羅技 (LOGI) 2006 Q1 法說會逐字稿

Good morning.

My name is Cynthia, and I will be your conference facilitator.

At this time, I would like to welcome everyone to Logitech's first-quarter fiscal 2006 earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS).

Thank you.

At this time, I would like to turn the conference over to Joe Greenhalgh, Director of Investor Relations.

Mr. Greenhalgh, you may begin your conference, sir.

Thank you, Cynthia.

I would like to welcome you to Logitech conference call to discuss the Company's results for the quarter ended June 30, 2005, the first quarter of Logitech's fiscal year 2006.

The press release, a live Webcast of this call, and accompanying presentation slides 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 20F, dated May 18, 2005, available online on the SBC Edgar database and on the final paragraph of the press release reporting first-quarter results issued by Logitech and available at Logitech.com.

The press release also contains accompanying financial information for this call.

The forward-looking statements made during this call, including the forecasts for fiscal year 2006, represent the management outlook only as of today, and the Company undertake 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 website.

Those who just joining us, let may repeat that presentation slides accompanying this call are also available on our website.

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

I would 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 are thrilled that fiscal 2006 is off to a great start, as we delivered our best Q1 ever for sales, operating income and net income.

The growth percentages that follow are in comparison to the first quarter of 2005.

Our sales grew by 26%, or $68 million, to reach $335 million.

Our retail business continued to deliver strong growth, with sales increasing by 27% to $284 million, driven primarily by our success in audio, console gaming, and corded mice and keyboards.

Complementing our retail sales performance, I'm pleased to note that our OEM sales grew by 17%, due to strong growth in both corded mice and cordless desktops.

Our gross profit grew by 18% to $107 million.

Gross margin was 32.1%, down from 34.1% last year and within our targeted range of 32 to 34%.

This mostly resulted from the shift in our retail sales mix, which -- as we discussed at our Investor Day in May -- is a major driver of gross margin.

The biggest change in the mix was driven by the spectacular sales growth in the audio category, as its share of our total retail sales doubled.

The margin in this category isn't yet as high as that in several other product families, but I am pleased to note that our audio gross margin improved significantly compared to the prior year.

One additional factor that reduced our gross margin was the successful move of our new manufacturing facility in China.

We did incur approximately $800,000 of one-time costs in the process, as the move went so smoothly that we were able to shut down our old plant well ahead of schedule.

Operating expenses for the quarter increased by $13 million, or 19%, to $82 million.

In line with our plans, the year-over-year growth of our operating expenses in Q1 was the lowest that we have seen in the last 5 quarters.

Our marketing and selling expenses grew by 17% this year, primarily in support of brand building and the much higher retail sales volume.

R&D expenses increased by 26%, primarily reflecting the investment in headcount we made last year to drive sales growth in categories, such as cordless audio and advanced remote controls.

Our G&A expenses increased by 14%, also driven primarily by last year's investments in additional headcount, as well as systems infrastructure.

Our effective tax rate in Q1 was 14%, and that remains our target for the full fiscal year.

But let me remind you that the rate may vary somewhat on a quarterly basis.

Let's move to the balance sheet.

Our cash position was $299 million, up by $25 million compared to the prior year.

Our cash flow from operations for the quarter was a negative $4.9 million, down from $55 million last year.

This difference was primarily due to the sequential reduction in Accounts Payable during Q1 versus an increase in the prior year, as well as a smaller reduction in our accounts receivable balance.

As you may recall, during the first quarter of the previous year, we made significant purchases of components to ensure against shortages in future quarters.

These purchases remained relatively late in the quarter and caused a sequential increase in our Accounts Payable.

This increase led to an unusually high days payable outstanding of 80 days in Q1 of last year compared to the much more reasonable 61 days this year.

Our inventory was $189 million, up by $9 million from June of 2004, and by $13 million from March of 2005.

Inventory turns were 4.8 times per year, significantly better than the 3.9 turns as of June of 2004.

Accounts receivable was $205 million, up from 151 million last year.

Our days sales outstanding was 55 days, well within our target range, but slightly higher than the 51 days achieved in June of 2004, as it was relatively late in the quarter before we were able to fulfill stronger-than-expected demand for a number of retail products.

In the first quarter, we've reclassified our convertible bonds from long-term debt to short-term debt to reflect their June 2006 maturity date.

