羅技 (LOGI) 2004 Q3 法說會逐字稿

Good day, ladies and gentlemen. And welcome to the Logitech International Third Quarter 2004 Earnings conference call. My name is Alicia, and I will be your coordinator today. At this time, all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of the conference. If at any time during the call you require assistance please press star, followed by zero and an operator will be happy to assist you. As a reminder, this conference call is being recorded for replay purposes.

I would now like to introduce your host for today’s call, the Director of Investor Relations, Mr. [Joe Greenhalgh] [ph]. Please proceed, sir.

Thank you, Alicia. I would like to welcome you to the Logitech conference call to discuss the company’s results for the quarter ended December 31st, 2003, the third quarter of Logitech’s fiscal year 2004. The press release and the live webcast of this call are available online at logitech.com.

This conference call will include forward-looking statements that are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996 including forward-looking statements with respect to future operating results. The forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from that anticipated in the statements.

Factors that could cause actual results to differ materially include those set forth in Logitech’s annual report on Form 20-S dated May 21st, 2003, and subsequent filings online on the [FCC Edgar Database] [ph] and in the final paragraph of the press release reporting third quarter results issued by Logitech and available at logitech.com. The press release also contains the company’s financial information for this call.

Forward-looking statements made during this call including the forecast for the full fiscal years 2004 and 2005 represent the management outlook only as of today, and the company undertakes no obligation to update or revise any forward-looking statements as a result of new developments or otherwise.

I would like to remind you that this call is being recorded including the question-and-answer portion and will be available for replay on the Logitech web site.

With us today are Guerrino De Luca, Logitech’s President and Chief Executive Officer, and Kris Onken, Senior Vice President, Finance, and Chief Financial Officer.

I’d now like to turn the call over to Kris.

Thank you, Joe. And thanks to all of you for joining us on our quarterly earnings teleconference. We’re thrilled with our results for the quarter as we delivered record highs for sales, operating income, and net income combined with a solid balance sheet.

Let me start with sales which grew by 16 percent compared to the prior year to an all time high of $410m, driven by double digit gains in both retail and OEM.

Gross profit for the quarter increased by 20 percent to $140m, and gross margin is 34.3 percent. Even with more OEM sales in the overall mix our gross margin is 100 basis points higher than last year’s 33.3 percent.

Year-over-year improvement in our gross margin is primarily driven by reduced product costs across a number of categories and especially with our retail audio and interactive entertainment products. As just one example of our improved gross margins by product the gross margin for our interactive entertainment offerings increased by over 940 basis points compared to the same quarter last year.

Operating expenses increased by 13 percent compared to the prior year to $75m. Our marketing and selling expenses grew by 16 percent over last year, reflecting the continuation of our advertising campaign combined with marketing activities in support of the higher sales volume. R&D expenses increased by 10 percent over the previous year, and G&A is also up by 10 percent.

Our operating income increased by 29 percent to a record setting $65.3m, and our operating margin is at 16 percent of sales, also a new record.

Net income is $66.8m which includes the release of a $13.4m valuation allowance on specific tax deferred assets that was no longer required. If we exclude the release of this allowance our net income still would have reached a record high of $53.5m, up by 32 percent compared to the same quarter last year, and our net margin would have set a new record at 13.1 percent of sales.

We reported other income of $1.8m in the third quarter of this year primarily due to the favorable impact of exchange rate movement between the Euro and the U.S. dollar.

Let’s move onto the balance sheet. Our cash position net of short-term debt is at an all time high of $224m, up by $65m compared to December of 2002. Cash flow from operations was a positive $44m for the quarter, up by $11m compared to the same quarter last year. Our cash conversion FICO for the quarter is at 47 days, five days better than the prior year.

Accounts receivable is $273m, and our DSO is 60 days, improved from the 61 days achieved in the December 2002 quarter.

Our inventory is at $141m, the same as at December of 2002. Inventory turns as of December 2003 are 7.7 times per year, significantly faster than the 6.7 turns achieved in the quarter ending December 2002.

Other current assets is $51m up from $39m in September of 2003. The change is entirely due to the release of the valuation allowance I mentioned earlier.

Let me give you an update on share buybacks. During the quarter we repurchased 150,000 shares for 8.2m Swiss francs. We are authorized to spend up to an additional 31.8m Swiss francs to repurchase our shares over the course of the next nine months. You can view updated information on this program on an ongoing basis at the Investor Relations Section of our web site.

I’d now like to provide you with more details on our third quarter sales, beginning with our retail business where sales grew by 12 percent over the prior year. Let me start with an overview of our two biggest regions, Europe and North America, where sales were up by 21 percent and four percent respectively compared to the prior year. We established new record highs in both regions for sales of cordless desktops and Logitech branded speakers. Let me also note that our growth in these regions and especially in North America was restrained by a significant decline in our sales of corded mice.

