羅技 (LOGI) 2011 Q1 法說會逐字稿

Good day and welcome to Logitech's first-quarter financial results conference call.

At this time all participants are in listen-only mode.

We will be conducting a question-and-answer session towards the end of this conference and instructions will follow at that time.

This call is being recorded for replay purposes and may not be reproduced in whole or in part without written authorization from Logitech.

I would now like to introduce your host for today's call, Mr.

Joe Greenhalgh, Vice President of Investor Relations and Corporate Treasurer at Logitech.

Please proceed.

Welcome to the Logitech conference call to discuss the Company's results for the first quarter ended June 30, 2010.

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 including forward-looking statements with respect to future operating results that are being made under the safe harbor of the Securities Litigation Reform Act of 1995.

The forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those anticipated in the statements.

Factors that could cause actual results to differ materially include those set forth in Logitech's annual report on Form 10-K dated May 27, 2010, and subsequent filings which are available online at the SEC Edgar database and in 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 represent management's 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 presentation slides accompanying this call are also available on our website.

Joining us today are Gerry Quindlen, President and Chief Executive Officer, and Erik Bardman, Senior Vice President of Finance and Chief Financial Officer.

I would now like to turn the call over to Gerry.

Thanks, Joe, and thanks to all of you for joining us today.

I will cover the highlights of the quarter now and that will be followed by a more detailed review of the financial results by Eric.

Then I will return to talk about our outlook for the year before we both take your questions.

I am extremely pleased with our strong start to our fiscal 2011.

Building on the momentum we established in the March quarter, we delivered sales, gross margin, and offering profit in Q1 that were higher than the outlook we shared at the beginning of the quarter.

Our sales grew by 47% year over year with strong double-digit growth in all retail regions, led by the Americas as well as an OEM.

We also experienced continued improvement in sell-through across EMEA, the Americas, and Asia Pacific with the strongest growth in EMEA and sell-through of our products exceeding our expectations in both the Americas and Asia Pacific.

Remotes is our fastest growing retail product category delivering an eight-fold improvement in sales year over year and pointing devices was our second-fastest growing retail category with growth of 46% led by strong demand for our cordless mice.

I continue to be pleased with the sales momentum we are building with our LifeSize business.

Sales were up sequentially and LifeSize products continue to receive an enthusiastic reception from companies who are looking for high quality, affordable, scalable solutions for HD video communication.

We delivered our best ever Q1 gross margin at 35.3%, a significant improvement from the 23.9% we posted in Q1 of fiscal 2010.

I was particularly pleased to see that the negative impact of the weaker euro on our business in EMEA was more than offset by our performance across our other regions as well as by our supply chain efficiency improvements.

And another highlight for the quarter was the May announcement of our central role in developing Google TV.

I am very excited about the opportunity for Logitech provided by this innovative, open platform that integrates television and Internet content seamlessly.

I will have much more to say on that subject later in the call.

Let me turn the call over to now to Erik.

Thanks, Gerry.

I will start with an overview of our Q1 sales performance.

Please note that the growth percentages that follow are in comparison to Q1 fiscal 2010.

Our retail sales in units grew by 39%.

Looking at our regional sales in local currency, EMEA was up by 31% and Asia by 22% compared to US dollar growth at 21% in EMEA and 24% in Asia.

Units were up by 33% in the Americas, by 42% in EMEA, and by 45% in Asia Pacific.

Our overall retail average selling price in Q1 was essentially unchanged from the prior year.

Sales of our products priced above $100 represented 15% of our retail sales in Q1, up from 12% in the prior year and essentially unchanged compared to the prior quarter.

As Gerry mentioned, the remotes category was our best performing product family in the quarter with sales over eight times higher than the prior year and units up by well over three times.

We delivered very strong growth in all regions led by the Americas.

The growth was driven by multiple products with the Harmony One leading the way followed by our recently launched Harmony 300, our lowest-priced remote at just $49.

Pointing devices was our second-fastest growing category with sales up by 46% and units by 60%.

The growth was achieved in all regions and was driven by our cordless mice with sales up by 57%.

We achieved triple digit sales and unit growth in both the high end and the low end of the major cordless mice price bands.

Sales in the high end benefited from the continued strength of our two high-performance MX offerings featuring Darkfield laser tracking for use on virtually any surface, while sales on the low end were led by two of our attractively priced wireless mice for notebooks, the M215 and the M305.

We were very pleased with our results in the keyboard and desktop category with sales up by 31% and double-digit growth in all regions.

The growth is driven entirely by our cordless offerings.

Cordless desktop sales were up by 50% with growth in both the high end and especially the low end of the cordless desktop category.

Sales of our cordless keyboards nearly tripled compared to the prior year.

Our sales in the video category were up by 10%, but units were up by 41%.

The significantly stronger unit growth primarily reflects the phase out of several older products as we made room in the channel for our new high-definition web cams that are just now beginning to hit the shelves.

We achieve sales and unit growth in video across all three of our regions.

