羅技 (LOGI) 2007 Q4 法說會逐字稿

Good morning, my name is Brandy and I will be your conference operator today.

At this time I would like to welcome everyone to the Logitech fourth-quarter fiscal 2007 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 session.

(OPERATOR INSTRUCTIONS).

I would now like to turn the conference over to Joe Greenhalgh, Vice President of Investor Relations.

Please go ahead, sir.

Thank you, Brandy.

I would like to welcome you to the Logitech conference call to discuss the Company's results for the quarter ended March 31, 2007 and the fourth quarter of Logitech's fiscal year 2007.

The press release, the 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 20-F dated May 19, 2006 and subsequent filings available online on the SEC Edgar database and the final paragraph of the press release reporting fourth-quarter and full fiscal year 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 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 website.

For those of you just joining us, let me repeat that the presentations slides accompanying this call are available on our website.

Joining us today from Zürich is Guerrino De Luca, Logitech's President and Chief Executive Officer, and here in Fremont we have Mark Hawkins, Logitech's Senior Vice President of Finance and Information Technology and Chief Financial Officer.

I'd now like to turn the call over to Mark.

Thank you, Joe, and I'll be given an overview of our performance.

It was our best Q4 ever for sales in profit.

We delivered the highest gross margin for Q4 in the history of our company.

This was our 34th consecutive quarter of double-digit growth, so the string does continue.

Our retail sales growth for Q4 was constrained by a year-over-year decline in webcams, but we experienced strong demand across most of our portfolio with accelerating growth in cordless, gaming, PC speakers and Harmony remotes, so they portfolio is working.

We ended the quarter with the highest cash balance in the history of our business.

For the full year we did fall short of our increased target for year-over-year sales growth due to webcams in Q4 while we achieved an upwardly revised goal for our operating income.

Our comments during the call about gross margin, operating expenses, operating income, net income and EPS for Q4 and FY '07 will be based on non-GAAP numbers that exclude 123R cost, this is consistent with the way we normally do that.

So let's begin with Q4 and discuss our gross margins.

Our gross margins reached an all-time high for Q4 at 34.5%.

It was basically a 260 basis point improvement compared to the prior year, so we're very pleased to see that -- a lot of you recall our discussions a year ago.

The improvement was driven by the same factors that we've emphasized for the last three quarters -- the launch of innovative new products throughout the year that basically had higher margins and they replaced products with lower margins, so we're pleased to see that.

We achieved strong year-over-year gains in cordless, corded, audio and gaming with the largest improvements in cordless and gaming.

The improvement in cordless was primarily driven by our cordless desktops and keyboards.

Our PC speaker margins continued to improve compared to the prior year, another good story.

Please note that the growth percentages that we'll be talking about that follow are in comparison to the same period for fiscal 2006.

Our operating income grew by 9%; our operating margin was essentially unchanged at 11.7 compared to 11.8% last year.

If you take a closer look at our operating expenses, our sales and marketing grew by 24% with the growth being driven primarily by marketing activities in support of our retail business and headcount increases that took place throughout the year.

Research and development was up by 20% with the majority of the growth driven by investments in product development in key categories -- things that we've talked about before again -- remotes, audio and video.

The G&A increased by 31% primarily due to costs related to [11i] and the support of 404 certification.

And again, we've talked about that quite a bit in the past here.

So now let's talk to net income, our net income grew by 14% and our net margin was 11.4%.

Our earnings per share were up by 15% to $0.30 and so that gives you another feel from an earnings standpoint.

Our tax rate was 12.1% and, as we said before and I've talked to you guys a number of times about this, our tax will vary by quarter, but again it came in in the range that we expected.

Our sales grew by 15% to $2.1 billion.

Our sales in retail -- the business grew by 16% with the growth achieved in overall major categories.

We also saw our OEM grow by 6%.

Gross margin reached a record high for the year at 34.4%, up 240 basis points compared to fiscal 2006.

We achieved strong year-over-year gains in cordless, corded, audio, video and gaming with the largest improvements in cordless.

Consistent with our strategy we managed our operating growth in line with our gross profits.

Our net income grew by 35%, significantly outpacing the 26% growth in our operating income due to a combination of higher interest income and the gain on the sale of Anoto shares and a lower tax rate, and our EPS grew by 38% to $1.27.

Now let me turn to the balance sheet.

Our net cash position was $399 million which includes $215 million reported in terms of short-term investments.

Now let me just pause and say this was the highest ending cash balance in the history of the Company.

Our net cash increased, it was an increase by $168 million or 73% compared to the prior year.

