Chris Genualdi - Senior IR Manager Patrick Lo - Chairman and CEO Christine Gorjanc - CFO.

Matt Robison - Wunderlich Rob Cihra - Guggenheim Partners Tavis McCourt - Raymond James Hamed Khorsand - BWS Financial Woo Jin Ho - Bloomberg.

Greetings, and welcome to the NETGEAR Inc. Fourth Quarter and Full Year 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Chris Genualdi, Senior IR Manager. Thank you. Please begin..

Thank you, operator. Good afternoon and welcome to NETGEAR’s fourth quarter and full year 2016 financial results conference call. Joining us from the Company are Mr. Patrick Lo, Chairman and CEO; and Ms. Christine Gorjanc, CFO.

The format of the call will start with a review of the financials for the fourth quarter and full year provided by Christine, followed by details and commentary on the business provided by Patrick, and finish with first quarter 2017 guidance provided by Christine. We will then have time for any questions.

If you have not received a copy of today’s release, please visit NETGEAR’s Investor Relations website at www.netgear.com. Before we begin the formal remarks, we advise you that today’s conference call contains forward-looking statements.

Forward-looking statements include statements regarding expected revenue, operating margins, tax rates, expenses and future business outlook. Actual results or trends could differ materially from those contemplated by these forward-looking statements.

For more information, please refer to the risk factors discussed in NETGEAR’s periodic filings with the SEC, including the most recent Form 10-Q. Any forward-looking statements that we make on this call are based on assumptions as of today and NETGEAR undertakes no obligation to update these statements as a result of new information or future events.

In addition, several non-GAAP financial measures will be mentioned on this call. A reconciliation of the non-GAAP to GAAP measures can be found in today’s press release on our Investor Relations website. At this time, I would now like to turn the call over to Ms. Christine Gorjanc..

Thank you, Christopher and thank you everyone for joining our call today. 2016 was a record breaking year for NETGEAR. It was a record year for the company in terms of non-GAAP operating profit and non-GAAP earnings per share, driven by all-time highs in revenue and contribution profit from our retail business unit.

Our commercial business unit also achieved its highest contribution profit in the past five years. In addition, the service provider business unit, despite a year-on-year revenue decline of 35%, grew its contribution profit by an impressive 14%.

We had not one but several hit product introductions in multiple growth categories across our product portfolio. We also gained significant share in the key markets that we serve by providing truly innovative solutions that set us apart from our competition.

Finally, we exceeded all of the financial targets for the full year that we laid out at our Analyst Day in 2015. So I'd like to take this opportunity to thank all of our customers, suppliers, employees and shareholders for helping to make this possible. Turning to the financial details for the full year of 2016.

NETGEAR’s net revenues were $1.33 billion which is up 2.1% compared to full year 2015 revenues. Our retail and commercial business revenues combined grew 19.9% year over year in 2016, nearly doubled the 10% target that we provided at our 2015 analyst day.

This is more than made up for the expected revenue decline of our service provider business unit which shrank by 35% during 2016. Non-diluted EPS for the full year 2016 was $3.10 which represents an impressive 39% year over year increase from 2015. This marks the first time we surpassed a $3 a share for a fiscal year in the company's history.

Results for the fourth quarter of 2016 came in above the high end of our guidance driven primarily by the superb performance of the retail business unit. Overall NETGEAR net revenue for the fourth quarter ended December 31, 2016 was $367.9 million which is up 2% on a year-over-year basis and up 8.7% on a sequential basis.

This is an all time record in quarterly net revenue for the company. The year-over-year growth was achieved despite a challenging 48.3% year-over-year decline in the service provider business revenue during Q4. NETGEAR net revenue by geography continues to reflect our ongoing strength in North America.

Net revenue for the Americas was $253.7 million, which is up 9.4% year over year and up 12.6% on a sequential basis. EMEA net revenue was $69.2 million which is down 20.3% year over year and up 15.3% quarter over quarter.

Our APAC net revenue was $45.1 million for the fourth quarter of 2016 which is up 6.8% from the prior year’s comparable quarter and down 15.3% quarter over quarter. For the fourth quarter of 2016 we shipped a total of approximately 5.8 million units, including 4.7 million nodes of wireless product.

Shipments of our wired and wireless routers and gateways combined were about 1.8 million units for the fourth quarter of 2016. The net revenue split between home and business products was about 79% and 21% respectively. The net revenue split between wireless and wired products was about 76% and 24% respectively.