So let me provide you with more product details of our retail business starting with corded mice where our sales declined by 17 percent over the prior year with unit shipments down by 23 percent. This decline is primarily due to intense competition, especially at the entry level segment. Our cordless mice sales reached an all time high, increasing by six percent with unit shipments up by 12 percent compared to the previous year.

It was the biggest quarter in our history for cordless desktops, and our sales increased by 37 percent compared to the prior year, and unit shipments grew by 26 percent. The worldwide average selling price or ASP for our desktops increased by 25 percent sequentially reflecting the successful introduction of our two Bluetooth offerings.

Our retail audio products made another significant contribution to our growth with sales reaching a new high and growing by 49 percent over the previous year. The Logitech branded speakers continue to drive our success in this space with sales increasing by 75 percent, and unit shipments up by 68 percent compared to the prior year.

We enjoyed our best quarter ever in the retail webcam category with sales increasing by 26 percent and unit shipments up by 19 percent compared to the prior year. Sales in the significantly smaller dual cam category declined by 47 percent year-over-year as we continued to focus the majority of our efforts on our market leading webcam offerings.

The retail sales of our controllers for game consoles established a new record and increased by 75 percent compared to the prior year with unit volumes increasing by 68 percent. We experienced growth across all console product categories led by our console steering wheels. Sales of our wheels more than doubled, primarily due to the successful introduction of the driving force pro for the Prolog release of Gran Turismo 4.

Sales of gaming peripherals for the PC platform increased by 29 percent, with unit volumes up by 32 percent. We delivered double digit growth across all product categories from joysticks and gamepads, to steering wheels.

That brings me to the OEM side of the business where for the second consecutive quarter we’ve set a record for the highest sales in our history. Sales grew by 39 percent compared to the prior year and represent 18 percent of our total sales. This growth was driven primarily by exceptionally high sales of the iToy camera for the PlayStation2, with our unit shipments of the iToy growing by 62 percent compared to the total of the three previous quarters combined.

The other contributor to our OEM growth was mice, our core OEM product offering. With sales up by 14 percent, and unit volumes up by 19 percent compared to the prior year.

Looking at the retail and the panels combined this was far and away the best quarter ever for our gaming console peripherals, with sales more than doubling and unit shipments more than tripling compared to the prior year.

Before concluding my comments I want to share some good news on the date of our Q4 earnings release. I am pleased to say that through a combination of streamlined processes and improved financial systems we’re now able to close our books and consolidate our results faster than ever before. As a result, the Q4 release as well as the webcast of our earnings presentation in Zurich is scheduled for Thursday, April 15th.

On that note, I’d like to turn the call over to Guerrino.

Thank you, Kris. Thanks, again, to all of you for joining us today. And I am delighted with our outstanding performance during our most pivotal fiscal quarter. The combination of our strong sales growth, record profitability, and the sequential and year-over-year improvement in gross margin provides clear confirmation that we are pursuing the right growth strategy.

Let me comment a little further on the third quarter starting with OEM. I am very pleased that our OEM Team was able to deliver another record breaking performance. While it was a huge quarter for our sales to Sony of the iToy camera for PlayStation2 the double digit growth in our mice sales demonstrates that we continue to successfully leverage our market leading position with the leading PC manufacturers.

Looking next at retail, Kris has already highlighted the success we had in a number of categories but I want to briefly comment on the great results we achieved with our desktops. We delivered our highest growth rate in the last six quarters.

An important contribution to that growth came from the successful introduction of the Logitech [Denobo] [ph] media desktop, a high style product, featuring Bluetooth technology that redefines the concept of a wireless keyboard and mouse. The initial response to this award winning product has been very favorable. In fact, between Denobo and cordless desktop MX for Bluetooth we shipped over 100,000 Bluetooth desktops during the quarter.

I am pleased to say that we are seeing an increased awareness and interest in our products featuring Bluetooth technologies. As you may know our web site features an extensive overview of the benefit and functionality of our Bluetooth offerings. As one indicator of increased level of interest a visit to the home page of our Bluetooth section grew by over 50 percent from November to December.

Let me talk about gross margin. Following our first quarter results we said we were counting on the combination of lower cost of new products, cost reductions on existing products, and reduced distribution of logistics costs to enable sequential improvement in our gross margin. When you consider that gross margin improved by 281 basis points from the second to the third quarter following the 370 basis points improvement delivered from the first to the second quarter it appears that we have executed according to plan.

While we’re very pleased with our ability to deliver this sequential improvement in gross margin we don’t believe it will be prudent to plan for a continued upwards movement. This is especially true in light of the fact that our primary objective continues to be both for growth and share.

With that in mind, let me talk about several growth opportunities that extend throughout the remainder of fiscal 2004 and beyond. While it was fully anticipated we obviously aren’t pleased with a decline in our retail corded mice sales during the third quarter. The competition in this category has intensified over the last several quarters, and our product offerings have not fared as well recently as we would like. We find the strength in our competitive position beginning later this quarter and continuing into fiscal 2005 through the introduction of several new corded mice focused on the high volume entry level and value segments.