Shifting now to OEM; we have delivered double-digit growth for the first time in seven quarters with sales up by 38% and units by 35%.

The growth was led primarily by our OEM mice with sales up by 22% and units by 27% as well as our microphones for console singing games.

Let me now shift to gross margin.

Our Q1 gross margin improved by 1,140 basis points compared to the prior year and declined by 50 basis points sequentially.

The year-over-year increase in our gross margin was achieved despite a substantially stronger US dollar and was driven by a number of factors, including favorable product mix shifts, operational efficiencies in our supply chain, and the contribution from LifeSize.

We achieved year-over-year gross margin gains in all retail product categories with the biggest improvements in remotes, which was also our fastest growing category.

Turning now to operating expenses.

Our operating expenses were up by 39%, but prior year's expenses do not include LifeSize which is the single largest driver of the year-over-year increase in Q1.

Excluding LifeSize our operating expenses grew at a double-digit rate but still slower than our growth in both sales and gross profit as we focus on steadily rebuilding operating leverage over time.

The increased spend reflects both the significant improvements in the operating environment over the last 12 months and our renewed emphasis on driving top-line growth.

We are investing in a number of areas and activities, including but not limited to Google TV, that ensure we are positioned to drive profitable, double-digit growth in the quarters to come.

Let me now comment on other income and income taxes.

Our other income was up by $1 million due primarily to the gain on the sale of one of our buildings.

Our income tax benefit for the quarter was $5.4 million giving us an effective tax rate of negative 38%.

This reflects the favorable impact of a discrete event related to audit settlements which resulted in a tax reserve release.

While discrete events occur nearly every quarter, we don't expect anything of a similar magnitude during the remainder of the fiscal year and have lowered our tax rate outlook accordingly.

Let's move to the balance sheet now starting with cash.

Our quarter-ending cash position was $317 million.

Our cash was essentially unchanged from the December quarter, down by $3 million and down by $250 million compared to the prior year.

When looking at the decline in our cash compared to the prior year, it's important to note that we used $382 million for the acquisition of LifeSize in December 2009 and another $126 million for share repurchases during the last 12 months.

Our cash flow from operations for Q1 were $6 million, a decrease of $69 million compared to the same quarter last year.

The primary driver of the year-over-year decline was the sequential investment in inventory and receivables this Q1 which reflects a significantly improved operating environment compared to sequential reductions that we saw in Q1 of the prior year.

Our cash conversion cycle in Q1 was 29 days, a record low for Q1, which represents a 29-day reduction compared to the same quarter last year and a six-day sequential increase.

The improvement compared to the prior year was due to higher days payable, lower DSO, and faster inventory turns than in the prior year.

Our inventory increased by $44 million or 19% compared to the prior year and was up by $60 million compared to the March quarter.

The year-over-year and sequential increase reflect the improved demand environment as we build inventory in support of our targeted double-digit sales growth in the remainder of the fiscal year.

Inventory turns were 4.4, up from 4.2 in the prior year.

Our DSO was 40 days, down by seven days compared to the prior year.

The year-over-year improvement was driven by several factors including excellent execution by our cash collections teams and increased order and shipment linearity due to improved visibility in the channel.

We did not repurchase any shares during Q1.

We own approximately 8.6% of our shares outstanding.

We do have a $250 million Board-approved program that we have not yet utilized.

Before concluding my comments I want to mention that our next analyst and investor day is scheduled for November 9 in New York.

We hope you will be able to join us.

That concludes my comments.

Let me now turn the call back to Gerry.

Thanks, Erik.

I want to comment now on our outlook going forward.

With our strong Q1 results we have built on the momentum we established in the March quarter.

Our focus for the remainder of fiscal 2011 is to continue delivering strong top-line and profitability growth, and there are a variety of positive indicators that give us confidence we will succeed.

The first of these is the improved consumer demand environment for our products.

Now we recognize that consumer confidence is still relatively fragile in EMEA and the Americas, but the signs we see in our business are largely positive.

Sell-through improved sequentially in all our key markets in Q1 and we expect it to remain stable as a minimum or to improve further as we progress through the year.

One of the most notable improvements we saw in Q1 was in our business in emerging markets across Europe, Asia, and Latin America.

As you may recall, during the downturn our sales in emerging markets were hit particularly hard due to a weak demand environment and limited access to credit for our distributors.

We are now seeing steady and broad-based rebounds in these markets as consumer demand returns and access to credit has begun to ease.

This is a key component of our improved sales outlook and we are looking forward to strong contributions going forward.

Given our strategic emphasis in China, I want to note that we had a very good quarter for both sales and sell-through in China driven by excellent results from several products that we designed specifically for the Chinese market.

We are very pleased with the momentum we are building in China as we progress towards ultimately making China one of our three largest markets.

Another positive indicator is the accelerating momentum of our LifeSize business.

We are encouraged by the growth of our sales and the growth we see in the overall market for video communications.

