Billion-dollar questions
Having soared past the $1bn annual revenue mark, Netgear still has plans to grow and ruffle the feathers of larger rivals. We talk to chief executive Patrick Lo to find out more
Netgear this month became the latest vendor to join the 10-figure club as its 2011 results revealed that revenue rose 31 per cent to almost $1.2bn.
ChannelWeb caught up with chief executive Patrick Lo, who revealed where he wants to take the firm, how he intends to deepen the vendor’s footprint in the UK channel and bloody the nose of big-name rivals HP and Cisco.
ChannelWeb: How does your performance stack up against your competitors’?
Patrick Lo: HP and Cisco have traditionally served the big enterprises and IT spending among the enterprises is not growing. They now have a hard time growing double digit and they have to go somewhere else.
Cisco has been doing that for five or six years and has had some disastrous ventures getting into retail, modems and cameras. HP has also got into some disastrous acquisitions such as Autonomy and Palm.
What is worse is they have a big chunk of spend in central government which will not come back, even when the economy recovers.
Cisco has proved that going into retail is not going to work. We are the 800lb gorilla in the room in retail and in SMB, as we define it: 25 to 75 employees is our sweet spot.
Having passed the $1bn mark, where do you go now? Where will growth come from?
We continue to target growing the company 20 per cent a year. We made a commitment to Wall Street that we will reach $2bn in 2014. That means we have to grow 20 per cent a year.
Over the past two years we have made a concerted effort to go upstream. We are pushing the sweet spot up from between 25 and 75 employees to 250 employees. We listen to our customers. Some that used to have 75 employees grow to 150 employees and stay with us. When they grow, we have to keep up with them.
HP and Cisco are struggling to grow five to seven per cent. We have been growing 35 per cent. It is clear that our space is growing very well. [SMBs] never buy extra, they only buy enough for the year. The big companies over-buy a lot of stuff and, if [the economic climate is] hard, they stop for a year or two.
What are your priorities for the channel this year?
We have more than 36,000 value-added resellers [worldwide]. In the UK, no matter whether you are a one-person reseller or whether you are Computacenter, I bet every one of them has sold Netgear. Our focus is to get closer relationships with as many of them as possible. We have products coming out and we have support services coming out. That is the major focus.
How do you differentiate from HP and Cisco in the channel?
We love our VARs, unlike some of our competitors, who will send five or six for the same deal and let them cut each other’s throats. We do not do that. It is about strengthening our relationships.
If [for example] a VAR sold £300 a month, let’s get it up to £500. That will be through improved education and using our inside sales team. That is how we will try to do it. There are some people who will be more interested than others. HP and Cisco will go to their partners and say ‘you have to sell exclusively us’. But we love every VAR.
Are you happy being a complementary solution for both VARs and customers?
Some of them will do a wholesale abandoning of HP and Cisco. Others have some non-critical applications and think ‘I do not need to pay [for a big-brand vendor]’. We do not dictate that people have to sell us exclusively. You can have an EMC disk farm - we are more than happy to do the backup. If you have a Cisco chassis but want to put a Netgear 10GB switch on top, then great.
What does your product road map look like?
Right now we have WiFi controllers that can support up to 150 access points. [We will create] products that will support more access points. With NAS, we will double, triple or quadruple capacity with more sophisticated software features. You will definitely see a lot more 10GB switches from us - managed, unmanaged and smart.
In security today, we have [products that support] 150 users; we need to increase that. People always oversubscribe. If you have 250 users, you have to provide up to 500.
Have you noticed the increased competition between HP and Cisco affect margins, and has this had an impact on you?
Margin is all relative. If you read our financial report, we have always been 31 per cent [gross margin]. For Cisco, it is [about] 65 per cent. 3Com was at 57 per cent [when HP bought it]. There is a long way before they come down [to meet Netgear]. We absolutely believe that our price is very competitive. We have a different business model.