Another factor that we believe is impacting our corded mice sales is the evolving switch to cordless mice. And this is a good thing. We see signs that the mass adoption of cordless solutions is steadily approaching, and we expect it to accelerate rapidly over the course of the next 12 to 24 months. [This] quarter and throughout fiscal 2005 we expect to introduce a number of new cordless desktops and mice positioned to both accelerate and leverage the anticipated transition to cordless mice by the broader market.

We continue to see strong sales and sustained growth prospects in the webcam category, even with our market leading position across multiple geographies we still managed to grow our webcam sales by 30 percent in the first three quarters of fiscal 2004. We are encouraged by signs that European consumers are becoming as aware of the benefits of a webcam as their peers in North America. As an example, during the third quarter we ran a joint promotion with MSN in Europe that resulted in hundreds of thousands of unique entrants registering to win a free webcam.

As a worldwide leader in webcams Logitech is uniquely positioned to take advantage of what we see as a growing opportunity over the course of the next 12 to 18 months to bring affordably priced, high quality integrated video and audio communication to the PC platform.

Beyond specific products we believe that the synergies between our retail and OEM business continue to provide a strong foundation for future growth, whether it’s our console OEM successes leading to new retail categories such as console headsets, or the increasing popularity of webcams leading to renewed interest in the category by OEMs, the opportunity driven by the synergy is significant.

One example we are beginning to see the potential to achieve OEM level volume for our cordless mice which would have a favorable impact on the product costs of our retail cordless mice. Therefore, why we do not believe that the 39 percent growth in our OEM sales is sustainable, we strongly believe that the long-term synergies between retail and OEMs will continue to provide Logitech with a unique competitive advantage.

And that brings me to the outlook for the current year fiscal 2004. Given our strong top line performance through the first three quarters of the fiscal year we now expect higher sales growth than originally anticipated. Net sales for fiscal 2004 should exceed $1.24b, growing by approximately 13 percent compared to fiscal 2003. We continue to intend to deliver against our operating income target of 15 percent growth over the prior year.

Let me now turn to our preliminary targets for Logitech’s fiscal year 2005, which begins April 2004. Let me start by saying that our top priority is to achieve our target for fiscal 2004, though I believe it would be premature to get into product and operational details related to the upcoming year.

In looking at fiscal 2005 we assume no significant change in the economic situation, and we expect that the environment in which we operate will continue to be characterized by intense competition across geographies and product categories.

With this in mind, on the sales side we see continued double digit growth in retail and slower growth in OEM. Taken together we’re anticipating sales growth of approximately 10 percent compared to the current year. We anticipate operating income growth of roughly 15 percent compared to the current year.

We have just delivered the most profitable quarter in Logitech’s history. The strong execution by our teams have positioned us to exceed our original fiscal 2004 targets for sales and to achieve our ambitious operating income target. The success in reducing product costs and increasing operating efficiencies while continuing to invest in a range of demand generating activities clearly demonstrates that our growth strategy is working, and I look forward to a successful conclusion of fiscal 2004.

At this point, I’d like to open the call to your questions. Please follow the instructions of the operator.

(Caller Instructions.)

The first question we have comes from [Can Elbi] [ph] from [Credit Agricole Indosuez Cheuvreux] [ph]. Please go ahead.

Hi, Kris. Hi, Guerrino. I have a string of questions. First, just to confirm did you say growth in Europe was between one percent and four percent in the U.S.?

Yes, we did.

Okay. In terms of the gross margin improvement which I think was the highlight of the quarter can you maybe break it down to its components, and then maybe from that if you lead to the margin leverage potential left in the model, and whether you still see a 12 percent target as viable in terms of the EBIT margin? And then I have another one later on.

Let me give you some of the details, John, about the, at least the sequential improvement. As we have mentioned before, we had some significant cost reductions in some of our products. And you’ve heard me talk about some of those in the audio business, as well in the interactive entertainment.

One other thing I didn’t mention was that in addition to these cost reductions on many of these products we also had some improvements in our supply chain, and in fact, if I look at just the sequential improvement over Q2 to Q3 just, for example, our freight and warehousing costs declined by 54 basis points compared to the second quarter.

In terms of potential, first of all, I said that 34.3 percent is quite remarkable as a margin but we continue to speak to our 32 to 34 percent sort of bracket for as far as long-term business model.

In terms of profitability we will, you know, we are sticking to our three-year model even though as you may calculate easily by yourself, by achieving our goals for fiscal ’05 we might be a little bit better on the EBIT margin than the model. But I think it’s too early to make any sort of long-term changes.

