Netgear soars 23% after raising Q3 outlook

Shares of internet hardware provider Netgear (NTGR) surged 23% in after-hours trading following an upward revision of its Q3 outlook and the release of new details regarding its settlement with TP-Link.

Netgear raisedits guidance for Q3, expecting revenue between $170 million and $180 million, up from its prior forecast of $160 million to $175 million, driven by the earlier-than-expected launch of its new 5G mobile hotspot. This updated outlook, which also reflects a positive market reception to the product launch, caused shares to jump nearly 20% in extended trading. Additionally, the company anticipates an adjusted operating margin of -8% to -11% for the quarter.

In a significant development, Netgear also reached a settlement agreement with TP-Link Systems, resolving all ongoing litigation, including U.S. International Trade Commission disputes and patent infringement claims. As part of the settlement, TP-Link paid Netgear $135 million, contributing to the company’s stronger financial outlook for the upcoming quarter. This resolution is expected to provide stability and allow both companies to focus on their core business operations moving forward.

In April 2023, Netgear filed a complaint with the International Trade Commission (ITC), accusing TP-Link of infringing on its patents by importing and selling certain Wi-Fi devices in the U.S. The ITC assigned the case to an Administrative Law Judge (ALJ) on May 8, 2023, to investigate Netgear's claims. On May 30, 2024, ALJ Doris Johnson Hines issued an Initial Determination, finding that TP-Link had indeed violated Section 337 of the Tariff Act of 1930 by infringing on Netgear's U.S. patents. The judge recommended that the ITC issue a Limited Exclusion Order to prevent the import of TP-Link’s infringing products and a Cease and Desist Order to halt their sale and marketing in the U.S.

Following this determination, the case awaits a Final Determination from the full ITC, scheduled for October 3, 2024. If upheld, these recommendations would effectively block TP-Link’s infringing products from the U.S. market. The ruling marks a significant victory for Netgear, affirming its patent claims and protecting its products from unfair competition. The final decision by the ITC will determine the long-term impact of the case on TP-Link’s ability to operate in the U.S. market.

Back in July, NTGR reported a Q2 loss of $0.74 per share, excluding non-recurring items, which was $0.14 better than the analyst estimate of a $0.88 loss. Revenues declined 17% year-over-year to $143.9 million, surpassing the $132.54 million estimate. The company provided in-line guidance for Q3, expecting revenues between $160 million and $175 million, compared to the $172.23 million analyst estimate, and projected operating margins ranging from -15.3% to -12.3% on a GAAP basis and -11.0% to -8.0% on a non-GAAP basis.