As I focus on the Q4 non-GAAP numbers, I'd like to remind everyone that the reconciliation from GAAP to non-GAAP is detailed in our earnings release distributed earlier today. Non-GAAP gross margin in the fourth quarter of 2016 was 30.9% compared to 30% in the prior year comparable quarter, and 31.3% in the third quarter of 2016.

Total non-GAAP operating expenses came in at $71.6 million which is up 3.7% year over year and up 6.6% sequentially. While we've always managed our operating expenses carefully, we are continuing to invest in R&D for the key areas of the business that will drive growth for the overall company.

Our headcount increased by net one person to 945 during the fourth quarter. We expect to continue to add additional headcount in key areas of our business during the first quarter of 2017.

Our non-GAAP R&D expense for the fourth quarter was 6.1% of net revenue as compared to 6.2% in the year ago comparable period and 6.2% of net revenue during Q3 2016.

Our absolute dollar spend in R&D approached record levels in Q4 2016 and we expect to continue at this elevated level as we attempt to distance ourselves from our competition from both hardware and software differentiation. Our non-GAAP tax rate was 30.2% in the fourth quarter of 2016.

The Q4 tax rate was lower than expected due to a favorable true-up reconciliation for the full year. Looking at the bottom line for Q4, we reported non-GAAP net income of $29.9 million and non-GAAP diluted earnings per share of $0.88 per diluted share with the latter being a new record for the company. Turning to the balance sheet.

We ended the fourth quarter of 2016 with $366 million in cash. For the fourth quarter of 2016 we used approximately $19.8 million in free cash flow which is calculated as cash flows from operating activities as presented in the statement of cash flows under GAAP, less capital expenditures.

We continue to remain very confident in NETGEAR’s ability to generate meaningful levels of cash. During the full year we generated approximately $104.2 million in free cash flow.

We continue to focus on optimizing the business and generating cash, providing us operational flexibility, the ability to make strategic acquisitions as well as the capacity to opportunistically deploy cash to enhance shareholder value.

In Q4, we spent $15 million to repurchase approximately 299,000 shares of NETGEAR common stock at an average price of $50.17 per share which resulted in no benefit to non-GAAP diluted earnings per share for the quarter.

Since the start of our repurchase activity in Q4, 2013 we have repurchased approximately 9.5 million shares and our diluted share count is lower by 13.5% as compared to the beginning of that period.

The fully diluted share count is approximately 33.9 million shares at the end of Q4 ‘16, 2.5% higher than the 33.1 million share count in the fourth quarter of 2015. We have approximately 1.3 million shares left in our authorized buyback program and we will remain opportunistic buyers of our common stock.

During the quarter we made a very strategic acquisition to strengthen our internal capabilities in image analytics and machine learning, which is critical to maintaining our lead over our competition in the smart devices category. Now turning to the results of our three business units.

We are very pleased to report that the retail business unit or RBU generated an all time record net revenue of $241.2 million during the quarter which is up an impressive 22.1% on a year-over-year basis and up 24.2% sequentially.

The commercial business unit or CBU also had a very strong quarter generating net revenue of $75.3 million for the fourth quarter of 2016 which is up 17.9% on a year-over-year basis and up 2.6% sequentially. For our service provider business unit or SPBU, net revenue came in at $51.4 million for the fourth quarter of 2016.

This is down 48.3% year over year or about $48 million from the prior year, and down 27.4% on a sequential basis. I'll now turn the call over to Patrick for his commentary after which I will provide guidance for the first quarter of 2017. .

Orbi, Arlo Pro and Nighthawk X10 exceeded our expectations during the 2016 holiday season. Combined, they drove our Q4 revenue above the high end of our guidance and set the foundation for further success in 2017. Turning to commercial, we saw a strong Q4 performance across our SMB portfolio.

Specifically with 10-gigabit switches and our new Rackmount storage, we were able to achieve historically new high watermark in in-market sales of overall switches and specifically web-managed switches during the quarter. Our switch leadership is premised on 10-gigabit power over Ethernet and flexible management and deployment.

The introduction of Easy-Mount packed with double power budget, power over Ethernet switches in 2016 has laid the foundation for future success in this category. Groundbreaking products propelled NETGEAR to a blockbuster 2016 and we're keeping up the momentum in 2017 with a robust product pipeline. To summarize, NETGEAR has reaching new heights.

All business units are delivering compelling contribution profit dollars. The fourth quarter greatly exceeded our expectations. We continue to gain share in the key markets that we serve and we had a stellar 2016. Looking into 2017, we continue to feel confident about the targets that we set back in November 2016 at our Analyst Day.