The increase versus the prior year, I think it's important to know, is even more impressive if you consider the fact we spent $20 million on the acquisition of Slim Devices and $138 million on share repurchase.

Our cash flow from operations for the quarter was $93 million.

Our cash conversion, which I've talked a lot about this over the last year, our cash conversion cycle was 54 days, another six day improvement compared to the same period last year.

At the start of the fiscal year we said we expected significant improvement in our cash flow from operations during the full year and in fact we delivered.

We doubled our cash flow -- just slightly more than doubled our cash flow from ops for the full year at $306 million.

Our inventory we ended that up $21 million, more inventory in March than in the prior years.

This was an 11% increase and I would say that this is consistent with the topline growth that we've had.

Our inventory turns were right in line at 6.2 compared to prior year at 6.4.

Our DSO -- here's another area I was pleased about in terms of we were able to deliver, again, year-over-year improvement in DSO, we talked about doing that, again this has come forward.

Our DSO was at 54 days for the quarter which is a reduction of two days compared to the prior year and three days sequentially.

Let's turn to share repurchase.

During Q4 we repurchased 1.88 million shares for $52.4 million at an average share price purchase of $27.89.

For fiscal 2007 we repurchased 5.6 million shares for $138 million at an average price of $24.62.

We own just under 5% of our outstanding shares and I will call out, I think you'll be interested to note that we have 174 million remaining on our current repurchase program, you know our history of buying back the stock.

We think that's a good thing for the Company.

Now let's discuss sales in Q4 by product family starting with retail.

So I'm going to delve a little bit deeper into the top line.

Our retail sales grew by 9% and our units were up by 3%.

We achieved solid growth in our two largest regions, the Americas grew by 12% and EMEA grew by 9%.

With the webcam decline in both regions being more than offset by strong growth in multiple categories.

So again, the portfolio in play.

Cordless and Harmony remotes were the primary drivers in the Americas and gaming and audio lead the way in EMEA.

Our sales in Asia declined by 4% with our growth restrained by an organizational transition in Japan that we discussed during the January earnings call.

And let me just note here that while there is still work to be done, we're making progress and we expect to begin to see some improvement this quarter.

If I turn to retail sales cordless, we delivered double-digit growth in cordless for the fourth quarter in a row.

Sales were up by 22% with unit growth at 12%.

And I should note here, you guys, that it was a great quarter for cordless desktops and cordless keyboards with sales growth accelerating to 30% and unit growth of 13.

We achieved our highest growth in cordless desktops in the last 10 quarters with sales and unit growth across all major price bands, so we were very pleased to see that.

We continue to be pleased about the strong consumer demand for our high-end cordless keyboard, the diNovo Edge.

It was a solid quarter for cordless mice with a sales growth of 14% and unit growth of 12.

We saw particular strength in the midrange of our category and we also saw continued strength in our notebook category with a sales of cordless mice for notebooks growing 35% and, again, on units up by 27% -- so a good trend to continue to see there.

Retail sales in audio, our audio units grew by 11%.

And if I go deeper into that I'll peel that back a few layers, our speakers were up by 17% on units of 21%.

It was a strong quarter for our PC speakers with sales growth accelerating to 26% and unit growth by 22% reflecting success particularly in our high-end and our entry-level.

Sales of our iPod and MP3 speakers, they declined by 27%, but the units grew by 3.

And if I address that last point and take it a little deeper, the decline reflects a combination of softness in the iPod peripheral market and a very weak sale of our high-end Logitech audio station due to a variety of quality issues that surfaced as we ramped into full production.

It was a solid quarter for our PC headsets as the sales in that particular area grew and units grew by 10%.

If I then turn my attention to video, frankly it was disappointing for the quarter for our webcams with sales down by 32% and units by 22%.

The sales decline was experienced across all major price bands.

We entered the quarter focused on improving our webcam market position, but there was an unexpected category decline that led to a decline in sales.

I'm going to just pause on that; Guerrino is going to talk quite a bit more about that and what our plans are to improve that going forward.

If I shift into retail sales corded, we achieved growth in the corded category with sales up 5% and units up by 2%.

The growth in the corded category was entirely driven by our corded keyboard sales which were up by 27%.

And the Logitech Alto, let me speak to that a little bit.

This is our portable notebook stand with an integrated keyboard.

This made a significant contribution to the growth in the particular category.

If we turn now to gaming, gaming -- it was a turnaround quarter in the gaming area with sales up 35% and units by 3.