We will expand our LifeSize portfolio of products and services in the coming months with additional disruptive price-performance offerings designed to make video communication easy and accessible to anyone, anywhere with the biggest opportunities being in the SMB and small enterprise space.

One additional positive indicator, which is true every year at this time but is nonetheless very important to keep in mind, is that we are entering the peak period for our new product launches.

We are very excited about this year's product roadmap and are very pleased with the feedback that we have received from our channel partners thus far.

You can expect to see new offerings on the shelves across all of our categories and we expect these products to make a significant contribution to achieving our sales and profitability goals in fiscal 2011.

That brings me to our financial outlook.

Based on our strong Q1 performance and improving consumer demand for our products, we are increasingly optimistic about our full-year performance for fiscal 2011 and we have raised our outlook accordingly.

For fiscal year 2011 we have raised our sales outlook from the previous outlook of approximately $2.3 billion to the new range of $2.3 billion to $2.35 billion.

We have increased the target for operating income from the prior outlook of approximately $156 million to a new range of $160 million to $170 million, and we now expect gross margin to fall in the range of 34% to 35% compared to our prior outlook of 34%.

Finally, the tax rate, formerly expected to be approximately 18%, is now expected to be approximately 16%.

Let me shift now to the Google TV opportunity which represents further potential upside to the increased sales outlook that I just shared with you.

We are very excited about our role as a core enabler of Google TV and the opportunity to bring this open platform to market with the initial focus on the 60 million US homes with HDTV.

Our initial product offering, Logitech Revue, is a companion box that will incorporate our Harmony remote control technology and will include a controller that combines keyboard and remote control capabilities.

We also will introduce an HDTV camera and video chat for a Google TV along with additional choices for navigation and control.

There will also be apps from Logitech, including one to turn a smartphone into an advanced controller for Google TV and home entertainment systems.

We aren't ready to provide specifics on pricing or channel strategy just yet, but we plan to share more details very soon as we approach the expected fall 2010 launch.

I want to emphasize that we are taking a long-term view of this exciting new growth opportunity.

We believe the Google TV platform has the potential to provide us with yet another sizable and growing installed base and generate incremental sales over an extended period of time.

Therefore, we are very committed to driving a successful launch and a strong adoption rate for this new platform.

With that in mind, we plan to invest the gross profit we generate from sales of our Google TV products this fiscal year in consumer-focused marketing activities that we expect to create additional awareness and which should ultimately lead to future sales.

As a result, we expect the sales of our products for Google TV will be additive to the top line but operating income neutral in fiscal 2011 as we focus on building the foundation to make us a long-term source of profitable growth.

I want to wrap up by saying that I am very pleased by our performance in Q1.

We entered the second quarter with strong momentum, focused on sustaining double-digit growth in our core business while simultaneously developing the LifeSize and Google TV opportunities.

I am encouraged by the many positive signals that we have seen in our business, and I am confident that we are well positioned to achieve our improved financial outlook for fiscal 2011.

With that, Erik and I are now available to take your questions.

Please follow the instructions of the operator.

(Operator Instructions) Jonathan Tseng, Merrill Lynch.

Hey, guys.

Three questions today.

One just on what you are seeing in terms of the retail channel.

Sell-through is low, (inaudible) than selling growth especially in Americas.

Has there been any kind of inventory build up, what is your view on that?

That one first probably.

Yes, Johnny, appreciate your question.

So to talk a little bit about the retail channel specifically in the Americas, very similar to last quarter you are seeing in Q1 here where we had sale and growth of about 66% for the Americas and our sell-through growth was about 17%.

As we have talked about, one of the biggest factors you need to look at is the year-ago period.

When you look at the year-ago period when we had a dramatic slowdown in sell-in, [which was] key to the recession, much more so than the slowdown in sell-through, is what you are seeing when you compare those year-over-year growth rates you get a bit of an anomaly.

As we talked about last quarter, we fully anticipate that both for Q1 and for Q2 we can continue to see that to be out of line in terms of the year-over-year growth rates.

But I think the important thing to look at is when you look at within the quarter, and that is how we are viewing it, we are very focused on the volume.

So this is the number of units in the Americas, for example, that we are selling into the channel and then at what point do we sell that through the channel.

Right now in all three of our regions we feel very comfortable with the balance that we are seeing between sell-in and sell-through.

So we haven't seen a fundamental restocking, particularly in the Americas.

It's more in terms of how you look at those growth rates in the year-prior period.

Thanks.

Second question just on the FX and the gross margin.

Now in the past you have said that when the FX rate moves suddenly that is when your gross margins could be impacted because the global repricing doesn't come through as quickly, and that clearly didn't happen in this quarter.

You have cited underlying improvements.

Was there any delayed impact by hedging; is there anything more to come through?

Or is it simply you did so much better on the underlying efficiencies to balance it out?

I think it's really a couple of things.

First and foremost is that we were hurt by FX within the quarter in terms of gross margin with the weakening of the euro versus the dollar, right.

And that is consistent with what we have talked about in the past.