The bonds were valued at $138 million as of June 2005, and as reporting change caused the large increase in our short-term debt, as well as the corresponding decrease in our long-term debt.

Let me give you an update on the share repurchases.

During the first quarter on a post-split basis, we repurchased 1,031,000 shares for approximately 38.1 million Swiss francs, or $31.5 million.

And we now own approximately 8% of our shares outstanding.

We have roughly 45 million Swiss francs, or $35 million, remaining under the current share repurchase program.

Once we have completed this program, we plan to begin repurchases under the new $300 million Swiss franc or $232 million program, approved by our Board last month.

You can view updated information on our share repurchases on an ongoing basis at the Investor Relations section on our website.

Let's look more closely at our retail business for the first quarter, where our sales grew by 27% and unit shipments increased by 31%.

It was a very solid quarter for all regions.

The Americas delivered the strongest performance, with sales growing by 41%, while Europe was up by 21%.

The growth in both regions was led by audio, with solid contributions from console gaming and corded mice.

I am pleased to note that we also enjoyed 19% growth in Asia-Pacific, with particularly strong performance in Japan.

We also see signs that our investments to return to sustain growth in China are starting to pay off.

Sales for our cordless of product family decreased slightly, down 2%, with units flat.

This decline was due to cordless desktops, where our sales declined by 10% on 5% fewer units.

The desktop situation this quarter primarily reflects the phase-out of our older offerings, as we make room for new product launches coming later this summer.

We did see a growth in cordless mice, as sales increased by 9% and units grew by 4%.

It was a great quarter for the retail corded category, with sales growing by 26% and units by 30%.

Our corded mice sales increased by 24%, with units up by 20%, driven by the runaway success of the MX518 gaming-grade optical mouse that we launched in late fiscal 2005.

As one indicator of the strong demand for this product, our sales of gaming mice in Q1 were nearly as high as they were in the Christmas quarter of fiscal 2005.

The other major contributor to growth in the corded category was corded keyboards, particularly in Asia-Pacific, as our total sales grew by 29%, with units up by 58%.

Retail video sales increased by 6%, with unit shipments growing by 22%.

Similar to the fourth quarter of fiscal 2005, we experienced an overall mix shift towards our mass market Webcam offerings, where our unit shipments was particularly strong, and where we continued to generate healthy margins, in line with the overall video category.

It was a record-breaking quarter for the retail audio, with both sales and units shipments reaching an all-time high, as sales more than doubled and units grew by 79%.

Our speakers led the way, with both sales and unit volumes nearly tripling and establishing record highs.

Our success in this category was achieved across numerous price points and reflects the compelling value proposition offered by our speakers for the enjoyment of digital music in the home.

We also saw a solid contribution from our mm22 portable speakers for iPod.

Our great performance in audio went well beyond speakers.

We more than doubled our sales of both PC headsets -- establishing a record high for the category -- and mobile phone headsets.

And we saw the initial sales from our wireless headphones for iPod that launched at the end of the quarter.

It was a solid quarter in retail gaming, with sales up by 27% and unit shipments growing by 32%, with the growth coming entirely from our success in the console space.

Sales of controllers for game consoles were up by 84%, with units growing by 156%.

The growth was driven by a combination of our cordless gamepads for the PlayStation 2 and Xbox, steering wheels, and the PlayGear Pocket, as well as our well-received protective case for the PlayStation Portable.

Let me comment on our OEM business.

With a difficult Sony comparable well behind us, we enjoyed a return to strong growth, as our OEM sales increased by 17% and units by 15%.

Our mice sales to PC manufacturers increased by 18% and reached an all-time high for the category, with unit volumes increasing by 14%.

It was also a strong quarter for our cordless desktops, with sales up by 41% and units more than doubling.

Before concluding my comments, I am excited to tell you that we have scheduled a mid-year Investor Day for Wednesday, November 2nd at the Langham Hotel in Boston.

We will have more details to share in the coming weeks, and we hope you will be able to join us.

And on that note, I would like to turn the call over to Guerrino.

Thank you, Kris, and thanks again to all of you for joining us.

I am very pleased with this great Q1.

This difficult year is off to a strong start, with a double-digit growth achieved by all our retail sales regions, led by the Americas with an impressive 41% growth.

I am also glad to see that our return to growth in OEM.