This was our highest quarterly growth in the category in the last two years and reflects a return to growth in the console gaming combined with continued strong growth in the PC side as expected.

Our console gaming sales increased by 9% while units were down by 5, and we are really are pleased to see the growth in the console gaming for the first time in the last six quarters and there's been some quite some discussion and anticipation of this.

We're now seeing the lag effect and the fact that PlayStation is now starting to kick in and we're seeing that starting to fuel our console growth, so that's good news.

It was another great quarter for PC gaming with our sales growth at 46% and our unit growth of 9.

And I might call out, just to give you a little bit more detail, the sales of steering wheels nearly tripled primarily due to the strong demand for our G25 Racing Wheel.

In terms of retail sales other, sales were up by 64%.

I think I've shared quite a bit -- quite a few times that the Harmony remote is the lion's share of retail other.

This grew by 78% and the growth was strongest in the Americas driven primarily by our flagship remote, the new Harmony 1000.

The growth in the other categories also reflected some contribution in the 3-D connections as well as Slim Devices.

On the OEM sales side we finished with our best quarter for the year with sales growth of 16% delivering a return to our double-digit growth that we anticipated.

The biggest contribution in this growth for OEM came from the cordless desktops with sales up 65%.

So the customer transition we talked about before has been completed.

Our mice sales were flat with units down 3%, but we had solid growth in both video and corded within this OEM category.

So let me come to a conclusion.

We delivered our best Q4 and fiscal year ever for sales and profit in the history of the Company.

We experienced accelerating retail sales growth across a number of our product categories, our portfolio and model is working.

We significantly improved the efficiency of our working capital.

We delivered the best ever $306 million in cash flow from operations for the year.

We strengthened our balance sheet, our gross margins are up and we finished with the highest cash balance ever.

Before concluding my comments I want to remind you the fiscal 2008 investor meeting that we're scheduling is planned for many 10th in London.

The agenda will feature a number of our senior executives reviewing our strategies and opportunities for fiscal 2008 and beyond.

And I do hope that you'll be able to join us.

So with that noted, let me go ahead and turn the call over to Guerrino.

Thank you, Mark.

Thanks again to all of you for joining us today.

I am very pleased with the Company's performance in fiscal '07 that was record-breaking performance in each of the four quarters.

Fiscal '07 was Logitech's best year ever and our ninth consecutive year of double-digit growth in both sales and profit.

In spite of falling short of our upwardly revised sales growth target, our cash performance was outstanding.

We delivered the highest gross margin in the Company's history.

We increased our operating margins by 100 basis points to 12.1% of sales.

We grew our net income by 35%.

We improved our net margin by 170 basis points.

And we delivered against our increased full year profit growth target by achieving a 26% growth in operating income.

Let me comment on our Q4 performance starting with webcam.

After six quarters of double-digit growth we hit a speed bump.

This is before Microsoft entered the category in December of 2006.

Our total focus has been to limit the impact of their arrival on our market share.

We were largely successful in this particularly in the U.S.

where the share improvements we saw in December and discussed during our January earnings have been sustained.

We have also assumed that the arrival of Microsoft would help fuel the growth of the webcam category.

As that happened our relatively small loss in market share would have been more than offset by the incremental market growth.

Unfortunately that growth did not materialize.

While we were focused on defending and improving our market share, our traditional market development activities that have built the category over the years to a backseat and the market growth slowed significantly.

Over the next few quarters we plan to reignite webcam market growth by targeting our marketing activities toward growing the overall category.

We plan to leverage partnerships, as we have done in the past, to broaden consumer awareness.

Will also increase in-store activities to help consumers appreciate how they can benefit from using a webcam.

And as you'd expect, we have a broad range of new webcams lined up for launch later in this year.

At this point going into more detail on our action plan would be inappropriate for obvious competitive reasons.

It is however worth noting that all of our product categories go through cycles, and webcams are no exception.

Our webcam sales have declined several times before and we've always returned to strong growth.

We are confident that our efforts will lead to the return of double-digit growth in our webcam sales by the second half of this fiscal year.

Other than the webcam issues, I was very pleased with the strong sales we achieved in many of our product categories.

The acceleration of growth in Harmony remote, cordless and PC speakers, the strong turnaround in gaming and the double-digit growth in OEM are all indicators of the resilience of our portfolio and the health of the categories in which we play.

The 22% growth in cordless driven by our best quarterly growth in cordless desktops since fiscal 2005 is a great example of product cycles.

Last year at this time we had just completed a year with no growth in cordless and just one year later we're looking at the category the accelerating growth in the quarter and faster growth for the year than the total company.