We believe that we can grow the combined RBU and CBU revenue by 10% in 2017 while maintaining SPBU revenue at approximately $55 million per quarter run rate. As such, we will be able to grow our top and bottom lines again in 2017.

While we are now enjoying the momentum of Orbi, Arlo Pro and Nighthawk X10 for RBU, we believe that the new products we have just announced or products that we will introduce will propel us and the Wi-Fi and smart devices market to new heights in the second half of 2017.

As we mentioned at our Analyst Day, we have always experienced a seasonally weaker first half of the year and this is even more pronounced given retail’s dominance in revenue as well as our unparalleled success in the fourth quarter.

We believe that the North America home Wi-Fi market will continue to grow in the high single digits for 2017 while the North America smart devices market will continue to grow north of 40%. We also believe that we will continue to hold or gain share in both markets in 2017. A few key products announced will lay the foundation for our success in 2017.

These new set of products include the DOCSIS 3.1 Nighthawk cable modem, the M1 gigabit Nighthawk 4G LTE mobile router, the Arlo Baby, Arlo Go and the Nighthawk AC2300 router. Beyond these, there are even more new products not yet announced for the Nighthawk and Orbi families coming in the months ahead and in the second half of the year.

On top of that you can expect a new Arlo category to be introduced in 2017 that is distinct from cameras. On the commercial product front, we will continue to innovate in form factor, web management, speed and user experience. The unveiling of the Nighthawk’s switch at CES in January garnered a lot of interest from gamers and media enthusiasts.

The new experience managing the Nighthawk’s switch from your mobile phone is a first in the industry. We will follow up with many new introductions catering both the home and business users throughout the year with enhanced mobile experience.

As the early success of our two new 12 bay Rackmount storage products show, we can continue to excel in business storage solutions by focusing on high capacity, robust multi-level data protection solutions.

Overall while we are going through this seasonally slower first half, we are confident that we will again reach new heights in quarterly revenue and profit in the second half of 2017 and in doing so accomplish our annual financial targets. I will now turn the call back over to Christine for our first quarter guidance. .

Thank you, Patrick. As Patrick has said, our RBU revenue is growing faster than the rest of the business, thus making our seasonality more pronounced than before, when CBU and SPBU combined represented a larger portion of our revenue. Additionally the seasonality for Arlo IP cameras is more pronounced than it is for our home networking products.

This seasonality results in a sizeable sequential decline in retail revenue from Q4 to Q1 which we also saw last year. I'd like to make it clear that the seasonal decline does not indicate weakness in the retail business for the full year, which is stronger than ever as evidenced by RBU’s record 2016 fourth quarter results.

To ensure our continued market leadership, we are not going to slow down our R&D in the first half of the year despite the seasonal downtick in revenue. We believe that differentiated new products continue to be the foundation for our financial success.

For the first quarter of 2017, we anticipate revenue will be in the range of approximately $300 million to $315 million. First quarter GAAP operating margin is expected to be in the range of 6.3% to 7.3% and non-GAAP operating margin in the range of 9.5% to 10.5%.

Our GAAP tax rate is expected to be approximately 37% and the non-GAAP tax rate is expected to be approximately 34% for the first quarter of 2017. Lastly, I'd like to reiterate our guidance for the full year 2017 that we expect to grow revenue for the combined retail and commercial business units 10% year over year.

We expect to achieve an operating margin of 11% to 12% for the full year of 2017 and expect to deliver year-over-year EPS growth for our shareholders. Operator, that concludes our comments and we can now take questions..

[Operator Instructions] Our first question comes from the line of Matt Robison with Wunderlich..

Okay, thanks for taking the question. Christine, should we expect DSO and channel inventory to decrease in the first quarter given your guidance? And then also in your department, maybe if you could comment on how much you paid for the acquisition, how much remains to be paid? And then I’ve got some follow-up questions for Patrick. .

Sure. DSOs, if you went back in history, they always tick up in Q4 and we do give some of our large customers seasonal dating terms, so I believe you will see that come right back into the normal range as we go to Q2 -- Q1 forward.

And then secondly, on the channel inventory, I think, we think that's healthy on both sides, those numbers go up and down a little bit just depending, we calculate them on the last six weeks of sell-through in that.

So we feel like from both our inventory standpoint and in the channels inventory is in a good spot to be honest, the more we have the more we can take advantage of, some of the opportunistic sales that come along. So --.

