Netgear Benefits From Telco Divorce

| About: NETGEAR, Inc. (NTGR)

I was a bit surprised to find Netgear (NASDAQ:NTGR) CEO Patrick Lo pounding the table for his stock Monday, claiming he'll have 2012 sales of $2 billion, up 69% from analysts' 2011 expectation.

After all, doesn't the company just make routers? I have one, it works, although its predecessors were both killed by lightning strikes when it turned out my phone and (later) cable connections weren't properly grounded.

Yes, it does make routers, but it is steadily divorcing from a business that depends on telco or cable connections:

  • Netgear is doing “home network storage” systems that let you save everything you download or create in one central location and use it on any router-connected device.
  • Netgear is creating routers with integrated VPN connectivity, allowing companies to enable teleworking on the cheap and taking away yet another telco add-on revenue stream.
  • Netgear has a software product called Genie that troubleshoots home network operations through a single dashboard, for the PC or Mac.
  • NetGear's PushtoTV adapter lets users stream HD content from their PCs to TVs, using their WiFi connection, through a USB connection.
  • NetGear is working hard to expand the percentage of revenue it gets from the Asia-Pacific region.

NetGear is a fairly controversial issue. Bears have it falling below $32. Bulls have it rising past $42. (Today it's at around $36.50)

What it's doing is, simply, transforming the locus of innovation from the PC to the network, and controlling that network. This is something companies like Microsoft (NASDAQ:MSFT) have been trying, and failing to do for years, mainly by building TVs or “home media servers.”

NetGear is using your existing stuff and building peripherals that turn your existing WiFi data stream into the backbone of everything the TV and PC guys were trying to do. Only it's easier, and cheaper. And once NetGear has these high-bandwidth applications set up, can low bandwidth ones be far behind? Home automation, home inventory, medical and security applications, with single-chip systems as the clients and either your existing PCs or a NetGear server at the center?

I think it's possible. Once the current boom in stock prices turns into a bust, maybe later this week, this will be one of the companies on my buy list.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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