Our gross margin performance in Q4 was outstanding.

As we've said, product mix played a major role in gross margin.

When you consider that video is a relatively high gross margin category for us, delivering a 34.5% gross margin with significantly less video in the mix is a confirmation of the innovation, value and cost performance we delivered during fiscal '07 across the whole portfolio.

Let me move on to fiscal '08.

Our strategy remains to position Logitech as a premium supplier in our category offering affordable luxury to the consumer while continuing to aggressively compete from the entry segment to the high end.

We enter fiscal '08 focused on several priorities -- we've continued double-digit revenue growth at the top of our list.

We expect to launch a suburb set of new products during the year and take advantage of growth opportunities across our portfolio.

The growing popularity of notebooks is a trend that has contributed to our growth.

In fiscal '07 our sales of notebook peripherals grew by 57% primarily due to the strength of our cordless mice offering which we plan to expand and enhance during the year.

We are quite pleased with the initial response to our notebooks spend with Logitech Alto and we are excited about the potential for similar products aimed at bringing the comfort of the desktop PC experience to the notebook user.

We have a number of innovative keyboards and desktops on the horizon that we believe will allow us to build upon the momentum that we've achieved in this category during fiscal '07.

In fact, we believe that this could be one of our fastest growth areas in the new year.

We still see lots of opportunities for innovation in mice, particularly when it comes to improving the navigation in the digital world.

Later this year we plan to once again reinvent the mouse with navigational capabilities that will bring a new level of convenience and functionality to the user.

We delivered double-digit growth in retail audio in every quarter in fiscal '07 and we believe that this category will continue its momentum in fiscal '08.

The 35% full-year growth of our speaker sales is a sustained indicator of the broad based appeal of our offering and the growing penetration of digital music.

We plan to introduce a variety of new PC and iPod speakers for all major price points and we'll continue to use software as a key source of differentiation here building upon the innovation we introduced with our Z-10 PC speakers.

Speaking of digital music, we are excited about the potential of our Slim Device acquisition.

We believe that the Slim products, most of which will soon feature the Logitech brand, along with a talented team that joined us put us in a strong competitive position to deliver easy to use, feature rich, wireless streaming of digital content from the Internet or the PC throughout the home.

Turning now to gaming -- we were quite pleased with the strong turnaround in gaming that we achieved in the fourth quarter.

The strength of our Q4 performance even allowed us to deliver 6% growth in the category for the full year.

Our initial PS3 offering has been well-received and there are more in the pipeline.

We also took note of the success of Nintendo's Wii and we plan to address that platform later this year.

We believe we've turned the corner in the gaming category and we're expecting double-digit growth for the category in fiscal '08.

Our Harmony remote grew by 60% in fiscal '07 and nearly reached $100 million in sales.

As pleased as we are with the progress of this business, the opportunities for continued growth have never been more promising.

There's plenty of upside in the U.S.

where we have achieved most of our success and we are at the early stages in Europe and Asia.

During the new year we'll continue our focus on improving every aspect of the user experience to further increase our already high level of customer satisfaction while significantly expanding the potential universe for Harmony users.

You can also expect continued improvements and innovation on the hardware side in this category.

Another priority for fiscal '08 is to enhance the scalability of our operations.

We made number of investments during the last year across all functions.

We added headcount in sales and marketing and in engineering to drive future growth and we've invested heavily in G&A to support our implementation of Oracle 11i, achieve S-Ox 404 certification and support our growing business.

We believe these investments have left us will positioned for fiscal '08 and we're committed to continue managing our operating expenses in line with our gross profit growth.

Scalability goes well beyond the relationship between growth and spending.

We introduce over 100 new products every single year, many of which feature significantly more innovation and complexity than the products they replace.

Processes that worked well when we were a smaller company need to scale as we grow.

You know Logitech has a tremendous product machine and we will build on this strength.

During fiscal '08 we will focus on improving every stage of our product lifecycle management process, starting from idea generation through end of life.

We also plan to significantly strengthen the voice of the end-user, our ultimate customer, in product design, marketing and support activities.

We believe that these efforts will eventually lead to a number of measurable benefits including faster time to market, better quality products, higher sales and margins and increased customer satisfaction.

That brings me to our financial goals for fiscal '08.

For fiscal '08 we target both sales and operating income to grow 15% compared to the prior year.

We expect gross margin to be at the high end of our long-term targeted bracket of 32 to 34% and we expect our effective tax rate to be around 12%.

Fiscal '07 was the best year in our history.

We said we'd improve our profitability and we did with our best gross operating and net margins ever.