What I would say though is we had a very strong performance in the quarter in terms of our product mix shift.

So we did better in terms of our product mix both within and between product categories.

That, plus the contribution from LifeSize, as well as achieving efficiencies in our supply chain all helped us overcome.

But the most important thing was we are very pleased with the product mix within the quarter.

Thanks.

And just one last question --

John, this is Gerry.

I would say it was product mix and the contribution of LifeSize.

So as Erik said, we definitely experienced headwinds from the weakening euro but we were able to overcome them because of the strong performance on -- particularly product mix was strong.

We sold a lot of mice and LifeSize was gaining traction, and that definitely helped us.

Thanks.

One last question is probably a rehash of what I asked last quarter.

Look, you are still ballparking the 2007 revenue run rate but you are not getting anywhere near the 2007 EBIT run rate.

Gerry, last quarter you talked about how the leverage just takes longer to build through.

You are kind of putting the muscle back on the business after last year.

With the higher guidance and the higher EBIT outlook has anything changed in terms of how soon you can see that leverage coming through in the business or is it still the same old we got to wait and see probably for another year or so?

Well, I will have to go back to some things -- thanks for your question.

I will have to go back to a couple of things we talked about last quarter.

We are coming off just a -- I am very pleased with Q1 but we are coming off of just the second quarter in the last seven where we saw sales growth.

I definitely feel like we are heading in the right direction.

If you look at -- our OpEx growth was slower than both revenue and gross profit, so we are starting to rebuild operating leverage as we said.

And if you look at the higher end of the new revised guidance we are now saying that our operating margin will improve by more than 300 basis points for the year; big improvement but still a long way to go.

We are moving in the right direction.

I have to balance that with the fact that we have these fantastic, very exciting growth opportunities that we are committed to.

We are going to invest in those to build future revenues streams at the Company, the things that will take us to $3 billion and $5 billion.

So we are going to continue to balance the investments with continuous steady improvement in operating margin.

So we are not going to give a timeframe at this point, Johnny, but I like the direction we are moving in and I definitely see us marching back towards double-digit operating margins.

That is great.

Thanks very much.

Simon Schafer, Goldman Sachs.

Thanks very much.

Thanks for the question.

My first thing on Google TV, very good news, but I was interested as to what you thought of a second product category and that is iPad or tablet or similar devices.

We heard relatively little on that from Logitech in the last few months.

I was wondering what you thought that trend meant for you in terms adoption for peripherals.

Thank you.

Thanks for your question, Simon.

Well, our view of iPad and tablets in general is that we believe it's additive to the category.

It's definitely a different consumer experience and initially we are studying how consumers are using them.

I think it's primarily a media consumption device, but we see it as additive to the category and therefore it represents a net new opportunity.

Now the attach and the peripherals is probably going to be a different set of peripherals than what we typically do with notebooks and even netbooks.

But still we see it as a net incremental opportunity for the category.

And also, if you look at things like OEM sales, our OEM sales more closely align to the general demand for more traditional PCs, desktops and notebooks.

And our OEM sales are very strong each quarter.

So our view of the tablets in general is that they are going to represent a new opportunity for us and we have it factored in to our future roadmaps.

What happens if this product category turns out to be significantly cannibalistic rather than just additive to existing?

Well, you know, it's speculative.

It's impossible to say.

I have to remind everyone that if you look at the installed base of PCs on a global basis, and I am quoting the Gartners and the IDCs of the world who are the experts in this thing, the installed base is more than one billion units.

And their forecast, including tablets, is that there will be more than 350 million PCs of all form factors sold this year -- desktops, notebooks, netbooks, and tabloids -- and tablets represent a very, very small piece of that.

So the installed base is enormous and it continues to grow at a very healthy clip.

I still believe that -- all the evidence we see says that tablets will be a very small piece of it initially.

Even if it grows over time, the installed base for more traditional form factor PCs is still gigantic and that is our core opportunity.

Got it, thank you.

My second question would be, and you talked a little bit about it in your remarks, about incremental growth in emerging markets, specifically China.

Of course, there were -- there is sort of two big pillars that I think you talked about at your investor day last year of incremental growth from here.

One is China, as you said, and then the other one is mass merchandise.

Both of those opportunities, now that they are growing somewhat larger as a percentage of your mix, what is your observation and experience in terms of margin?

Is that similar to the margin that you were capable of getting under a very high level of conspicuous consumption type spend that we were seeing last cycle?

Is that similar?

Yes, I mean, China has always been a good market for us.

Meaning -- by good market I mean healthy growth rates, attractive margin structure, and obviously a huge potential just because of the number of users there.

And so as we talk about investing in China we don't look at that as it's going to be highly dilutive to the Company from a profitability standpoint.

From a mass merchant standpoint we have been selling to mass merchants, particularly in the US, for a long, long time and we are very pleased with the business we have there.

Meaning again growth rate, profit structure, etc.

So I think we see opportunities for mass merchants as they move to other parts of the world.