We believe that there is, as I said, strong leverage within OEM and retail which obviously should benefit the margin in retail eventually. But I would be not proven to sort of bet on any number here. I think that we are pursuing growth, we want share, and we’re ready to make sacrifices on the margin percentage side to get gross profit. It has been the strategy of the company forever and it won’t change, so I hope this answers the question.

Okay. And just on the last point, I have three points on which I’m trying to get confirmation on. First, is it safe to say that OEM sales will be ‘down’ in Q4?

Sorry, there was …

OEM sales? Should it, I mean is it correct to say that it’s going to be down quarter-over-quarter in Q4?

Well, we’re not guiding by channel, John. We had a spectacular quarter in OEM with 39 percent growth. And, you know, I, it’s not unreasonable to believe that that’s not going to be the same in Q4. But, you know, there’s more unpredictability in our OEM sales than there is in our retail sales. You know, orders, the timing of orders is not at all controlled by us. And so I can’t say, but it’s not unrealistic, what you say is not unrealistic.

Hello, we lost the line?

Would you like to go ahead and take the next question, sir?

Yes, please.

Okay. That question comes from [Yves Kissenpfennig] [ph] with UBS. Please go ahead.

Hi, Kris and Guerrino. I just had a – my first question is really just I had a problem hearing one of your breakdowns of your segments. Did you say cordless mice were up six percent in dollar terms, and 12 percent in unit terms?

Yes.

Could you please repeat the number for corded, and then give us the same numbers for the overall retail pointing categories?

The retail, corded mice …

Was down 17.

Went down 17, yes.

In dollar terms?

In dollar terms.

Yes.

And in units?

23 percent.

And I notice that you normally give us the retail pointing. Did you just not want to give it to us this time?

Kris didn’t give it to you because she’s, I don’t know. But overall, you can assume safely that the there was a decline in the total mice and so that growth in cordless did not compensate the decline in corded which is, as I said, you know, one of our main product focus as we move forward. We plan to strengthen our entry level which is what this growth is happening, and we’re going to do it.

Okay, thank you very much.

Thank you.

The next question we have comes from [Andre Jaekel] [ph] with ABN Amrow. Please go ahead.

Yes, good morning. I have just first a question on the channel inventory situation and particularly on the retail, retailers reordering after the Christmas quarter, maybe you could shed some light there? And the second question, a little bit more on the market share situation on mice. Whether you have experienced in the quarter or a shift in your cordless category, away from market share from you, or whether you have basically stabilized the market share also in the corded category?

In terms of the channel inventory we think that situation is appropriate for the season. We’ve actually seen a pretty brisk booking and reordering in the first few weeks. It’s more than 50 percent better than last year, so we don’t overdo this point, it’s a very strong point but it’s kind of, it’s a fact and so we’ll, you know, we’ll share it with you. So we believe that the channel is in good shape, and we believe demand is continuing, continues to be brisk.

In terms of market share we have basically maintained our position in cordless. The cordless market is growing very rapidly as we had anticipated. So I actually am eager to look at this mass adoption cycle. If we are right this is going to be, the market is going to be on fire on the cordless side. On the corded side, in fact, we have lost some share, and we fully intend to get it back.

Okay. Just on the inventory turn side, while it’s seven points that was quite a strong number. Is it something where you would say this is the type of level you anticipate going forward? Because now the logistic procedures have become much better, or is it something more of an extraordinary item because of the high demand in the quarter?

Yes, Andre, you know, 7.7 is certainly a remarkable achievement here, but I don’t think that is sustainable. And certainly one of the things you know is that our inventory is very seasonal quarter to quarter. But we target our receivable turns to be between five and seven.

Okay, thanks a lot.

The next question we have comes from [Robert Stone] [ph] with SG Cowen Securities. Please go ahead.

Congratulations, Guerrino and Kris on a very nice quarter.

Thanks, Rob.

I wonder if you could comment, Guerrino, on how you see the competitive landscape at the high end of your cordless products, particularly in Bluetooth?

Well, you know, we were very pleased with the performance of our Bluetooth line. We believe that we are onto something here. But the reason why we put a web site to support our Bluetooth flow out is that we still believe that Bluetooth has a way to go in terms of, you know, smooth operations. I think we have the most, the smoothest implementation of Bluetooth in the market out there, and we expect other companies to come with, you know, a similar offering.

But we are by far ahead of the pack at this point. And things will continue to improve. But I think we’ve taken a very strong leadership on the high end, and I think that’s going to help both, you know, the growth of the company but also it’s going to help the perception of Logitech as we leave it in cordless, and that’s an important ingredient in this strategy that we have to introduce aggressive entry level non-Bluetooth products to take advantage of this mouse adoption factor that we believe is there. So we’re ahead of the pack in Bluetooth. It’s been a great sort of product introduction for us, and we now look forward to the rest of the market.

Actually, my second question with respect to the mass market cordless sales type approach, you suggested that would be non-Bluetooth. Is that for cost reasons, and what else besides an attractive price do you think is needed for a mass market cordless product?