We also said we'd improve our cash flow from operations and we doubled last year's total.

We enter fiscal '08 well positioned for sustained growth and profitability with an innovating and appealing product roadmap targeted at substantial growth categories, a broad and resilient product portfolio, and a strong and experienced management team focused on delivering against our targets.

At this point I'd like to open the call to your questions.

Please follow the instructions of the operator.

(OPERATOR INSTRUCTIONS).

Ted Chung, Bear Stearns.

Just had a more detailed questioned regarding the webcam business.

It sounds like you actually maintained share within the market but attribute the weakness to the general weakness in the market itself.

What type of activity are you specifically looking at in terms of demand generation?

Thank you, Ted.

First of all, we lost share year-over-year.

It was inevitable for us to lose some.

When a big player like Microsoft comes in they take some share.

And we lost some, I would say -- I would position our loss between 10 and 15 points.

We're still by far the largest player in the category, I'm saying by far -- three times, more than three times bigger than the second player.

So we were focusing on actually limiting that share loss and in fact we did.

In every other category in which we compete with Microsoft we're head to head and (inaudible) ahead so you can see that as a success.

So what happened, as I said in my comments, is that the market that has been growing at a very hot rate throughout the entire calendar 2006 had a significant acceleration of growth.

The combination of loss share in that caused our short fall.

You asked what are we going to do.

I said that we're going to refocus a marketing approach that has been fundamentally focus on holding or defending our share for the last six months, which has been unusual for us in webcam since the beginning.

From the beginning of the webcam category we have been the market developer of the webcam; we have told the world what to do with them.

And we stopped and the reason we stopped is that we thought that the arrival of Microsoft would actually create that element of market development that we were not pursuing ourselves.

In fact it didn't.

And we can talk a long time as to why it didn't, but it didn't.

So now we're going back to refocus what we used to spend in promotional share defending point-of-sale activities into point-of-sale activities and partnerships that actually promote the category.

So everybody will win including our beloved friend at Microsoft.

But we believe that the market leader has this responsibility and we will go forward with that.

Going into more detail as to exactly what we will do, with whom we will play, which partnership we will turn on, it's a little bit sensitive at this point and I would prefer not to comment further.

Thanks.

Just on a separate question, regarding the issue with AudioStation in the audio category, has been addressed already or --?

Yes, that's been addressed.

It's unfortunate, the product problem, it happens even to us.

And it was related to the fact that AudioStation contained technologies particularly in the touch sensitive panel instead of buttons and knobs that we did not master fully.

And as we started to ramp the product -- it was actually late in delivery, but as we started to ramp we figured out that it was not on par and we decided that that was not something that we could pursue.

It's actually a fundamental reason for our pickup in iPod speakers.

So we are -- we are saying the problems are fixed.

The unfortunate thing is that we missed the big season and that doesn't come back soon -- easy.

But we'll be back with AudioStation and its children moving forward.

So I would look at that as just an accident unfortunately.

Just a last question.

This is typically the time when you initially show your new products to retailers.

Have you gotten any feedback from them regarding the new products being positioned for launch for the second half of the year?

Well, in fact our what we call customer showcase time is around the June time frame.

Right, you initially have some conversation with some of the --

Well, we actually try to hold the news to those carriers and these are big extravaganzas that we do both in the U.S.

and in Europe with our European and American customers as well as in Asia and they take (inaudible).

So we haven't shown much yet.

Great, thank you.

Matthew Yates, Merrill Lynch.

Good afternoon.

A couple of questions please.

Firstly, I think, Guerrino, you said in your remarks that marketing had taken a bit of a backseat recently in webcams.

If pricing has been the main way you've tried to defend your market share so far, how come that didn't create more of a price elasticity effect on demand?

Well, the truth is that, first of all marketing did not take a backseat.

Pricing and promotional activities are marketing as much as market development.

What I said -- maybe I didn't say it right -- but what I said or I meant to say is that our market development activities took a back seat.

And by market development I mean those activities that tend to promote the category as a whole.

Of course you promote your own product with that, but activities such as showing at the point of sales what you can do with a webcam, how easy it is for you.

There is a very large population on the verge of adoption here and I think that we, by not continuing these promotional market development activities we miss that.

So the category is in between mass adoption and early adoption and we believe it's our responsibility to move to early adoption.

Yes, we did do promotional activities -- not as frantically as we've seen a number of small players do in the category.

If you remember last quarter we talked about a very aggressive promotional environment from the smaller players that did not want to get kicked off the shelf from the arrival of Microsoft, that continued brutally in Q4.