When you consider how long Logitech has been the leader in supplying mice to the world's largest PC manufacturers, it is quite an accomplishment to establish a record high for mice sales in what is traditionally the seasonally weakest quarter.

This powerful combination of double-digit growth in both retail and OEM allowed us to deliver our highest quarterly sales growth in more than 3 years.

The quarter showed the superb market response to our wide range of audio products, which we attribute to the growing popularity of the MP3 music format, the iPod, and the widespread interest in voice communication over the Internet.

As compelling evidence of the appeal of our current audio offerings, we established a record high for the category in what is our smallest retail quarter of the year.

And the good news is, there is still more to come.

I am particularly pleased by the robust growth of the retail corded category and especially in corded mice, a category that is often prematurely dismissed.

In fact, our performance in corded mice this quarter is a great example of one of the points we frequently emphasize -- that specifically targeted, segmented offerings like the MX518 gaming mouse provide attractive growth opportunities, even in markets that are growing at a much slower rate.

Another highlight for the quarter was a successful transition to our new manufacturing facility in Suzhou, China.

The move was completed ahead of schedule and within budget, leaving us solidly positioned with the flexibility and capacity to fulfill our in-house production requirements in the high-volume quarters in years to come.

We are excited by our Q1 results; yet, as I always point out at this time of the year, first quarter is historically the smallest contributor to our full year performance.

So we remain focused on executing our full year plans.

Just last month, we held our fiscal 2006 product showcase and meetings with our major retail customers in Europe and the Americas.

The reaction of our channel partners for our fiscal 2006 product roadmaps was consistently positive across the entire portfolio.

This had been feedback from these corporate buyers is a key indicator that we are on track with innovative offerings that will enhance our market position throughout the remainder of the fiscal year.

So let me talk about some of what is in store for the remainder of the fiscal 2006.

Let me start with cordless.

We expect the new products launching in the coming weeks and months to bring the return to double-digit growth in the category by bringing innovation in both cordless mice and desktops and by further enabling the mass adoption of cordless.

In mice, you can expect to see more laser, more Bluetooth, more notebook offerings, and the introduction of the world's first intelligent mouse.

In desktops, our exciting new lineup will feature advanced options for controlling digital content, as well as enhanced functionality and appealing design.

We also remain bullish on the opportunity in Webcams.

We have seen a reduction in our sales growth for the last 2 quarters, due to a mix shift, but unit growth has stayed strong at roughly 20% in both periods, demonstrating sustained demand in the category.

We plan to launch several new Webcams for desktops and notebooks in the coming months that we believe will significantly strengthen our high-end offerings, complementing our momentum in the mass segment.

Beyond our exciting new products in the pipeline, we know that demand for our Webcams is closely tied to appealing applications like Internet video and voice communication.

As one example of the enthusiastic response to the video conversations featured in MSN Messenger 7.0, a breakthrough functionality that is a revolution in Internet audio/video communication, over 4 million unique users have used the feature in the first 2 months of availability.

As the market leader for both Webcams and PC headsets, with the engineering expertise to seamlessly integrate video and voice communication, Logitech is ideally positioned to provide consumers with the tools they need to make Internet communication an integral and rewarding part of their daily lives.

Moving on to our entertainment lines, the market opportunities surrounding digital music is large and is still in its early stages.

The channel's positive reaction to our fiscal 2006 audio product line-up is a confirmation that we are well positioned to leverage this opportunity.

In the coming months, you can expect to see more speakers, headphones, and other innovative devices for PCs, iPods, and MP3 players that provide consumers with the ability to enjoy their digital music anywhere they choose.

We are also excited about the opportunities in gaming.

Later this summer, we plan to launch a variety of controllers and add-ons for the PlayStation, PlayStation Portable, and Xbox platforms later this summer.

We look forward to the launch of several products in our G-series of gaming-grade extreme performance products for the PC gamer.

Building on the success of the MX518 gaming mouse, these products are designed specifically for gamers who demand the best.

We continue to be pleased with the momentum of the Harmony remotes.

Market demand in the U.S., as well as our market share in the category, continues to trend upwards.

In fact, demand is so strong for our new high-end offering, the Harmony 880, that we had a difficult time keeping up with it throughout the entire first quarter.