I think you’d have to break certain price points. Bluetooth is going to get to the mass market later. It’s a cost issue, of course. We believe that there are some magical price points that we want to hit and we can hit providing quality, you know, no question asked, Bluetooth [laptops] [ph], and you’ll see for yourself in the coming weeks and months what I mean by that.

Great, thank you.

Thank you.

The next question we have comes from Mehrdad Torbati with Deutsche Bank. Please go ahead, sir.

Hi, everyone. My question pertains to the geographic breakdown of your sales. You said that you grew sales in North America four percent, 21 percent in Europe. How is the growth in Asia-Pacific?

Single digits, which means lower than usual.

Lower than usual?

Yes.

Have you seen your average selling prices in Europe coming down in the quarter?

We’ve seen a dramatic reduction in Europe, both sequentially – sorry about that – in year-over-year, and that’s fundamentally in response to the strengthening of the dollar, what happened, and as we’ve discussed many times is that there is an opportunity for everybody to just get to a lower Euro price because the [the franc is] [ph] strong, and everybody does it, and we do it, too. So, yes, the answer is yes.

For example, our key desktop products, our average selling prices in Europe, when you know, year-over-year were more than 30 percent less. And, of course, in dollars, of course, that transforms itself maybe in the reduction of 10, 12 percent, like that.

So what, how do you explain Europe being much stronger than the U.S.? With the adoption of – sorry?

Because the adoption of high end cordless is readier.

Yes.

And that, Europe is the more mature cordless market. And that’s, by the way, that’s why we are investing heavily in the cordless market in the United States with good results. We’ve grown our cordless laptop business in the U.S. by 40 percent year-over-year. So it’s a remarkable achievement which takes place more in the mid-range of the line than in the higher end of the line. And Europe being more mature in cordless we see that the market is readier for higher end offerings.

And that applies to Bluetooth, as well?

Yes, indeed.

And in terms of your webcam penetration of the OEM market at what point in terms of timeframe do you expect that to happen?

It’s hard to predict with that. We had, as you may remember, years ago sort of a spike of an OEM deal with then Compaq. It was what? Three years ago. And then, you know, OEMs became uninterested to the category because they were concentrating on lower cost PCs, and nothing could be added because nothing could justify an added price.

With the popularity of the category and with the establishment of this video instant messaging there’s more and more OEMs that are coming back to us and talking about opportunities. But it’s too early to say whether they would materialize this year, or in fiscal ’05, but I expect something, you know, tangible, not necessarily sort of a full 100 percent bundling deal, but something tangible will happen over the course of the next 12 to 18 months.

Well, cordless webcam was one of the products displayed at the Consumer Electronics Show in Las Vegas by another company. Do you think that could be a product category for you in the future?

That’s a good question. Cordless webcams are used, they’re called normally ‘networking webcams,’ they’re used for monitoring mostly. We’ll look into it. We believe there is in each of there – we haven’t made any decision for now.

Can you please give us an update on your progress with mobile headsets for mobile telephony? And the ioPen efforts you are pursuing?

Yes. On the mobile headsets, we’re not there yet. We’re seeing brisk growth in sales in Europe and the U.S., but we’re still not at the point which the revenue makes it in the radar screen. The Bluetooth is doing very well, particularly in Europe. Once again, Bluetooth and Europe seems to be going very well together.

We have a good presence in our traditional channels in Europe, not good enough yet in the U.S. We’re making some inroads in some specialists in Europe for telecom et cetera, not enough yet. So patience is in this case the name of the game. We fully intend to play here, and we have plans for exciting progress coming through the next 12 months.

On the ioPen end the focus is, there’s two things happening. Retail sales have actually done better than we had expected over the last few months. We were not particularly hopeful in the short-term, and in fact, we sold a few thousand [pens] [ph], sold about 2,000 pens in the U.S. and particularly in Europe, a few products have been well received for the Christmas season.

However, we are concentrating the majority of our effort in vertical markets, not only, you know, the initial event and plans that HP has to just use digital writing as a vertical application in the enterprise, but there are other companies that are working with us to provide vertical solution especially in forms management.

So, I’ve said many times that this is our longer term kind of bet, and it remains our longer term bet. I am very pleased with the fact that the consumer market seems to be sort of noticing the ioPen. But I continue to believe that as a first round this would be a vertical marketplace and consumers will come later.

Thanks very much.

Thank you.

The next question we have comes from [Nicole Burth] [ph] with [Lombard Auttier] [ph]. Go ahead, please.

Yeah, hi, Guerrino. Hi, Kris. Congratulations with your set of results. I have two questions, one is to the selling expenses. You know after Q1 you said you significantly wanted to increase the marketing expenditures and so on. And then the last, when I look at the first three quarters combined in terms of relative selling expenses to sales they still came down by 100 basis points. Now can you give us a flavor on how these selling expenses actually, you know, are composed? How much of that is provisions to your employees? And how much of that is actually marketing expenditures? I don’t know how much details you can give us on this question.