So we did participate in some of that, but not much of that.

Enough to maintain our share let's say.

But the category didn't grow or grow very modestly and when that happens you address the same crowds and nobody wins.

So that's why we have decided that we have to refocus to what we've done for the category for a while and that's why we believe there will be a number of tactical things we'll do in the short-term, and I won't discuss those.

But the fundamental posture we're taking is one of market development and that's why we expect to see our sales in webcams growing double-digit again in the second half of the year.

Okay.

The second question is somewhat Microsoft related in that you've seem a big player come into a market and, as you say, not necessarily brought too much growth, just simply taking some share.

Are there any worries you have with regard to Philips?

They seem to be paying more attention and allocating more capital towards peripherals.

How do I answer this?

I have to be appropriately wording this.

I don't believe that Philips has the muscle of Microsoft in the mind of the consumer in any of the PC related categories.

So we respect all competitors of course, but I would call it a different order of magnitude of entrance.

Philips has been in this webcam business for a very, very long time and hasn't made a particular dent on the market share charts from what we see.

Okay.

And could you give some sort of update on how the integration of Slim has gone and the kind of rollout phase to get that product into the big box retailers?

Well, as we speak that's what is happening and we are transitioning the Slim Device product to the Logitech brand, which you would expect us to do.

As we speak we're talking in the coming weeks and we have very advanced conversations with several large retailers that are very excited about the category.

So let's see, I am very optimistic about this being the beginning of another triple digit million dollar business for us, so stay tuned.

Okay, thanks for taking the questions.

Manny Recarey, Kaufman Brothers.

Good morning.

You had mentioned that you've experienced slowdowns in the webcam market before.

Can you comment on typically how long that that has lasted, the slowdown, and how long before you start to see a rebound?

Well, if you look at the growth profile of several of our product lines including webcams, we have seen slowdowns, meaning negative growth -- that's what I mean by slowdown.

In this particular case I mean negative growth to us, that lasted between one and two quarters.

And so I would not go as far as venturing what will happen with webcams right now.

But as I mentioned, that the main driver of this decline on our side is a significant slowdown of market growth and we are planning to reignite that.

I would not expect that that will happen overnight.

And so we pointed to the second half of the year as the time in which we expect our sales to rebound at the double-digit level.

We are not providing more details in the short-term.

It's an appropriate -- less certain that what we believe we can do over time.

Okay.

If I can move off into the webcam market, looking at the Americas versus EMEA.

The Americas I think you were up 9% but units you were down where EMEA I think the units were up as well as the revenue was up.

Can you give a little bit more color on what's going on and the dynamics there for mix?

Well, Mark said a few things about growth in the region.

And I would say that growth was driven by higher price point products in AMR than in EMEA.

For example we had a tremendous success with Harmony 1000 which is, while very affordable and correctly priced, a pretty expensive product.

So that helped a lot in the ratio between revenue growth and unit growth in the AMR.

Okay, thank you.

You're welcome.

John Bright, Avondale Partners.

Guys, we talked I think about webcams ad nauseum.

Let's talk on the cordless side of the equation.

I think the drivers, they look to be pretty strong, particularly on the cordless side.

Can you elaborate on that first?

And then two other segments if you could elaborate.

Gaming, real big quarter, PS3 I think certainly a driver there.

Guerrino, I think it was you that mentioned the potential of getting into Nintendo this year as well can you elaborate on that please?

And then lastly, on the top line the OEM, very strong double-digit growth in the OEM.

How sustainable is that heading into fiscal year '08?

Well, you asked about cordless gaming and OEM.

Yes, cordless was -- first of all, cordless is our largest category.

So to see that kind of growth in our largest category and a category that has been point to do (inaudible) instead of a dead body for example (inaudible) is actually approval of what I was trying to say in a little bit more politically correct words before which is we've seen it.

And things come back, the market is there.

In this particular case, not only our cordless mice did great, but our cordless desktops and keyboards were just phenomenal.

Which means of a category that among the dead was considered the most dead is the one that drives the most growth.

So sometimes things are not as they appear.

I think innovation played a huge role there.

I think the diNovo Edge was fantastic.

But even the mainstream well priced and for once well featured midrange did great in cordless desktops.

The vanilla midrange desktop that has been a source of concern for a while.

So those were the helpers.

And as I said in my remarks, I wouldn't be surprised if this cordless desktop and keyboard category becomes one of our largest drivers of growth next year or this year.