We are well positioned on the high-end, and we plan to introduce less feature-rich models, targeting lower price points in the months to come.

Let me comment on OEM.

As our success in the first quarter demonstrates, our core OEM business is as healthy as it has ever been.

And beyond the substantial cord mice and desktops, we are actively pursuing a variety of opportunities involving headsets, remote controls, and console gaming.

You can expect to hear more from us about OEMs in the future.

And that brings me to our outlook for fiscal 2006.

Let me first remind you that our strategy and priority is to deliver sustainable operating income growth by driving our topline performance.

For fiscal 2006, our goal is to deliver 15% growth compared to the prior year for both sales and operating income, with gross margins at the high end of our targeted range of 32 to 34%.

Our first-quarter results provide strong confirmation of the number of points.

Delivering 27% topline growth in retail, even with a temporary slowdown in the growth of our cordless and video franchises, demonstrates the broad appeal and the increased resilience of our product portfolio.

The spectacular growth in our audio business is a strong confirmation that we are well positioned to take advantage of the expanding opportunities of digital music peripherals.

The return to double-digit growth in OEM, please note that we are poised to leverage our core strengths into new markets.

And the reduction in our operating expense growth confirms our ability to manage expense growth in line with gross profit growth.

While Q1 is not the most pivotal period of our year, we will make them from our first-quarter performance -- carries us into the second quarter confident that we are well-positioned to deliver on our fiscal 2006 targets.

And at this point, we would like to open the call to your questions.

Please follow the instructions of the operator.

(OPERATOR INSTRUCTIONS).

Can Elbi, Chevreux.

Just a couple of questions, please.

First, on audio -- obviously, it is a fantastic quarter, as the numbers show.

I am just after whether there were any pull-ins from fiscal Q2 into fiscal Q1 -- also seeing there are obviously the iPod headsets were launched in June, and I want to understand whether there were any channel fuel effects there.

And with respect to audio again, obviously, the Plantronics acquisition of Altec Lansing -- the way that is going to change your thinking and your budgeting for the business, and how you see that business developing for you, especially with respect to them being more competitive in the U.S.

And a follow-on with respect to the costs.

Looking at the gross margins, which at least were slightly below my expectations, I can't really explain the whole decline by asking (ph) the retail/OEM mix and neither the retail product mix because obviously mice and video did better.

So they were somehow compensating for the increase in audio.

So I am just trying to understand whether there was anything else there -- also, especially looking at marketing and selling, which also was somehow slower or lower than I thought.

So I am just trying to understand there -- there was any promotional activity that basically shifted some marketing and selling into COGS.

Thanks.

Well, that was a series of questions there, Can.

Let me try and figure out if I remember all of them.

You first question was about audio.

Yes, it was a phenomenal growth, and it was exceeding our expectations frankly.

No, I don't believe there was pull-ins from Q2 at all.

In fact, it was pretty steady throughout the quarter.

And yes, we introduced our wireless headphones for iPod late in the quarter, so there was sales of that, but it was a fraction of the entirety of the growth.

I wouldn't attribute that the majority of the growth to that not -- certainly not this quarter.

So it is ready a solid, broad-based and pretty linear kind of growth that we saw in audio.

We believe that digital music is big on the PC and on the go.

And we see the response of the lines that we have prepared for the last 12 months.

So there is nothing particularly time dependent here; it is just great.

On the impact of the acquisition of Plantronics of Altec Lansing, at this stage, we don't anticipate a difference in the dynamics in the marketplace.

Altec has been a strong competitor in speakers, and we expect that to continue to be the case in the future.

The only thing, I believe, that is changing is the ownership of Altec Lansing.

Frankly, at this stage, I don't think we can comment more.

On the gross margin, the main reason why the gross margin declined year-over-year and sequentially is the heavier weight in the retail mix of the audio component.

Yes, Webcams grew.

Yes, retail corded mice grew.

But audio grew much faster, and audio doesn't happen to be our product line with the highest margin.

It is great that we actually improved that margin year-over-year, and we believe there is opportunity to continue to do so in the future.

But that is the main driver of the decline in gross margin.

That said, as I said in my remarks, as Kris said in her remarks, we are well within our 32, 34% band.

And we continue to guide for sort of ending the year at the higher end of that band.

So over the course of the year, things should compensate one another nicely.

You asked about --

Marketing and selling.