Yeah, I would like to add to that, I mean because of the continuous pipeline with new products, they generally enhance the channel inventory because most of our channel partners do not want to lose out, all right, because of stock out of the new products which is proven right in Q4.

The acceptance of both Arlo Pro and Orbi and Nighthawk X10 was actually much better than originally anticipated. For example, Nighthawk X10 was supposed to be in limited distribution but after a few weeks it became nationwide distribution. Regarding the Plex Media acquisition we would rather not give specifics for competitive reasons.

We are still on the lookout for many other similar strategic small tuck-in acquisitions, we would rather keep it confidential..

I was just trying to square the cash flow a little bit more but I can take that offline. And I was looking at the U.S. distribution channel inventory went up in weeks for the first time in a while.

And I guess any comment on contribution margin from the different segments also?.

I think we basically said in the script that retail had the best contribution profit for the year. CBU for the year was kind of their five times -- five year high and then service provider is definitely -- the percentage in that has been in line with where we've been at for the year.

So we feel like -- obviously that helped us grow that profit significantly over 2015. .

Patrick, what kind of things should we be looking for in terms of commercial products coming out, you had a ton of multi-gig and 10-gig products coming out last year, and what’s the market looking for now in addition to what you've already done?.

Well, clearly for those that are already kind of known entities, the innovation that we did last year was 10-gig, double budget POE as well as what we call the half-width switches as well as the Easy-Mount and the click switches, that is already out in the market. And we will continue to strengthen our offering in those various aspects.

We do expect that our competitors probably will come out with products to chase us on those areas. However what we have introduced at CES is a new thing in the market and we're going to really accelerate the introduction of that kind of switches, which is a switch that you could manage from your mobile phone, all right.

And the Nighthawk switch is the first in that series and you’ll see more of that. And that's a first in the industry.

Again, I mean we set the industry in multiple ways in the last ten years, first by introducing web-managed smart switches, then by introducing lightly web-managed plus switches, now we’re introducing this mobile experience switches which will be another new driver of growth.

And that clearly will be a significant new category of switches that we would like to introduce to the market and expand it. .

Thank you. Our next question comes from the line of Rob Cihra with Guggenheim Partners..

Thanks very much. One sort of Q4 question and one for the full year guide if I could. For Q4 retail, obviously revenue growth was strong and you highlighted Nighthawk, Arlo, Orbi.

I mean, is there any way of getting a little more detail in terms of contribution from Arlo Pro or is it in full swing, Orbi contribution in Q4 and then also Arlo Go, any updates in terms of sort of readying that timing, channels, that sort of thing? And then I have a follow-up. .

Yeah, I mean Arlo Pro is definitely a very hot product. And I think for competitive reasons we do not like to give the proportion of Arlo Pro versus Arlo but I think you could easily go to Amazon and look, check on the sales ranking of Arlo Pro versus Arlo, then you could probably see the relative performance.

And given Arlo Pro is of higher ASP, the more Arlo Pro itself, would definitely be on the top line of Arlo overall. And with Orbi -- we introduced Orbi basically towards the tail end, probably the last week of Q3. So really Q4 was the first full quarter of our revenue for Orbi and clearly we're very encouraged by the results.

Now I mean we're not the first into the market and there were a few other small players such as Eero and Luma plus a whole bunch of other like players ahead of us. But on the other hand, in the short five months, actually four months and plus a little, we've already surpassed all of those.

And despite that Google coming into the market, very strong with Google Wi-Fi in the same category, we have achieved number one market share.

Now clearly as we mentioned that the market of Wi-Fi will continue to grow in the high single digits, that includes the normal Wi-Fi router, the Wi-Fi cable gateways as well as this Wi-Fi mesh, we are pretty confident that we will continue to hold share, if not, gain share. So that’s how we look at it.

So Orbi definitely helped us to significantly be a strong participant in the overall Wi-Fi market and continue to be the leader over there. I mean given the fact that the market is expanding, if it is expanding because of Wi-Fi mesh and if we're not a number one shareholder in Wi-Fi mesh, we would be losing share overall.

The fact that we continue to be number one even in the new category helped us to hold share. And so that’s how we view that. So Arlo Go is a little bit more complicated because it involves LTE network, so it needs to get certified by the operators.

And we expect the certification in North America both from Verizon and from AT&T should be completed at the end of Q1. So you should be able to see sales of that in Q2 onwards..

Thank you. Our next question comes from the line of Tavis McCourt with Raymond James. .