And the second question I would have is, you know, do you still consider M&A activity or acquisitions for new application fields? And if you do, if you could maybe give us an update on the potential direction?

Let me talk about marketing. You’re right, if you look at the total marketing expenses there is a reduction of a percentage of sale, a marginal reduction over the first nine months.

First of all, you know, we are focusing on the past two. But you should realize that there has been a substantial increase in our OEM sales which, of course, do not carry a significant marketing expense. The beauty of OEM is that it’s selling expense fundamentally, and there is no advertising, there is no soft dollars, there is nothing that is kind of qualifiable as a marketing expense. So as a percentage of sales are advertising effort as being increased as a percentage of sales of the percentage of expenses over retail sales. And I think we’ve seen some benefit out of that. We’re seeing some benefit on the margin side, and we’ll be seeing some benefit on the growth of desktops, both in Europe and particularly in the United States.

In terms of the mix we don’t break-down, you know, fixed and variable, but you know, this is a significantly variable organization. So you can count on the fact that the variable part of our operating expenses in marketing is higher than the fixed part.

Okay.

In terms of M&A, well, of course, we are looking very aggressively around. We do not want to be caught in the syndrome of having to do something, because that’s when you usually make your biggest mistakes. And so we don’t believe we are doing anything, we believe there is organic growth in the model, and our guidance for fiscal ’05 confirms that.

With that said, it is clear that we are on the lookout, and there are, you know, many things that could be interesting for us. Things that would help us consolidate our presence in some markets, other things that would help us sort of start moving into some lateral markets that are consistent with our strategy, but it will be imprudent for me to say more.

Thank you.

Thank you.

And the next question we have comes from Charles Elliott with Goldman Sachs. Please go ahead.

Hello, and congratulations.

Hi, Charles.

Hi. Three questions. Can you give us more granularity on what happened in Asia-Pacific? I think you said less than the normal rate of growth?

Yes.

Is normal 15, 20 percent?

Yeah, the normal is double digit, and so this is the first non-double digit quarter we’ve seen in Asia-Pacific for awhile. It is linked to some seasonality of our sales, particularly in China. We don’t see that as a, although I don’t like it of course, we don’t see that as a structural problem. We see that as a cyclical issue, and we believe we’re going to go back to double digit growth very soon.

Second, is there any way we can trace how many of your, of the shares that would come out of your Swiss franc convertible bonds, how many of those are converting into stocks?

It’s a good question. Kris, do you know?

Yes.

How many have been – well?

I think the answer is none. You know, my guess is none, Charles.

Right. None converted into stock?

No, we don’t think so.

No, no.

All right, is there a way we can measure that if it happened? I mean other than looking at your share count every quarter?

You know, and again because it hasn’t, you know, there’s still some room to grow. As you know, the convert price on this is [62.5] [ph] in Swiss francs. And at this stage I don’t, you know, it certainly would not make a lot of sense for people to have converted on this yet, so I don’t know yet.

Right. And third, could you, you touched on this earlier, but could you give us a bit of juice on how Q1 is starting?

Yes, Q4, you mean.

Sorry, the March quarter.

Yes, the current quarter. As I said, we’ve seen brisk bookings in the first three weeks, and the bookings were more than 50 percent higher than last year, the first three weeks. And so signs are pretty good.

Thank you.

Thank you.

The next question we have comes from [Anuj Metreja] [ph] with Morgan Stanley. Please go ahead.

Hi, Joe. Hi, Kris. And hi, Guerrino. Well, just a very quick question. A couple of things, actually. One, I wanted to touch on the 4Q guidance. If I just take your sales number back out of the first nine months it seems to me that you’re guiding to an implicit growth rate of around six percent. Doesn’t that seem a little bit low, especially given, you know, what you’re saying about a pretty good sign for the first quarter? I’ve got a follow-up after that.

Yeah, it may sound a little bit low, it doesn’t sound low to us. We are, remember, I am trying although evidently not successfully, to focus the attention over the fiscal year because that’s a much better time period to assess the performance of the company.

Sure.

Then after the shortfall in Q1, and I say that after the great performance in Q3. That’s kind of the way we look at our business, there is enormous seasonality in the business, there are unpredictable orders on the OEM side. So it’s really too hard to say.

So I would not bank on the fact that that six percent implied growth is sandbagged. I don’t believe that it is. We believe, we’re pleased to see that the bookings, but you know, there’s no way I can guarantee that this rate will continue. Actually, I can guarantee you it will not, so it’s only an indication of healthy channels in my opinion more than anything else.

Sure.

It’s a challenge of replenishing and it means that business was good for them.

