Nearly 40 times the size of Netgear, Cisco is headquartered in the same city as Netgear, San Jose, California. Like Netgear, Cisco structures its operations in the same three geographic segments, with its European and Middle East headquarters in the Netherlands and the Asia Pacific headquarters in Singapore. Also like Netgear, Cisco produces Internet protocol networking and other related devices to support communications and information technology. Cisco’s sales by geographic region reported in its fiscal year end June 2012 were 65, 21, and 14 percent respectively for Americas, EMEA, and APAC. Also like Netgear, Cisco produces cable modems, video software, encoders, decoders, and many more products. Cisco’s Linksys wireless routers compete directly with Netgear routers. As of year-end 2012, Cisco had 66,000 employees, annual revenues of $46 billion, and net income of $8 billion. Also like Netgear, Cisco relies exclusively on contract manufacturers for all their manufacturing needs.
Cisco spends about 12 percent of net sales on R&D compared to only 4 percent for Netgear. Cisco contains around $17 billion in goodwill on the balance sheet resulting in approximately 40 percent of total stockholders’ equity residing from intangible assets, which is not good, versus Netgear’s 17 percent.
Western Digital Corporation
Headquartered in Irvine, California, Western Digital creates and markets storage devices, home entertainment devices, and networking devices, similar to Netgear. Western Digital is known for their 2.5- and 3.5-inch form factor hard drives under the Ultrastart, XE, WD, and SiliconDrive brand names. Western Digital also produces a wide range of external hard drives in 500-gb sizes, FireWire, and Ethernet connections.
Western Digital is structured based on the same geographic regions both Netgear and Cisco. One notable exception, Western Digital, with $12.5 billion of revenue in fiscal 2012 that ended June 2012, reported that about 58 percent of their revenues come from Asian markets with 23 and 19 percent coming from the Americas and EMEA, respectively, providing the company a significantly more Asian presence than both Netgear and Cisco. The company currently spends 8 percent of revenues on R&D. The firm has $2 billion in goodwill and around 37 percent of all current assets are in inventory.
As of December 2012, Western Digital has a price-to-earnings (P/E) ratio of five, below the S&P 500 P/E ratio of 17.7, and its stock price was up 22.9 percent year-to-date. Western Digital has numerous strengths, such as robust revenue growth, reasonable debt levels, solid stock price performance, impressive record of earnings per share growth, and compelling growth in net income. Western Digital has no glaring weaknesses.
Western Digital recently acquired the hard disk drive operations of Hitachi, greatly increasing its capacity and sales volume. Like rival Seagate Technology, Western Digital has been targeting some acquisitions upstream to better control input costs. Seagate recently acquired the hard disk operations of Samsung.
Headquartered in Taipei, Taiwan, D-Link develops, produces, and markets networking, connectivity, and data communications hardware, offering hubs and switches, adapters, print servers, routers, and transceivers. Other D-Link products include broadband modems, virtual private network/firewall devices, data-storage systems, videoconferencing equipment, Web cameras, and business phones. D-Link sells to individuals and businesses, but the firm specializes in wi-fi and Ethernet components for the small to medium-sized office market. D-Link sells its products through distributors in more than 100 countries, but generates most of its sales in Asia.
In July 2012, Netgear acquired AVAAK, Inc., a privately-held company that develops wire-free video networking products for a total purchase consideration of $24.0 million in cash. This acquisition bolstered the company’s retail business unit product offerings and expanded their presence in the smart home market. Some analysts however contend that the fate of Netgear’s industry is inexorably tied to the PC and that PCs are in decline as users switch to tablets, which will not need hard disk drives. But there are external storage needs for hard-disk drives that seem to be growing and conventional storage is still cheaper than flash memory.
Every few months or so, Netgear introduces a new or improved product, including the recently introduced Netgear ProSecure® UTM25S Unified Threat Management Firewall, which provides two modular slots that fit optional interface cards, enabling IT administrators to custom tailor the firewall to their specific connectivity requirements. In addition, like other members of the ProSecure UTM family of security appliances, the UTM25S integrates with Netgear ReadyNAS® network-attached storage systems, giving businesses almost unlimited activity log and quarantine capacity for forensic, regulatory and legal requirements.
Netgear also recently introduced the CentriaTM, a powerful, all-in-one automatic backup/media server and high-speed wi-fi router. Centria is a dual-band high-performance router with the added convenience of automatic data backup for both PCs and Macs. The backup capability of the Centria router gives a consumer peace of mind knowing that data is always backed up. If a PC or Mac goes down or is lost, a consumer can still access data from Centria using another computer. Routers are excellent for data backup because they are always on and are the central point of connection for all computers in the home. Centria can also be used as a storage repository for photos, media, and documents that may take up too much space on your computer. Centria uses an internal SATA drive or external USB drives to backup and store data.
There are companies such as Western Digital or Cisco that may be interested in acquiring Netgear. Even D-Link desires a greater market share in the USA. And Netgear itself has a history of making acquisitions. What would be some good acquisition targets for Netgear, to help solidify its competitive position and gain economies of scale.