(multiple speakers) expenses.

What you are seeing -- what we said all along last year.

Last year was the year in which we substantially invested for future growth.

Guess what?

You see the future growth happening and pretty strongly this year, and you see this -- our biggest quarter of growth in 3 years, which basically should tell something.

But we also said that we would reign, and we would be able to reign on our operating expense growth this year.

And you start to see that.

We are basically in line with our gross profit growth, which is what we wanted to do all along and which we will continue to do.

So what we are saying is that to generate 27% growth in retail this quarter, we only needed 17% growth in operating expenses in sales and marketing.

You don't have to expect that it will always be the case, but that is kind of what we expect in the future, that the growth in sales and marketing expenses will be aligned to the growth in our gross profit and particularly in our retail sales.

So that is kind of -- hopefully covers all your questions.

So next question, Operator?

Ted Chung, Bear Stearns.

Just looking at your guidance, just given how strong this first quarter was, which is usually the weakest quarter, and by you reiterating your guidance for the 15% revenue growth, are you implying that the growth may slow into the second half?

Or are you just taking a conservative view?

Neither.

I would say that we have in the past, and we continue with the tradition to try and to educate the marketplace on what Q1 is for Logitech.

It is one-tenth of the year in fact, more or less, from many perspectives.

So it is our smallest quarter.

So while the indications that it brings are pretty significant to us and we are very bullish about the things developing, it is very, very premature for us to touch the guidance.

And we have no reason to do so at this stage, and we will see how Q2 develops.

And we will discuss about that at the end of Q2.

Rob Stone, SG Cowen.

Congratulations on a good start to the fiscal year.

I wonder if you could comment a bit on where you think you are in market share, particularly in the OEM business with the strong growth there.

I think that we marginally gained some market points in share.

You have seen from recent reports that actually the PC market is quite healthy; that is good.

We like that not only because it is good for our OEM business, but it is particularly good for the future of the Company, as the install base of PC growth -- this is where the biggest opportunity for Logitech comes, as you know.

So I think we gained marginally share.

But we also took advantage of quite substantial growth in the marketplace and of our combined success in mice and cordless desktops and OEM.

Looking at the OEM market a little bit more, there seems to be a strong trend shifting towards notebooks -- which as you have commented in the past (technical difficulty) are typically bundled with mice.

You see that helping your retail sales?

And is there opportunity for different kinds of bundles with notebooks?

We certainly see that helping our retail sales.

We believe that some of the growth that we see in mice comes from the desire of people that buy notebooks to actually use a much more comfortable pointing device than what it comes usually with a notebook.

In terms of bundling opportunities with notebooks, it is too early to tell.

We have a very strong relationship with all our PC manufacturers, so we always look for angles and opportunities.

But I wouldn't say that that is the first priority for our new OEM businesses moving forward.

I would look more towards different platforms than the PC.

That is where we stand.

When you say different platforms, such as gaming?

Such as gaming, such as mobility platforms.

And I would leave it at that.

Final question for Kris -- could you comment -- now that the new factory is up and running, what you think your CapEx budget will be for the fiscal year?

Just one thing I want to point out.

During Q1, we actually did have about $8 million of capital expenditures for the factory that hit.

So if I move that one aside, I think what we are going to be finding is that our CapEx for the year is going to kind of continue to grow, as it did before we did the acquisition.

As you know, most of our capital expenditures have to do with tooling, and we are also upgrading our computer systems at this point in time to Oracle 11i.

But those two things aside, I would say you are going to see some pretty reasonable growth in CapEx quarter after quarter.

So any range in terms of what the full year total might be?

It should be similar to last year -- maybe a little bit higher.

And again, we spent a similar amount on the factory last fiscal year as well.

So look for about the same range as last year.

John Bright, Avondale Partners, LLC.

Hi, this is Ellen.

The gross margin, did you mention -- did I hear you mention that part of that was affected by the new factory?

Part of that was affected by new factory.

We had this $800,000 of write-off that was actually a good thing, believe it or not, because we were not assuming to shut down the old factory so fast.

Okay.

So yes, the answer is yes.

So can we expect anything persistent to the future quarters?

Or would that just go away for next quarter?

Well, that particular line, no absolutely, it is a one off.

Okay.

Next question, we hear that the Xbox 360 is supposed to be released at the end of the year and the PlayStation 3 some time in 2006.