Sure. I’ve got another question which actually maybe is a little bit related which is it would be interesting, the sustainability of OEM sales. Now as I understand 19 percent growth in the mice, that’s driven by two things. That’s driven by a good Christmas season for the PC guys which we’ve seen.

Yes.

And, obviously, you’ve gained some market share because of some of the shortages that have gone out of there especially in optical sensors, and things like that. Can you just maybe give us a comment on how much market share you have gained in the OEM side? Where do you see that going, so get a flavor of the sustainability of that growth is?

Okay. We’re a pretty strong market share, as you know, in OEM.

Sure.

Therefore, our market share gains are modest and marginal. We’ve seen some. It’s extremely, at this point, it’s extremely hard to measure because we have to, you know, the data that exists are not completely reliable. But we believe that we are actually in the top 20, we are still in the 70 percent kind of space. We may have gained a couple of points.

So clearly, our mouse sales are driven by the growth in the PC market, and we don’t expect a dramatic change in share either up or down. Of course, we’re always on the look for down shares, because you know, this is a fiercely competitive market. This is not something that is a franchise at this point, every new PC or new orders from …

Sure.

But with that said, we believe that those will go with the PC market with a slight twist. As we expect, you know, cordless mice, for example, to become more interesting to OEMs average selling prices are likely to increase in that case, and therefore, there may be some benefit on the revenue side if the cordless mouse replaces the corded mouse. So the units may not change but the revenue may be positively impacted.

Can we have maybe a sense of what the units are growing at in the OEM business versus pricing?

It is 18 percent of mice, 19 percent, sorry, correction. So we grew our revenue by 14.

Okay.

And our units by 19, which in this case is slightly [the lowering of] [ph] price.

Sure. Okay, and I guess just one question which is the final one, which relates to this is should we expect a lot of your growth, because, you know, there’s been a little bit of a slow-down in retail sales relative to last year. Should we expect that a lot of the growth for Logitech over one or two years, three-year frame is now going to be driven by this bundled product strategy?

No. Bundled meaning?

The [ISOA] [ph] and, you know, the USB [flow] [ph]? Because really, the 45 percent OEM growth that you saw last quarter and the 39 you saw this quarter, a lot of that has to do with …

A lot of that has to do with PlayStation and the bundles, and it has to do in addition to the growth in mice. But the question is do we expect a lot of the growth coming from OEMs? The answer is no. The answer is we expect a lot of the growth to come from retail, and we believe that those numbers that we have seen in the last couple of quarters are not sustainable for OEM. We – that’s the way we see it.

Right. So if I – didn’t you say in your commentary that you’d expect retail to be slower, and you expect double-digit OEM growth in 2005?

Sorry, I said exactly the opposite. I said I expect double digit growth in retail and slow growth in OEM.

Okay, sorry, my fault. Okay, go ahead. Thank you very much.

Thank you.

The next question we have comes from [Barry Ehrlich] [ph] with [Pictet] [ph]. Please go ahead.

Hello. You said that interest in orders for the Bluetooth desktop products have been strong. Is it safe to assume that a lot of the unit growth in the Bluetooth desktop category was due to new products simply hitting in the shelves being stocked for the first time? And have you had any evidence of these desktop products selling through in terms of reorders, or in terms of number of units that have sold through? That’s my first question.

The answer is yes, we have seen evidence of sell through. There’s been a very good presence for Christmas, especially with the Denobo has been doing particularly well. And between the two, the Denobo has exceeded our expectations. In fact, both in sales in but also in sales out. Anytime you add a product at a new price point you obviously have the benefit of – and a new product on the shelf there’s very little if any cannibalization. So, of course, that’s a good thing. But if the question is that people are really buying this Bluetooth thing? The answer is yes.

Okay. And kind of a follow-up question on the beginning of the quarter, it seems that North American retail sales overall were pretty weak in the middle of December, but really picked up at the very end of the month due to a lot of the winter storms. And it reasons to expect that that particularly hurt these retail channels like Comp USA that have an East Coast focus. And so, my question is did perhaps this delay or push back some orders that might have normally come in December from North America into January because of this sort of later than usual sales cycle? And then, as well, can you tell us just how important Comp USA is in terms of your North American sales? Is that a top two customer, for instance?

No, obviously, it is very important, and we love them. But it’s not in the top two.

Okay.

To us, to comment specifically on your sort of analysis of the U.S. situation, indeed, it is true that the later part of December has been particularly brisk and fast, and the earlier part does not look particularly strong. We believe that that has created a substantial deplenishment of channel inventory, and therefore, yes, there may be some sort of reorders that are happening now. But I think it’s kind of, this is too much black-and-white as a view. I don’t think that that applies equally to all of our customers. As you said, some customers are more influenced by the East Coast than others. So that there is some of that.

In fact, I would say that the most limiting factor in our growth, in our growth, forget about the channel for a second, but in our growth in the United States, it’s actually the entry level [mice site] [ph] which we absolutely intend to get.

Thank you.