On gaming, first of all my first commentary is we are absolutely pleased with what is happening in PC gaming, this category -- another category (inaudible) project two years ago has actually done wonders to us and I believe that what we did in gaming keyboarding and gaming mouse, particularly gaming keyboard which is (inaudible) is just phenomenal and we believe that it will continue to sustain growth.

Yes, we're finally back on consoles and it took some time.

It took for PlayStation 3 to finally get out of the penalty box and not only launch in Europe but establish itself elsewhere and this is the cycle.

And this is when we thought that we would start to see growth and we're seeing it.

We have a few products and others coming.

Yes, I said we will build Nintendo out.

We haven't had a product for a Nintendo platform for I think three or four years or something like that.

We had a wheel -- modestly successful wheel on previous generation Nintendo.

GameCube, we think we can do a lot especially in the game specific devices, but I think my PR people would kill me if I say more, so I won't.

Anything from a Microsoft standpoint in that arena?

Not much.

Microsoft continues to have a posture they have on licensing and we have never depended on them here and we probably won't.

You asked about the OEM.

Yes, it was great to see that finally we went out of the tunnel in OEM growth and (inaudible) with a very strong growth this quarter.

We believe we'll see growth.

It's hard to pin it.

It's kind of -- I'm hopeful that we will see double-digit growth, but it's a little bit more uncertain than when I talk about our 15% growth for the Company.

Right, right.

So then just a couple final ones.

You've now got two quarters in a row of 34% plus gross margins, you're talking about the high end for physical year '08.

You've made a number of changes that you've put in place.

What is the sustainability, do you think, of staying up there at that 34% gross margins, particularly as you've gotten again some newer products that are coming online as we approach the June, August time frame?

Well, we don't expect our new products to be a negative impact on the margin, so we've learned some lessons here.

On the other side, I think that 32 to 34% as we are driving for topline growth -- let's assume the 32 to 34% is a reasonable estimate of our sustainable gross margin.

For fiscal '08 we expect to be at the high-end of this range, as I said.

But the core thing that matters to us is that our current gross margin levels provide us with increased flexibility (inaudible).

It's a very highly competitive market.

If anyone ever thought that the markets in which we play are a piece of cake, they're not.

We can handle it, but we need to use all the levers we have and I'm very happy that we have this little cushion on the margin side to play the growth game.

Right.

And the last one, Mark, on the operating -- on your other income, it looked like you had something a little bit better or something in the other income other than an interest expense benefit or an income benefit.

Can you talk about that?

Yes, a couple things here, John.

One on the other income other expense line.

We had the gain on the sale of the Anoto shares.

We had a small gain of about $2.5 million from that standpoint.

So that's one of the things there that created a slight improvement year-over-year, not hugely material but something to call out.

Then as far as on the interest income, the other aspect to that, it's no surprise with the cash balance being up so high, plus we're getting a higher rate of return, that gave us a nice lift in the interest income as well.

So those are the two dynamics, John.

Gentlemen, thank you.

Michael Foeth, Bank Vontobel.

Good afternoon, gentlemen.

I have a few questions.

First of all, regarding the iPod peripherals markets, you note a decline and my question is, is that decline specific to Logitech or is the entire peripherals markets down?

And is it somehow related, do you believe, to the launch of the iPhone that's coming up?

That's the first question.

The second one would be regarding Harmony.

If I recollect correctly, in 2008 you will eventually have to pay some earnout for the Harmony acquisition.

Can you be more specific on how much cash outflow you expect on that?

And the third question is just a clarification, whether the market share loss in webcams, you said 10 to 15 points.

Was that basis points or percentage points?

Thanks.

I'll take the first and third question and I'll let Mark comment on the earnout from Harmony.

On the iPod market, we saw a softening of the market in general out there (inaudible) peripheral.

Is that long-term short-term?

Very hard to say.

Is this related to iPhone?

I don't think we have enough information to assume that.

I doubt it frankly.

But we feel that this could be one of those cycles that happens to this market.

In this particular case we do not have a posture of particular market development.

We participate.

We have great products, but they are a fraction of our audio sales and we hope to increase it but there's not so much on the radar as other things.

Your third point was?

The market share loss in webcams.

We started the cycle let's say a year ago.

We were at the peak of our marketshare which was around 60 to 65%.

We're now around 50 to 55%.

Okay, great.

Thanks.

And then the third point, just following up on what Guerrino was asked, in respect to the Harmony remote, Michael, you're absolutely correct.

You'll see that if you look on our balance sheet and the intangible assets you'll see an increase year on year substantially.

And that's basically we've accrued an estimate of $34 million for the earnout.