When will we expect to see any announcements on OEM agreements for cordless controllers?

Or would we expect to see any?

You are anticipating that there will be an announcement of OEM agreements with cordless controllers, which we never said there would.

Oh, sure, of course.

But --

So well, I think that that is very speculative.

I cannot answer this question.

Mehrdad Torbati, Deutsche Bank.

I just have a question on the OEM sales.

You mentioned that cordless desktops contributed with sales growing 41%.

Can you perhaps comment on the size of this business?

Or how far penetrated cordless desktops are as bundled with PCs?

And a bit more comment on the decline of the cordless desktops on the retail side, this development on the OEM side as an impact on your retail business?

And perhaps when you speak about the phase-out of the old cordless desktops having a negative impact, what type of cordless desktop can we expect?

Is it a combination with your intelligent mice or improvement of the current offering?

Yes, thank you.

I think there is several points you raised.

First, your question on the weight of cordless desktops in our OEM business.

It is growing, but it is pretty small.

We are talking low-single digit million dollars, so it is a very small component.

It is great to see it.

In fact, I believe that the same thing that happened with mice will happen with desktops.

The more adoption there is at the entry level with OEMs, the more opportunities there is for us to upgrade later on.

So actually, there is no connection between the temporary slowdown this particular quarter of desktops.

Remember, cordless has been growing all along and will continue to grow moving forward.

And this OEM success, there is no link.

What is happening is that we are phasing out our existing lineup of desktops, which means that therefore we slow down selling because we want the shelves to be ready for our new line that will come up -- let's say in the coming weeks.

We haven't announced it, so I am not making a product announcement here.

And therefore, I cannot answer if the details of your question in terms of what it is.

In fact, there are several models at the entry level, midrange, high end.

They are substantially different than what you have today, but you will want to buy them.

And that is all I can say.

Okay.

Do you -- follow-up question on the wireless headphones for iPods and MP3 players.

What has your experience been in terms of the first phase of introduction?

Where have you presented a product?

Where can we buy it?

How far have you penetrated the shelves?

The product will be available in the Apple stores, for example.

So that I would recommend you visit the Apple Store.

I cannot tell you for sure that you will find it today.

It is actually rolling in the channel.

I believe that I have seen it, but it may not be in all Apple stores.

It is actually doing quite well.

But you are also going find it elsewhere.

You can certainly find it online, if you want.

And you are welcome to go to that.

Charles Wolfe, Needham & Company.

(technical difficulty).

We can move on, Operator.

Roger Steiner, Kepler Equities.

Two quick questions -- one on the news that we have today on the revelation of the Chinese R&D (ph).

You share the split of the standard manufacturing cost in London at the Investor Day.

Is there any Chinese R&D cost in the non-labor cost of that split?

Sorry, is there any Chinese R&D cost in what?

I am sorry;

I meant we --

In the non-labor cost of the standard manufacturing costs -- in, let's say, semiconductors, plastics, or cables or others.

Is there any Chinese R&D denominate the cost in the other cost lines?

Of course, Roger, the biggest component is labor, as you know.

But there could be some small, local components.

But I would say it plays a back seat to the labor component.

But mainly labor in the case.

The second question -- whether you could provide any specific update on how the laser mouse was doing during the quarter?

It was doing fine.

Remember, that this is now being joined by other mice, by other laser mice.

And it will be joined by other laser mice from Logitech sooner rather than later.

In fact, we are very excited about this mouse lineup that we haven't discussed during the call yet in terms of phased in.

But as we phase in a lot of new cordless desktops, we will also phase in a lot of new mice.

And certainly, several of them will be laser.

Set let's say that MX1000 will have company in the marketplace.

It also has company from competitors.

So laser is happening, and that is actually good.

In fact, we expect a wave similar to what we have seen in optical when laser become mass.

Yves Kissenpfennig, UBS.

Congratulations on a great start.

I had a very quick question on the share buyback.

You seem to be -- sort of your net position is increasing by about a third of your buyback amount every period.

And I was wondering, what should we expect to happen when the 10% threshold is reached?

Will you immediately then cancel those shares?

I know you have shown some hesitation in the past with that.

But I do think it is authorized.

Yes, absolutely right, Yves.

As you know, we have authorized a second trading line, whereby we can actually buy back shares and cancel them.