The next question we have comes from [Oliver Maslowski] [ph] with [Banc VonToble] [ph]. Please go ahead.

Yes, congratulations also from my side. I have only two quick questions. The first one would be currency affects? You mentioned that they had an impact on this quarter’s results. Could you elaborate on that a little bit?

Yeah, Oliver, the – actually when compared with our expectations actually the impact was relatively negligible. The only impact we actually saw was on other income, other expense.

Okay, and the second question would be how many new distribution channels could be gained in the quarter of the year in the different regions? And what’s the spreadsheet on that?

Well, you know, as you know, we’ve been trying to [inaudible] products virtually everywhere, so perhaps the issue has been [trading] [ph] the accounts and broadening our product [credit] [ph]. And most importantly, you know, having velocity SKUs on the shelf. The thing that helps the most is when, you know, in fact we have a few SKUs is when they move fast. And that has been the case in several of our products.

That said, as I’ve mentioned and in answer to one question before, we clearly want to extend our presence for certain categories. We believe we’re not at all there in mobile headsets, and we have to do more. And so this would mean penetrating with this category our existing customers, or more of them. And getting to new channels.

We have seen more interest in recent months in the U.S. mass market where we do business with the Wal-Marts and the Targets. It is possible that we will do more business with them. So, again, an issue of penetration of existing accounts more than just opening up new channels. We do look forward to the Busch initiative to get on the moon, so we think we’ll be opening something on the moon! But that’s long-term!

Sounds great! Thank you.

Thank you.

The next question we have …

We’ll take another question, okay.

I’m sorry. That question comes from [Wolfgang Fickus] [ph] with [West LB] [ph]. Please go ahead.

Yes, good afternoon. And congratulations to the results.

Thank you.

May I ask three quick questions, really. The first one is on other income expense which was particularly strong this quarter. That had to do with currency. Could you elaborate a little bit?

Yeah, most of, almost exclusively all of that had to do with the change in the Euro versus the dollar.

And what is that exactly?

It’s the differences in our, you know, in our operating, you know, our balance sheet conversions and our unrealized gains and losses.

Okay. And then, do you, could you provide us with the mix in the OEM business between cordless and corded mice?

The cordless mice are a low single digit at mix on the total, so it’s still very small.

Low, single digit, okay. And then, maybe on the backlog? You said something about the backlog, but could you repeat the gross number?

I said something about the bookings, bookings for, I mean orders for the first three weeks in retail have been 50 percent, more than 50 percent higher than last quarter.

Okay, and lastly, on the retail ASP could you provide with us a number about the sequential and your new developments in retail ASP?

Yeah, the ASPs actually for the retail business increased by 26 percent compared to the same quarter last year, and by 17 percent sequentially.

Thank you very much.

We’ll take one last question, Operator, if there is one.

Okay, that question comes from [Rido Simmon] [ph] with [NZB Bank] [ph]. Please go ahead.

Yes, thank you. Hello, everybody. I have two numbers crunching questions from my side. So could you please repeat what you said about webcam category with new achievement and [inaudible] development?

What’s up with our operators, ma’am?

Hello.

Can you hear me?

Yes, yes, we can hear you, but there’s – we have another voice on the line, we hear another voice on the conference. So, Operator, can you …

I don’t know what’s happening.

No, no, no, you’re fine, you know. We’re hearing you, but we hear somebody else. So let’s make sure there’s no mess on the conference call. So the …

Rido, yes, in the webcam category our revenues grew by 26 percent, and then our unit shipments grew by 19 percent.

Okay, thank you. And the dual cam?

The dual cam is actually a decline by 47 percent.

In absolute terms?

Pardon me?

In absolute terms? And unit shipments?

Unit shipments, actually you know, I don’t know the answer to that. It’s negligible. It’s such a small amount, Rido.

It’s very small, so to speak.

No problem at all. And the second question, the last question regarding the taxation for the fourth quarter of the year, could you please say what you’re expecting there? Because I was expecting it a bit lower than charged this quarter already.

Well, we said, I think we discussed that, and we said that tax in Q4 which means the current quarter we would move to an effective tax rate of 15 percent.

Okay. Thank you, everybody.

Thank you. May I share a few closing remarks with all of you.

I think that our performance in Q3 shows that there is resilience in the product portfolio, and resilience in our broad geographic presence. In addition to focusing on delivering against our full year target we’ve also been busy preparing our business model and our product portfolio for our next phase of growth.

We believe that the anticipated mass adoption of cordless solutions and the pervasive presence of video communication, the opportunities in the mobile world, and in interactive entertainment, as well as the upcoming convergence in the digital home will fuel our sustained performance. The [order] [ph] composition will be, obviously, more challenging than ever, yet we are thrilled at our prospects.

Thank you for having been with us today.

Ladies and gentlemen, thank you for joining today’s conference. This concludes the program. You may now disconnect. Good day.