Hi guys, thanks for taking my question. Let me apologize in advance because a lot of this you probably answered already, I was unable to be on the prepared comments. It looked like in the quarter your deferred revenues went up quite a bit.

Was there something specific that was related to?.

Normally in Q4 just based on normal delivery terms in that, it’s up a little higher because of some stuff shut off and then and there's some stuff in transit. So kind of we actually did a proactive delivery and then Arlo service we also carved out a little bit of that and it’s taken over a ratable period. So that's growing a little bit too..

Okay, but if I look at, like, last year's Q4 is kind of pretty flat, this year's Q4 deferred revenues were up $11 million.

I guess how much of that is kind of the service related to Arlo versus just the timing of shipments?.

We don’t break it out but I'd say Arlo is starting to grow a little bit and we will look into the future in that but a lot of that is shipments when it comes to Q4. .

And then you probably addressed this before but for my edification, what should we think of as the run rate for service provider in ’17?.

Yes, as we talked about it should be around $55 million a quarter. But then again, of course, it’s a lumpy business. So some quarters it will be lower than that, some quarters it will be higher than that. But overall the year we expect that to be somewhere around that, $220 million plus or minus. .

And then on gross margins, they were up year-over-year 90 basis points, I guess, on a non-GAAP basis. But retail was up a lot as a percentage of the mix and I guess, if you told me retail was going to be so strong I probably would've said gross margins would be a little bit higher.

Was there anything holding gross margins back this quarter or is that just still the impact of seasonal price discounting on some of the older product line?.

I’d say, to be honest, I think it’s seasonal price discounting on the retail business in general, and then there is a lot of marketing, we got a lot of new entrants and competition, big companies, the US companies. So we are doing a lot of very specific marketing, social media, radio ads and that, and different -- in Adwords, everything.

So really the marketing, it’s our most promotional quarter and to get a lot of that revenue, that comes with a high promotion, especially looking at the whole Black Friday, Cyber Monday week, there is a lot of promotion going on there. .

So is a lot of that a contra revenue, is that why it hit gross margin?.

Yes..

Yes. A lot of the channels like putting up a NAND Cape [ph] in BestBuy or in Costco, and are running search ads inside Amazon, all those are contra revenues..

And then last question, as we look towards Q1, I can obviously look back at last year's Q1 and see that something unusual must have happened positively to the gross margin level.

I don’t know if you address that but can you remind us why gross margins were so high in the year ago period?.

A year ago -- yes, a year ago if you look at the detail into our 10-Q that you will see, I mean we were very profitable in SPBU in Q1. It was some sweetheart deal that we shipped. We don't think that is repeatable. Some we won, something really bad and we somehow capitalized on the market. .

Thank you. Our next question comes from the line of Hamed Khorsand with BWS Financial..

Hi, I just wanted to get a little bit more granularity on the guidance. On your remarks you said about the retail business unit declining sequentially, which given that -- if I looked historically it’s been usually around 80% or 20% decline from the Q4 period.

But if I take that into your commentary, what are you expecting for the other business units because your guidance range is still higher than what it would seem like it should be?.

A couple comments I would make on that is, also -- retail is mainly cameras, add a little bit to potentially the 20% down. So cameras are even a little bit more seasonal from Q4 to Q1.

If you’ve noticed I believe last year, the CBU business went up, the year before it went down, which is usually a few points down normally on a seasonality basis, and then service provider is lumpy, as we've always said. So approximately $55 million as you can see wasn't quite 55 this quarter and that moves around.

So basically we're guiding with what we see in front of us. But the big differential is that revenue coming down is all driven by the retail, it’s just the normal seasonality and then added a little bit by the cameras. .

Camera is especially very seasonal. Camera sales over the holiday season is super high and then come into Q1, it drops off pretty, pretty quickly.

And like it or not, the thing is when we calculate revenue we have to take into account returns, right? So when people buy a lot of cameras over the Christmas some of them get returned, so they become negative in Q1. So that's why when you get a higher camera business you actually have a more pronounced drop off from Q4 to Q1. .

And then just a follow up on the camera comment.

Are you seeing an increase or any kind of momentum as far as customers rolling on with more cameras going into Q1?.

Absolutely. On a year-over-year basis definitely but not on a sequential basis, because definitely a lot more people buy cameras over the Christmas holiday season and then it quiets off in Q1. So that drop-off is actually more pronounced in the normal home networking.

Last year as you rightfully pointed out when home networking is still dominant versus Arlo, the drop off in Q4 to Q1 is more like 20% and this year it's more pronounced than that because Arlo is definitely a bigger portion of the RBU revenue. So that's why you see a more severe drop-off from Q4 to Q1.