So we're just absolutely delighted with the Harmony, the full picture of the Harmony business and the purchase -- the original purchase price we had plus the earnout and you can see the size of the business and the capability.

So you're right to spot that, that's where you'll see it in the year-on-year compare at $34 million.

That is a preliminary estimate.

Without going into too much detail on how it's calculated, there are six quarters that have to be assessed before the final calculation is done.

But that's the minimum that would be there.

Great, thanks.

Just a last one if I may.

In the OEM business, is there any business related to Sony on the OEM side or is it only keyboards and desktops?

I believe and I can ask for help of the people in (inaudible).

I believe it's marginal at this point.

But that said, with the cycle of PS3 and other -- the opportunities for OEM in gaming do increase.

We do have some, to your point, small participation with Sony in the OEM side.

Tavis McCourt, Morgan Keegan.

Just a couple of quick follow-ups.

Guerrino, you mentioned expecting to get back to double-digit growth in webcams in the second half of the year.

I guess it's a pretty material difference if you're talking about getting back to double-digit growth on top of the Q3 number or the Q4 number.

Do you think there's a chance to get back to that level by Q3 or are you talking about double-digit growth on top of the Q4 number you just put up?

That's a very specific question for me.

Let me look at my ball here, crystal ball.

I believe that if you took Q3 and Q4 combined you can see double-digit growth over that.

Okay, that's helpful.

And then in terms of the marketshare commentary, year-over-year you obviously mentioned.

Do you think you guys were pretty flattish sequentially or do think you lost some more marketshare sequentially in webcams?

No, we did not.

We actually were flattish sequentially.

So what we did experience in November which was a bigger loss, we (inaudible) profit in December and we sustained it.

Great.

And then my real question relates to Harmony remotes, which I suspect are mostly in North America now.

Can you talk about kind of the timing or the strategy of launching those or getting that market more developed in EMEA and A-Pac?

Yes, let me talk about EMEA which is the biggest growth opportunity we have.

We have begun an approach to develop channel competencies for selling Harmony which do not exist as such and so have taken a little bit longer than in the U.S.

Let me give you an example.

One of the largest Harmony customers in the U.S.

is Best Buy.

Best Buy has a phenomenal business which is called the Geek Squad -- you're probably heard.

The Geek Squad is much of the way Best Buy makes its money and it's a group of people who come to your place and install and service everything.

Very well received by the American consumer.

This kind of capability is not as developed throughout Europe and therefore it's taking time.

So we are focusing towards not only the big box retailers in Europe, but also to more specialist AV retailers that they are the more natural Harmony channel.

So we expect to have substantial growth in Europe with Harmony moving forward.

And is there any product development that needs to happen for that or is it really just a distribution --?

No, it's a distribution and channel development.

The challenge is the product is actually available in multiple languages.

And you can buy it an Italian, German and French and many more languages now.

Thanks very much.

We'll take a last question.

Odon De Laporte, Cheuvreux.

Thank you very much for taking my question.

Most of my questions have already been asked, but I was wondering if you can suggest to me a more aggressive in prices on the webcam category given the fact that this category, of course very high in margin, don't you feel that it could affect margins in the second part of the current fiscal year?

Thank you.

There are many things that we will do with webcams and I can't and won't be more specific due to the competitive nature of the information.

But let me just make a comment on margins.

You've seen us post a substantial margin this quarter and the highest margin we've ever had in the Q4 in history, in memory.

And that's in spite of a 32% decline in webcam.

So the margin of the portfolio is quite healthy and I believe that even a smaller (inaudible) if any combined with growth would bring it to a substantially -- at least an equivalent margin level if not better.

So I would not particularly be worried about that.

Okay, thank you very much.

Thank you.

So let me close this call.

Thank you very much for attending today.

As I said at the beginning, this was a banner year for us.

We grew in the midteens.

We added more than $60 million to our net income.

Our margins are strong, our balance sheet has never been healthier.

Most importantly, we see the opportunity to continue this long-term growth path in the midteens in the foreseeable future thanks to the multiple drivers in the portfolio.

As the product categories go up and down quarter after quarter, over the years we have demonstrated a strong ability to develop markets and reaccelerate growth.

Just a few examples, we created the webcam category, we created cordless [net] for the PC, and we transformed a dormant remote control market to what it is today.

So I'm confident that this ability and our resolve will again play a significant role in the coming quarters and years.

With that, thank you for joining us today.

Have a good day.

This concludes today's Logitech fourth-quarter fiscal 2007 earnings conference call.

You may now disconnect.