NetGear (NTGR -4%) is Not Gearing up for a strong start to 2021. We had been hoping NetGear would be turning a corner with its lagging small business vertical, but management instead provided a cautious outlook despite the re-opening of the economy.

While NTGR expects supply constraints to ease to some degree going forward, it is still facing challenges in moving freight for international supply chains, as sea freight costs have increased meaningfully. Also, NTGR is entering Q2 with a healthier inventory position in the channel. As such, NTGR mentions the words investors hate to hear: it expects to engage in more promotional activities planned by some key channel partners.

In sum, the guidance was pretty discouraging. A more bullish perspective was expected, given that NTGR is set to benefit on the SMB side in connection with economic reopening and stimulus payments. However, it looks like NTGR is inching toward increased promotional activity, which is always a concern, especially for margins. NTGR already operates in a somewhat commodity-type, low-margin business, so any additional margin pressure is not useful.