So once we have reached that 10% line, we are going to be able to go ahead and proceed beyond that and buy back more shares and cancel them under the second trading line that we established about 1.5 years ago.

So we shouldn't expect that an entire block will be canceled.

But rather, it will be done on an ongoing basis?

On the open market -- exactly right.

Michael Foeth, LODH & Co.

Two questions, in fact.

First, could you comment on commodity prices and the impact of oil prices on your gross margin during the quarter?

And the second question would be, if you comment on how well the high-end remote control 880 was received, not only in the U.S., but if it is already launched in Europe and how it is received there?

On the commodity, let's put it this way -- the impact of commodity pricing and costs on our gross margin is being marginal, if any is existent.

So as we gently discussed, Logitech's gross margin heavily depends on mix, and this was the main driver of the margin this quarter.

In terms of the Harmony remote, as I said, 880 is being phenomenally well-received, and it is flying off the shelf.

We have had difficulties keeping up with demand in the United States.

We are starting to supply in Europe.

But with this situation of substantially higher demand than we expected, we may trickle it down at the slower pace than we had anticipated.

But it is on sale in several countries -- certainly in the UK and Germany.

And the first responses are very good.

We are seeing the first connection on our website.

So we are very bullish on it on both sides of the Atlantic.

Serge Rotzer, ZKB Bank.

I have four questions.

Could you say me, what has been a sales split in the different region in Q1, and what impact will a stronger U.S. dollar have in your opinion?

So, the sales split in (multiple speakers) --

Yes, why don't I just go ahead with that?

During the quarter, Europe was 46%, the Americas was 36%, and Asia-Pacific was 18% (multiple speakers) --

So it's the impact on the retail on strong --

And the stronger U.S. dollar we see now for next quarter, and so--?

I would say that it will allow us not to reduce our euro pricing, as we used to do when the euro was stronger.

So it is going to be pretty marginal, the impact of the U.S. dollar.

In both directions, the impact of currency is smaller than it looks on an arithmetic basis because we passed on both the gains to our customers -- both the gains and the losses on the dollar side.

So when the dollar is weak and the euro is strong, we usually have lower euro pricing.

And when the dollar gets stronger, as we introduce new products, our euro pricing is different then.

Okay, thank you.

Second question is -- I guess the exclusive rights for the chips at -- from Agilent for the laser mouse will end more or less now, I guess.

Do you see any shortages in the market now, as your competitors will also buy the chipset?

And how do you react on your competitors on the launch of the laser mouses (sic) of the competitors?

First of all, we have already seen laser mice in Japan, for example.

There is several offering laser mice.

By the way, we did very well in Japan, which could be a proxy on how well we could do when laser is going to be widespread.

We do not see a shortages.

And the supply landscape for laser technologies will just evolve over time; you can expect.

And so we are launching new, enhanced laser product that we have not -- I can't get into the details, but you can expect that we are going to do our part in making sure that we keep ahead of the pack.

Okay.

If I may, third question is -- can you split up the revenue from others?

Because it is not obvious what is unit of--?

It is fundamentally the Harmony remote.

It is 3D connections.

It is our 3D CAD devices.

So remote controls are about 80%, or what kind of guess?

I would say that we don't split the -- others are the one who would publish it.

Okay, fair enough.

It is too early to split it.

Over time, as we see those businesses growing, you can expect us to (multiple speakers) --

Yes, yes, I can imagine.

Last question, you didn't mention music services and dedicated Voice over IP products.

Do you have to tell us something?

Sorry, I missed the question.

You didn't mention anything about the music server or the dedicated Voice over IP products.

Can you say us when you will launch it, or you will not launch anything, or--?

Well, you know, we are going to launch several digital music-related products in the coming weeks and months.

And we will launch a product that will enable to distribute music in the home, and I will keep it at that.

Sarah Mom (ph), Enskilda.

I just had a question regarding new generation of gaming consoles.

Your strategy there, whether it continues to be dependent on using a dongle in the products?

Sorry, I could not understand the question.

I may be -- I have some trouble on this line, but can you repeat it?

I am sorry.

I just noticed that the next generation of gaming consoles are becoming wireless by default.

Oh, yes.

I am just wondering on your strategy here -- whether it continues to be dependent on a dongle, or--?

