羅技 (LOGI) 2012 Q1 法說會逐字稿

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

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

We will be conducting the question-and-answer session 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 like to introduce your host for today's call, Mr.

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

Welcome to the Logitech conference call to discuss the Company's results for the first quarter ended June 30, 2011.

The Press Release, our prepared remarks and slides, and the live webcast of this call are available online at logitech.com.

As noted in our Press Release, we had publisher our prepared remarks on our website in advance of this call.

Those remarks are intended to serve in place of extended formal comments and will not repeat them on this call.

During the course of this we may make 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, 2011, which is available online in the SEC Edgar database and in the final paragraphs of the press release and prepared remarks reported first quarter results available at logitech.com.

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 the result of new developments or otherwise.

This call is being recorded and will be available for replay on the Logitech website.

Joining us today is Guerrino De Luca, Chairman and Acting President and Chief Executive Officer; and Erik Bardman, Senior Vice President of Finance chief financial officer.

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

Thank you, Joe, and thank you for all of us joining us today.

You've seen the news that our Board and Jerry Quinlan have agreed that Jerry would step down from his position as President and CEO.

I will remain the Chairman of Logitech and will be acting in the President and CEO role until a replacement is found.

I thank Jerry for his many contributions to Logitech and I wish him the best in his future endeavors.

We expect to fill the CEO position externally and have already begun search.

In roughly 3.5 years since I moved from CEO to Chairman, much has changed in the world and in Logitech during that time.

As demonstrated by the reduction in our market value as well as our latest financial results, we need to significantly improve our performance.

We need to attack the market challenges we face with a greater sense of urgency and we need to restore the confidence in Logitech among all of our stakeholders.

I resume my former job as CEO on an acting basis, with an unwavering commitment to Logitech and strong confidence in the Company's future and growth potential.

My comments today will focus on 3 key strategic areas.

Digital home, PC peripherals and the B2B opportunity.

Let me begin with the Digital Home, specifically with the repricing of Logitech's Revue, or GoogleTV.

We launched Revue with the expectation that it would generate significant sales growth in spite of a relatively high price point and the newness of both the Smart TV category and the underlying platform.

In hindsight, there are a number of things we should have done differently, but let me be clear on one point.

Engaging with Google was the right thing to do.

It allows us to build a strong relationship with a technology leader, which promises to bear more fruit down the road, and to develop a thorough understanding of the emerging smart TV market.

Looking at $249 price points for Logitech Revue, it was clear to me that there was a significant gap between our price and the value perceived by the consumer.

I felt it was critical that we eliminate the gap by lowering the price and making it easier for the consumer to focus on what I believe is an attractive value proposition.

We obviously paid a significant price for this decision.

But I am convinced this action will accelerate sales of Revue and allow us to move forward.

Our commitment to an enthusiasm for the digital home opportunity is unchanged.

We plan to participate in a variety of ways using harmony as the centerpiece of our strategy and focusing on smart TV, audio, and video products and solutions.

We continue to believe that the digital home represents a strong growth opportunity for Logitech.

Moving onto PC peripherals, the decline of the PC platform is seen by many as being the main cause of Logitech's recent struggles and poor future prospects.

While there may some validity here, I'm convinced that the analysis is misconceived.

The assumption seems to be that the growth opportunity around the PC have come to the end.

Yet, consumers are still buying great products, and the PC in it's many incarnations is far from dead.

The usage model for PC Peripherals has certainly changed.

Ability and lifestyle design has become increasingly important.

The growth opportunity also varies significantly between product categories and between markets.

We will continue to align our resources and prioritize our investments in line with the most promising opportunities, witness our focus on iPad peripherals.

For those categories and markets with limited growth products, we will scale back our spending and maximize our return.

Where we see high growth potential, such as an emerging markets like China or Russia, we will invest to take full advantage of the opportunity.

One of the best indicators I have seen of the ongoing growth potential around the PC is our performance in pointing devices and keyboards across all markets.

We have delivered year-over-year growth in our pointing devices sales in 6 of the last 7 quarters, and year-over-year growth in our keyboard and desktop sales for the last 5 quarters.

All this was achieved during a time o f relatively weak macroeconomic conditions, tepid consumer sales and the exploding popularity of the iPad.

We will increasingly differentiate our approach to PC peripherals category at market, but we are convinced that there is still growth to be had here, with great products that meet the needs of today's consumer.

And that brings me to the B2B opportunity.

When I joined Logitech as CEO in February of 1998, I believed that the Company had a substantial and largely untapped growth opportunity to expand the presence of its product in the retail channel.

At the time, I made it our top strategic parity to focus our resources on developing great products for consumers and building a strong retail brand in the product.

Looking back, I hope you would agree with me that our bet on retail has paid off extremely well through the years.

An in case my earlier comments did not make it clear, I expect it will continue to pay off in the future.

Looking at Logitech today, I see another substantial and largely untapped growth opportunity, and that is B2B.

Those of you who have followed Logitech for a while know that we have flirted with the B2B space many times.

We've never fully committed to it, largely because we believed it was not well-aligned with our DNA.

We did not see a strong match between what we do best, which is developing cool innovative products featuring consumer-focused design and the button-down enterprise environment.

That may have been true in the past, but it is no longer true today.