The mass merchant format is growing, or what is typically called large-format retail, is growing in other parts of the world like China.

To us that is a good thing because we do very, very well there.

If large-format retail becomes the main way that product are sold in China as opposed to the way they are sold today through these more open air bazaars, then I think that is a good thing for us.

Got it.

Thanks so much.

Yair Reiner, Oppenheimer & Co.

Thank you.

Just first a quick call follow-up on the sell-through question.

So can I understand from your comments that it will be around fiscal third quarter when you expect sell-in to be more in line with sell-through?

Yes, I think -- Yair, to give you that sense it is our estimate right now, so it would be more in the second half of the fiscal year so starting in Q3, that you will see that be more aligned in terms of the year-over-year growth rate.

In terms of percentages.

Let's be crystal clear, they are aligned now in terms of volume.

What we are trying to say is that we have had the comps distort the percentages.

We are not seeing restocking, okay, so what Erik is trying to say is in the third the percentages are more likely to move together.

They are more likely to be similar.

But I do not want people to think that there is restocking going on, because there is not; we do not see it.

Our retailers are not pushing for it and neither are we.

Got it.

Thank you.

On Google, the strategy of reinvesting gross profit in marketing is that at your discretion or is that part of the agreement that you have with the other parties involved?

The other question on Google is what is the strategy for monetizing a future app that would run on smartphones?

Yes, so relative to your first question, no, that is at our discretion.

What it reflects, frankly, is our optimism and our confidence that this is a great opportunity and it reflects very long-term thinking.

We see this as something -- we are trying to establish a new installed base that we will innovate off of, much as we have done around the PC for 20-plus years.

And we are just getting started so it's in our interest to get that platform proliferated as quickly and as broadly as possible.

And so we want to build awareness.

There is a lot of buzz about the product and we want to build on that so it reflects a long-term philosophy.

I am not going to share our specific strategy on how to monetize the apps, but as we shared we will have apps at launch.

We have several other really, really creative, exciting things in the works and you will be hearing more about them over time.

So I will leave it at that.

Great.

And then one final one if I could.

Gaming, is there any -- on the OEM side are there any programs that you think could kick in in the second half of this year that has obviously been one of the headwinds for you for quite a while now?

Did you ask specifically about OEM gaming?

Yes.

Well, you know, we still have a little bit of microphone sales we had from this quarter.

I would say they are more vestiges of the things we have done in the past.

We are not actively out there pursuing that.

The real strength in our OEM business -- and this is what pleased me so much -- it really came from the core, it was mice, and it reflects a pickup in underlying PC demand.

I think the real opportunity for gaming for us going forward is going to be, continuing to be around PC for sure.

And, frankly, I think the emerging gaming opportunity with Google TV.

We think there will be a lot of interest in flash-based games, will be a lot of opportunity for us with peripherals around that.

To be clear, that is not FY11; that is really more long term.

But that is part of the reason we are so excited about the platform.

Thanks and congrats on the results.

Thank you.

Ashish Sinha, Morgan Stanley.

Just a couple of questions if I may.

First, on marketing expenses, traditionally Q1 over Q4 seasonality you have marketing expenses going down 7% but this time around they were up 2% sequentially.

You did mention that you are investing in terms of your future growth in marketing here, but just wanted to get a sense of what should the right run rate be.

Well, I think to give you a little bit of a sense about, Ashish, in terms of how we are looking at where we are investing, I think philosophy-wise what you are going to see from us, and Gerry has talked about it before and you will hear a lot more about it from us going forward as well, is we are very focused on investing in the variable side in driving demand generation in things that are going to drive the top line of the business.

I think we are very pleased with the results we saw in Q1.

And as you see in the numbers as well, we are investing appropriately.

We are being very judicious though in terms of how we think about it.

It is focused on the variable side.

We are trying to be very cautious about anything we add to the fixed spending base for the business.

So you will see it as it develops over the course of the year, but to give you a little bit of sense of where we are today and how we think about it.

Okay.

Moving quickly on to the companion box.

You talked about integrating remote technology controller and HDTV camera and you talked about it as an additive opportunity for your top line, but I am trying to think here wouldn't that in any way try and cannibalize some of your individual product segments?

I don't think so.

We see it as mostly additive.

Is there the possibility for some amount of cannibalization?

Sure, but I don't know.

This is a whole new opportunity, a whole new ecosystem in our mind and I think -- and, frankly, the experience on the large screen, the largest screen in your home is going to be very different and very exciting and very rich for people.

And so we think it's going to be very, very different.

I am not going to say 100%, 100% incremental.

The thing that excites us the most, Ashish, is this has the opportunity to become another huge installed base that we then innovate off of like we have done around the PC for decades.

And so we think it's mostly additive.

Okay, got you.

My last question is the benefit of the [touch] opportunity around Apple products.

If you look at some of the products and their focus area, their focus has been on touch with the launch of the Magic Trackpad, the Magic Mouse, etc., etc.

