we should be aware of?

You know, you always have some Air Freight up in the gross margin and some other things, not too much. I mean I think we would never do anything and air freight something if it didn't add to the bottom line. Again, it may hit gross margin but the bottom line was positive.

So 50, 50 to 100 basis points or is that--?

No I mean no we didn't -- we don't really say anything on that. I mean we spend air freight every quarter. We spend air freight getting our new Nighthawk to market in some places in that so that's typical of every quarter. It just depends on what's going on within the quarter how we allocate that budget.

And the thing about it is we treat our customers nicely they will treat us nicely here as well.

I'll leave it there. Thanks.

Mark Sue, RBC Capital Markets.

Recognizing that EMEA has been weighing on your results for a while and now we have the cable service provider consolidation to contend with, when do you feel that things might actually turnaround from EMEA from a macro level. Lots of companies are saying things are stabilizing there. Do -- should we plan for an uptick in maybe the second half of 2014, just maybe some broad color on how you're feeling about EMEA for next year?

Well, what I could say is no one would be happier to see that than us and report that in our results so we're clearly aligning our resources to make sure that we pursue the revenue opportunities that we see and going in and promoting the new storage product and that in EMEA so we will make sure that everything is targeted so EMEA can grow. We're just really hamstrung a bit by the economic climate and we will be the first ones to tell you when those numbers come back up.

The service provider customer, which came late in the quarter, was that a competitive displacement? Usually you have a good lead into a lot of these things and better visibility. It's good to see you responded but just wondering how that popped up very suddenly.

Yes a lot of times when that pops up they just want more than they originally ordered and they want some more from the next quarter and the next and over their overall program, so we're happy. That means their program is working well and they're going to deliver more to the customers.

Okay but that's not a European account. It was elsewhere you -- was that correct?

Well, I think we sort of -- if you look where the revenue grew the most, was probably the Americas, so you could draw your conclusions on that.

Okay that's helpful. Thank you and good luck.

Kent Schofield, Goldman Sachs.

I was wondering if you could talk a little bit about Smart Home and how much of a percentage of revenues in retail is that at this point or, if you don't want to provide that, can you help us just kind of understand how much of a growth driver it was with say the seasonality you saw in back-to-school in September?

Well, it depends. I mean our view of the Smart Home is basically the home of modern days fully covered with WiFi, with all kinds of gadgets, so to us anything beyond just a standard router is part of -- I mean even the router itself should be part of the Smart Home so clearly, as most people rightfully pointed out in the developed world, most people have a router already. And so you could conclude a Smart Home addition is primarily the WiFi extenders, the -- our new TV equivalent and also the storage and as well as the cameras.

And then of course recently you've seen some other participants in the market introducing thermostats, smoke detectors, so all those are Smart Homes and they are getting bigger and bigger every day and, as we mentioned, I think I believe that I mentioned the last time when you add up all those things beyond router is already 60% of size of the size of the router market and is growing rapidly. So, because it's growing so rapidly, there is no seasonality as much as yet. They're still growing sequentially but certainly we expect that in this holiday season there will be a lot of sales of these types of products, WiFi extenders, new TV streamers and the view zone cameras in our competitors' equivalents.

Got it so is the outside of routers is it 20% of retail revenues at this point or is that just not in the ballpark?

Well, it was 60%, over 160%. That's probably around 30 -- oh no 40 percent-ish, 38% to 40%.

Okay, okay that's helpful thank you. And then on the service provider side of things with the consolidation you talked about there being a pause through the end of this year. What's your visibility on that? I mean can that roll into Q1 of next year? Have you been able to talk to your customer and know that it will be cleared up by then? Just a little color there would be helpful.

Well, you know obviously we're talking to our customers all the time and making as much communication and we can. We don't know exactly when that will all roll out but we do know they will have to buy so we don't have an exact date but we are absolutely talking with them and showing them everything we can do for them to win more business.

And these consolidations keep coming. First it's [Softbank] buying [Strand]. Then it's Liberty Global buying Virgin; just two, three weeks ago it's [Telenor] buying [Tela2]. I mean there is a lot of activities going on.

Sure thank you.

(Operator Instructions). We appear to have no further questions. I would like to turn the call back over to our speakers for closing comments.

Yes thank you so much, operator. As we said all the time, NETGEAR is very, very committed to help connect the world onto the Internet so that their lives could be enhanced and we do believe there is a long way to go for us to accomplish that mission for everyone on earth.

So the market space is tremendous and opportunity is boundless and we're going to discuss all that in our Analyst Day on November 7th and of course for each BU we're going to present the management team as well as the expertise, that secret sauce that we have in each BU that we believe that we can master and win in those future vision, so look forward to seeing every one of you over there and until then goodbye.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.