Now, however, the seasonality for the cameras after the drop-off in Q1, then it will start to grow again from Q2 all the way, tick back in Q4 again. .

And then just changing topics here, what is the risk of R&D spending here? I know you like to invest in the business, but if you keep investing more and more your operating margin goal might become a little more difficult.

How are you going to manage that in the second half of the year if you are already at a low starting point now from the operating standpoint?.

I’d say one thing, what we’re pretty good at is managing expenses at this point.

And so again with the seasonality we believe that we have plans to manage this and to achieve our goals and we will stick to that, and obviously as different things happen I mean we could just as easily make more revenue as we have left, we will make the appropriate adjustments as necessary. .

Last question is I know that CBU is a pretty small business compared to the rest of the business here, but Patrick, any plans here to grow that business substantially? It seems like it's a drop in the bucket compared to the entire market of this size. .

Well, I mean if you look at CBU from a pure top line perspective, it might be a drop in the bucket. However if you look at the bottom line perspective it's pretty sizable, all right.

And so it's certainly not a business to be sniffed at but you're right, I mean growing that business will help our bottom line significantly and clearly we're working very very diligently to grow that product -- that segment. Now unfortunately over the last two, three years we have been dragged down by the continuous decline of the storage market.

Everybody knows that, most people are now using Box, Dropbox, Google photos and all that. So the entire storage market is shrinking. So that really doesn't help us, all right. So even though our switch is growing pretty nicely every year we still have to counteract the decline in storage.

And on the wireless LAN side, same thing, I mean we have not been really growing much because of the competitive nature of the market with a lot of strong competitors such as Ubiquiti and Racket [ph] and to a lesser extent Aruba.

However we do believe that going forward while the switch business is becoming a much bigger portion versus storage and wireless LAN, we do have the ability to grow the overall SMB business. Now I mean clearly from a full year 2016 to 2015 we grew very nicely on the CBU business.

But of course it’s an easy comp right? But going forward I mean we could continue to grow the CBU business even in a high single digit or 10% -ish profitability contribution will be pretty significant..

[Operator Instructions] And our next question comes from the line of Woo Jin Ho with Bloomberg..

Great, thanks. A question on seasonality, I understand the sequential downtick in the first quarter.

Any commentary on the second quarter seasonality especially in retail? Retail has been up 8% in ’16 and 9% in ’15, or should we expect typical seasonal factors or is that the new norm in retail?.

What I would say, when I look towards Q2, I would say could be flat to slightly up. And that will just depend on how fast the new product, some of those get out of the gate in that. But I would expect flat to slightly up. .

And in terms of the full year guide, I'm just wondering to reconcile a couple of things. You guys said 10% for the combined retail and commercial markets. Patrick, you mentioned that you expect Wi-Fi to be up in the high single digits with the scope of potentially taking share.

Plus you have higher ASPs with Arlo and potentially a new product line within Arlo. I mean, number one, is there something offsetting a better retail growth? I understand the comps are tough.

And number two, why can't retail be better than 10 for ‘17?.

Okay. So it’s a -- what you call, a conundrum of mathematics, all right. So as you probably know actually in our Analyst Day presentation, our router share is closer to 45% to 50%, all right. And our hope is to hold or even increase share in that segment as I just commented.

However when the market shifts from router to Wi-Fi mesh, even though we're the leader in Wi-Fi mesh, we're nowhere near the 45% to 50% market share. So you think of it as a hard math that we have to deal with.

If the market shifts from router to mesh, even though we're number one in both cases, even though we gain share in both, we could up losing share overall, if we don't quickly get our mesh market share to the 45% to 50%. That’s what we’re working against.

But we believe that we will be up to the challenge and that's why by going up to the challenge we believe that we can grow the RBU about 10% combined with CBU. Now given the fact that we say CBU probably will be in the high single digits, that means imply RBU has to grow more than 10% anyway for the year. End of Q&A.

Thank you. We have no further questions in queue at this time. I would like to hand the floor back over to management for closing remarks. .

Thank you all for joining today's call. 2016 was phenomenal year for our employees as well as our shareholders. We entered multiple new product categories, delivered unique solutions to our customers, developed new exciting sub-brands and delivered significant returns to our shareholders.

With many new and exciting products on the horizon, we will look to continue our momentum into 2017 and I look forward to updating all of you in April. Thank you..

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. And thank you for your participation..