We haven't seen anything similar in terms of touch technology for you guys and given the fact that Apple's installed base is growing quite fast is this going to be a focus area for you?

Should we expect any kind of an update from you from this side or do you think Apple is not going to be such an attractive opportunity for you in terms of peripherals?

Well, couple things.

First of all, it's important to remember that we have a lot of peripherals that we sell at Apple stores and we have a lot of products that are Mac specific.

Let me talk about the Magic Mouse, which has been in the market for a little while now.

The Magic Mouse and the so-called touch technology that it incorporates; we introduced the touch mouse a good two years before the Magic Mouse and we still have some mice out there with touch technology.

But we deemphasized it because what we found was that consumers did not like that approach as much as what we had been doing in the past with what we call the precision scroll wheel.

So the touch technology and the Magic Mouse was not new technology; we actually brought it to market before Apple and anybody else, and so we don't see it as some big threat to our mouse franchise.

Then there is new products coming out all the time like the Magic Trackpad which just came out in the past week.

The first thing that I saw from it, I have not actually seen the product, but the first reviews I saw, for example, in PC World talked about the fact that here is why it's not going to kill the mouse.

The reviewer I remember he said, his very first thing was something like after using the trackpad for a while my finger started to get tired and I yearned for a mouse.

So the mouse is a very comfortable, ergonomic experience for consumers.

They are used to it.

You look at our sales over the last three quarters they have been very, very strong and we don't see that there is any particular threat to that.

Got you.

Thank you, guys.

Andy Hargreaves, Pacific Crest.

First just another follow-up on the Google TV.

I am a little bit curious because it seems like there is going to be quite a bit of marketing just in general around that product line, so what drove the decision to reinvest profit dollars in marketing rather than just price aggressively during the window of exclusivity that you will have here?

Well, you know, we haven't said anything about what the pricing is going to be and we won't until we get closer to the launch.

But, Andy, the philosophy -- I will just repeat what I said to an earlier questioner -- we are taking a very long-term view of this.

We are trying to build a new, very large installed base that we will innovate off of for many, many years to come.

We think the key to doing that is to build awareness and that takes some investment.

And so that is our approach.

Okay.

It looks like that sell-through, although very good and certainly sell-in was exceptionally good, but it looks like the sell-through was tracking a little bit below PC growth rates.

Do you think that attach rates are falling or is that just some kind of anomaly?

I missed the last part.

What did you say, is something falling?

Is it attach rates that are falling on PCs or is it just some kind of anomaly of the numbers?

We were very happy you with the sell-through growth rate we had.

We had strong double-digit sell-through growth rate in all three regions and then, of course as we have mentioned several times, very, very strong quarter OEM.

Even if you take out the gaming impact in OEM, the mice sales, for example, which tracked very, very closely to PC sales, grew very, very nicely.

So we are looking across the board at those numbers and we feel very, very good about them.

We are not seeing anything that concerns us in terms of attach rates dropping off.

Okay.

And then just the last question on the tax rate.

That 16% guide that is for the full year, correct, not for the forward quarters?

Correct, that is for the full year.

Okay.

And that implies a higher tax rate going forward.

Is that what we should expect for fiscal 2011 or will we be around that 16% kind of on a go-forward basis?

I think the best way to think about is -- and you have seen it even with this given quarter -- where we have discrete events every quarter.

We have been very specific to say, though, that we don't anticipate any discrete event of the same size and magnitude that we saw in Q1 over the rest of the year, so hence we lowered the full-year guidance.

Individual quarters will be up and down.

I think the best way to think about it is just the full-year rate at 16%.

And then as we get towards the end this year and we start to think about next year's we will give you guidance in terms of how that would look.

Okay, appreciate it.

Nicolas von Stackelberg, Macquarie.

Congratulations on the quarter.

I was wondering whether you could give us a little more granularity on what is happening in Europe.

Maybe you could talk about trends by country and also by product, how did you do in Europe?

Nicolas, I think I would point to several things.

We had the highest growth rate in sell-through in Europe of the three regions, and I think because of the weaker euro it's important to look at the underlying growth rate in Europe.

In local currency terms it was about 31% in terms of sell-in, so we are pleased with it.

One of the other things that I mentioned in my remarks is that emerging markets, let's say Eastern Europe, which has been very muted for the past several quarters because of the double whammy that I referred to earlier, both weak demand and tight credit, we are starting to see signs of a rebound in emerging markets.

Not only Europe but also Latin America and Asia.

So we are starting to see the emerging markets come back to life, which is a great sign.

But I'll also balance that and repeat something that was in my remarks which is we are very mindful of the fact that as I would characterize it, consumer confidence in some of the larger markets and I would say consumer confidence in general, it's still pretty fragile.

There is a lot of mixed signals out there.

And what I am pleased with is I see very positive signs in our business, not only in Europe but elsewhere, and we are confident that we can deliver this revised outlook even if consumer confidence and consumer sentiment stays where it is.

We are not banking on a material improvement in consumer sentiment.

If consumer sentiment improves in Europe and elsewhere, that is additional upside.