First of all, yes.

It appears from what we understand that things are a little bit fuzzy, but it appears that both -- as particularly the Xbox -- will have an optional cordless controller there.

That is fine; it is great.

It means that cordless and wireless will be standard on the boxes.

And I believe that that gives opportunities not only for controllers but for other cordless products.

And so that to me, it is a good sign.

With PlayStation, it is not yet clear what is going to happen.

It is a bit speculative to say what Sony will do.

I think it is too early.

But we will act accordingly.

With the controller that we have today, with the controllers that we have today with Xbox and PlayStation 2, we obviously indicated the direction.

And there is plenty of opportunities in the current install base of these two.

And we will just act nimbly when it comes to the new platforms.

And we will take the opportunities that it creates.

Rene Schmidli, Swissfirst Bank.

I've had two questions.

First one is research thoughts, as it assumes 20 million of iPods, which are expected to be sold maybe in the current year.

So do you have any type of assumption what the penetration rate for your headset products might be?

That is the first one.

And the second one, maybe on the tax rate, it is around 15%.

Could you maybe again elaborate quickly why is it so low, and is there any risk for an increase maybe in a couple of years?

Or what are the mechanics behind that low rate?

So I will ask Kris to deal with the tax rate question first.

Yes, why don't I go ahead with that one?

Yes.

Rene, our tax rate is now -- it is 14%.

Let me correct you, it is not 15.

Our average, we expect is going to become, up (ph) 14% for the year.

You know, we enjoy a lot of favorable tax jurisdictions throughout the world.

As you know, we are rather complex.

We operate in China.

We operate in Switzerland.

We operate in the United States, and we are able to distribute a lot of our taxable income across the world in a favorable way.

This 14% tax is not -- I should tell you -- it is not dependent on net operating losses.

This is a sustainable rate.

As far as we can see -- many things could change -- but as we see the landscape for now, it looks as though the 14% is a sustainable rate.

Okay.

On the question on iPod, we don't have a target for penetration of any specific product at this point.

What I can tell you that the wireless headphone has created a lot of interest.

However, you will -- it is just the beginning of a series of products that we will introduce for the iPod.

So we believe that the iPod and the MP3 category in general is a great target opportunities for music peripherals.

And we will try to take advantage as much as we can.

And what you have seen is just the tip of the iceberg of what we will do around those platforms.

Can Elbi, Chevreux.

Two very quick ones.

First, Guerrino on audio, just sorry to come back to this.

But fiscal Q1 and was very unseasonal in that it was -- revenues were higher than fiscal Q4.

You clearly said that there were no pull-ins.

You clearly said that the growth was broad based.

And you clearly said that there would be new products coming out in fiscal Q2.

So can I safely assume -- I know it is a simplistic question.

But can we safely assume that you will have a normal seasonality in Q2 over Q1, which is typically 25, 30% quarter over quarter?

We, as you know, we don't speak significantly about Q2 and can you imagine if we can speak specifically of a product line in Q2?

That would be a little bit too much.

Let me say that we are very bullish on audio.

And I would leave it at that.

Okay.

And maybe just one last very quick one -- PC gaming.

What I be correct to assume that it was down 13% in fiscal Q1 year-over-year?

It was down 15%.

But on the other side, the corded gaming mouse, which is not classified in gaming, was a phenomenal success.

So there is kind of some confusing points there because you have to look at PC gaming as a whole.

And we are very bullish on PC gaming as a whole, except that we believe that it is going to be more mice and keyboard than anything else.

So is this just a categorization issue, such as it likes the PlayGear basically, which is in gaming, whereas it could also be in audio?

That is very true.

At this time --

So, I think that was the last question.

So I thank you for participating.

Let me conclude by saying that, as you may recall, last year, we decided to increase our investments to prepare for future growth.

I could not be more pleased to see how well those investments have paid off -- Q1 giving us the strongest growth we have seen in years.

Digital convergence resonates with a consumer.

And Logitech is uniquely positioned to deliver to this broad and exciting new demand, which impacts all of our product lines.

While the opportunities multiply and the market evolves, as usual, success will continue to be about what our strong team does best -- great products, a relentless focus on execution and cost, and product innovation.

So thank you very much for your participation today.

This concludes today's Logitech first-quarter fiscal 2006 earnings conference call.

You may now disconnect.