This is not predicated on that happening.

This is based on the current conditions we see in Europe and elsewhere.

One more on LifeSize if I may.

You've given us two important distribution agreements.

Maybe you can tell us when you see those kicking in or whether they have already had some impact, and maybe also whether this ash cloud in Europe had any impact in terms of your marketing activities?

Thank you.

Well, on the volcano I will tell you that there was an awful lot of interest in video communication in the wake of that.

We were even pleasantly surprised by it.

We have heard other players in the industry say similar things.

What it does is I think it just reinforces, it creates awareness of the difficulties of travel and the benefits of video communication.

The first part I didn't quite get.

You were asking about distribution agreements?

Well, if I recall, you announced a partnership with Avaya, for one?

Yes.

And there was a second one which escapes my attention just now.

We are not saying anything more about those at this point beyond what we've said that you are referring to, but those agreements represent additional opportunities.

You may be referring to -- we have a partnership that we announced with LG Electronics to sell a new product called the all-in-one executive.

Basically this is a format where, simply put, the screen and the kodak are integrated in one.

It's a segment that LifeSize really hasn't participated in up till now and it represents about 10% of all endpoints.

So it's one of the many reasons we believe we will continue to see nice momentum build in LifeSize is we have new products that are moving us into segments we didn't participate in before, so I think you may be referring to that.

And that product is really just getting out there.

Thank you.

Tom Kucera, Avondale Partners.

Thank you.

This is Tom Kucera for John Bright.

First thing I actually just wanted to touch on, tablets were mentioned before and I know you guys talked a little about smartphones back on your investor day in terms of investigating a strategy there.

Just wondering if you have any update on how you guys view smartphones?

Good morning, Tom, and thanks for your question.

What we shared at the investor day, just to remind everyone, is that one of the core tenets, the first tenet of the four tenets we shared with everyone in New York last November, is what we call managing the transition of the rich content of the Web from a single screen, the PC in all its form factors to -- including tablet, to three additional screens.

The smartphone screen being one of them, the connected TV, and now you understand more about our strategy there with Google TV, and then the meeting room screen.

Of course LifeSize is the centerpiece of that.

As a reminder, we already have plays around the smartphone screen with our iPod docks and our Ultimate Ears line of earphones and those are growing very nicely.

We are investigating a lot of new opportunities around the smartphone screen.

We are not ready to share anything here today but I think you can expect that at investor day in November we will be updating you on our strategy -- not only the four screens but progress in China and riding the video wave and everything.

So I will leave it till that.

Thank you.

And then going to the OEM category and really wanted to highlight this some more.

It looks like just an unusually strong quarter, kind of contradicted the usual seasonal pattern that it was up sequentially.

You mentioned underlying PC demand helping drive mice, but I am wondering is there anything going on there in terms of were there any one-time events that helped drive that or was there any kind of change in strategy that help propel that category?

No, more than anything else what I would say, and just to reiterate what I said to an earlier questioner, there was some benefit in the OEM sales from some additional microphone sales.

I would call them vestiges of the earlier agreements we had that were mostly in 2009 and 2010 numbers.

But primarily the driver of our OEM sales was mice sales and mice is highly correlated to the sales of new PCs and that is a very positive indicator.

I think that there has been a lot of pent-up demand with the downturn.

We are starting to see the impact of the new refresh cycle enterprise and we are starting to see the impact of Windows 7, the impact has been cumulatively building.

And so I think that has been pent up and we are starting to see it grow, and I think that was the main driver.

Got it.

Last thing I wanted to touch on was Google TV just in terms of looking forward what is your sense of how the competition is going to evolve on that?

Obviously you guys have sort of this exclusivity near term.

And also really what is the potential for differentiation of dedicated boxes there given you are going to have Google software on it?

Well, the most important thing I would say about the box -- let me just make sure that everyone understands.

The way we plan to monetize this opportunity is much like we have done around the PC and that is to sell peripherals.

We expect those peripherals to be as profitable as our core peripherals around the PC over time.

However, it's strategically critical that we get the platform out there.

It's a new platform and it's a standard platform, which is so critical to us; that is why we talk about the importance of open ecosystem.

And so we may not be in the box business in the future.

We haven't made that strategic decision at this point.

What we are trying to do is we want to see the box out there, the companion box is what I am referring to, so that a standard consumer experience is established in the marketplace.

And so we have a vested interest to see that happen.

Over time I expect other people to come in and make boxes, and that is fine with us.

The key is to get the platform out there, to have consumers have a great experience so they are excited, they want Google TV, and then they will want the peripherals.

They will want to do video calling.

They will want -- they will need to be able to do inputting and navigation, and that is where we come in.

Then gaming represents a big opportunity on top of that and there is a whole bunch of new things that we don't do around the PC that we see opportunities to do around the connected TV.

So from a box standpoint I expect other box makers to be there after time and we want that.

We want to see that because that is how we will get the platform proliferated.

Thank you.

Thank you, Tom.

(Operator Instructions) Beat Keiser, Cheuvreux.

Just one question from my side here.

I am a bit puzzled with regards to the guidance because (inaudible) you had better-than-expected sell-through in all regions in the first quarter and also better than in Q4 and I only see very limited incremental operate on the top line.

You also mentioned before that you expect sell-through to remain at least stable in the remaining three quarters.

If you maybe could provide some more clarity on that please.

Yes, what I would say is we think that in a world with a lot of mixed signals we have shown a very bullish view because we see very positive signs in our business.

Let me reiterate again, building off a question from an earlier questioner, we are not basing the revised guidance on a material improvement in consumer sentiment and macroeconomic conditions.

If that happens there is additional upside, but we don't know.

There is too many mixed signals out there.

We are not going to bake it in at this point.

It's too early to tell on that.

So we believe that that -- we are very confident in our ability to deliver this revised outlook even if conditions do not improve from the, I will call it, mixed state that they are in right now.

And then Google TV represents additional sales upside to the revised guidance we just shared.

Okay.

Okay?

Thanks.

Thank you.

Tim Shaw, Citi.

Follow-up on LifeSize, if I may.

You previously guided when you acquired LifeSize that calendar year 2010 revenues would grow at 40% to 60% year on year off a $90 million base.

Just looking at the first half of 2010 you are sort of running at a $48 million worth.

It kind of implies quite a big uptick in the second half and the customer base doesn't really strike me as having that sort of seasonality.

So is there any sort of update on the guidance there?

Well, we are still very comfortable, Tim, with delivering 40% to 60% growth.

After the first couple of quarters -- this is the second full quarter of LifeSize being part of Logitech, the traction that we are seeing is terrific.

There is a number of things that I see that give me confidence that they are going to continue to build momentum.

One is they are continuing to broaden their product portfolio.

To an earlier questioner's comment, we are moving into new segments that we weren't in before like the segment for the all-in-one with the LG partnership.

We are also seeing that the video communications market is growing even a little better than our expectations, which is a very positive sign.

We are seeing enterprise spending start to improve, things like that are helping.

We see that they are gaining endpoint market share and most importantly they are building strong momentum.

So bottom line I am still very, very comfortable in the 40% to 60% growth.

Okay.

Are you seeing any sort of initial benefits now of having that additional channel to the enterprise markets through your peripherals business?

Yes, we see that, Tim, more as a long-term opportunity.

It's not our first priority.

Our first priority is really about growing LifeSize in the video communications space.

But to your question, I do see that that represents -- that is a long-term benefit to us or a long-term opportunity, I should say, to us is to leverage their footprint for perhaps to sell more of our traditional products.

So it's not our main focus.

Our main focus is just growing LifeSize's video communication business, but yes do think that is a long-term upside.

Okay.

And just one quick housekeeping question, I can't remember if this has been addressed before.

But Google TV any sort of revenues from that where will they be recognized?

Is that something that goes into the remotes category or is it going to be split out separately?

That is actually, Tim, that we will be determining down the line and so as we get closer to launch we will be dimensionalizing that and talking to you about it.

Okay.

Thanks, guys.

Thanks, Tim.

Tavis McCourt, Morgan Keegan.

Hi, guys.

This is Matt McKee on behalf of Tavis.

Thanks for taking my call.

Apologize if you have already gone over this, got disconnected briefly, but can you speak a little bit about your plans for further share repurchases going forward?

Matt, happy to take your question.

A couple of things, as you know we have a Board-approved program for $250 million so we have that in place.

But to give you a sense in terms of how we approach this from an investment standpoint is we have got three main things that we are always thinking about -- investing in the business to drive growth and you saw that in Q1.

You saw that in terms of the things we are talking about, what we want to grow to towards the long-term.

Then also we are always going to continue to invest in share buybacks and into acquisitions.

We will be opportunistic as the environment presents itself and we look at all of our opportunities, so no change in terms of philosophy, in terms of how we approach it.

What you saw in Q1 is our first priority was investing in the business given the great growth that we are seeing and the momentum that we are building for the rest of the year.

Great, and one more thing.

Not sure if you mentioned it, but the sell-through versus sell-in by region?

We did talk about it.

I think there was -- dimensionalized I think there were one or two callers had asked the question specifically in the Americas where you saw sell-in rates of about 66% and our sell-through was 17%.

Consistent with what we talked about last quarter is what you are really seeing is when you look at those year-over-year growth rates you are seeing a bit of an anomaly because of the year prior period when we saw a much more dramatic slowdown in our sell-in versus our sell-through.

But one of the key things that we have tried to make clear for everybody is we have not seen any fundamental restocking in the business.

We are not seeing it, our channel partners aren't looking to do it, and we are both very comfortable that we have got a very healthy level of inventory in the channel and we are where we want to be.

But that is a little bit of what we shared previously on the call.

Thanks a lot.

That concludes our conference call for today.

You may all now disconnect.

Thank you.

Have a wonderful day.