The customization of IT has dramatically changed the landscape.

The business market is eager to embrace consumer technology and design as the preferences of their employees increasingly drive company choices.

In this environment, we believe the Logitech brand will become as relevant as it is in the consumer market.

We understand that our strong brand alone is not enough to drive our success in the B2B space.

It also takes a dedicated B2B organization and the right products and solutions for the enterprise environment.

While we are still in the early stages of our evolution, we believe we are well on our way to getting to where we need to be here.

The acquisition of LifeSize was our first serious entry into the enterprise.

We have been thrilled with LifeSize's success thus far and believe the best is yet to come.

This latest announcement from LifeSize are a tangible proof of the strong synergies with Logitech.

At the start of the fiscal year, we also redeployed existing resources to create a new group, Logitech for Business.

The Logitech for Business team drove the partnership with [Jabra] and is working closely with the LifeSize team to position Logitech as the only provider today of a complete unified communication offering, including web cams, headsets and video conferencing.

The road ahead will be challenging, but we believe that today we bring something unique and compelling to the business market that puts us in an amiable position to add a large, profitable and sustainable to our portfolio.

I joined Logitech as CEO over 13 years ago.

In me most recent role as Chairman, I participated in the defining the Company's strategy and in many key decision.

I being a working knowledge of our COmpany, our market, and our challenges.

We will not miss a beat in this transition, and I welcome the opportunity to contribute to our success and our sustainable future.

There is much work to be done, but I am excite about Logitech's future and I look forward to updating you on our progress.

At this point, we will open the call to your questions.

(Operator Instructions) Paul Coster, JPMorgan.

Guerrino, I think over many years you were able to anticipate market's and demand very effectively and design products astutely for that demand.

Recently we have seen much more news of acquisitions and partnerships, and it suggests to me that sometimes you are missing markets and having to play catch-up through third parties.

Can you respond to that observation, first of all?

The second thing, related really, as you go to the business-to-business market, which obviously there's developed channels in existence for a very fragmented regional market in some cases.

Can you give us some sense of how long you think it will take to develop the channel strategy necessary to be effective in that market?

Thanks for the question.

On the first one, when we introduced our partnership with ZAGG, to introduced our first of many iPad peripherals and accessories, I heard that comment, saying well, couldn't you have done it by yourself.

We announced more recently a partnership with Jabra, and I believe your question refers to these two examples.

On the first one, I think that we [privileged] time to market, we were a little bit late in looking at the iPad.

So we felt that we had great product out there in a great partnership to be had, which is KickStart, and in fact, the product is doing very well out there.

But it's not the only and not the most important product that we will have and we will have for the iPad market.

So don't read anything more than a slight delay in figuring that out let's say in the past 12 months.

At this point, I think we are fully caught up on the front.

I'm not saying that we will not partner with other people in this category or others, but it is going to be complementary as opposed to a replacement for our own innovation strategy.

Jabra is a totally different thing.

Here, we saw the opportunity to be the first to bring a full product line to the UC market and we needed existing products from another company that has been very active on that front.

It's good thing for them, because it opens the US market for us.

It's is a great thing for us, because we can now offer a full line-up.

So I wouldn't say that's a replacement for the internal development, that's more of a move to make sure we had full portfolio right away out of the box.

On the channel question, good point.

The nature of the products we sell, if you exclude LifeSize for a second, which has its own channel and we hope to leverage that channel to bring UC products to the marketplace.

The nature of the product we sell is not such that it requires substantial installer and support.

It works very well to traditionally established distribution channels that serve the enterprise market.

We have contacts, we have worked at length with these channels and we believe this offer will only strengthen that relationship.

So I do not expect a significant channel-building delay.

In fact, I believe that this business strategy will begin to bear focus to this-- bring fruit to this fiscal year.

My last question is on the Revue product, two things.

One is, I think it was obvious to many of the analysts that the product was mispriced from the get-go.

And it was sort of suggested that the Company had a tin ear there, which was unusual for you.

You've been so astute, as I said before, on understanding the market.

I just want to understand what went wrong there.

Secondly, did I here you say that the Harmony products is now the center of the digital home strategy?

Does that mean that the Revue products is being discontinued?

No, it doesn't mean that, thanks for asking again.

It means that the Harmony technology, which is by the way one of the essential components of our offering in Google TV, the biggest differentiator of our value-add in GoogleTV is actually the Harmony ingredient.

So, you should take that statement with a grain of salt.

I said our digital home strategy is going to be based on Smart TVs, Harmony technology and products, video, and audio.

It's much broader than Harmony.

Harmony is a key component, but it is not the component for the digital home strategy.

On Revue, what went wrong, what can I say?

I think at the beginning we believed fully in the fact that the price point was justified, that the richness of the offer was such that the consumer would have seen that value.

In truth, you're right, we were wrong.

And partly due to the fact that GoogleTV has not yet fully delivered to its whole promises, witness the absence for now of an app market which I believe is a unique differentiator between GoogleTV and other competitive approach, as well some evolutions that are needed in content in UI.

That said, I made the decision of cutting the price, or planning to cut the price, is pretty recent, and therefore I can say in summary that I agree with you.

That we misvalued what the consumers saw in the box.

That said, at $99 it's an incredibly appealing proposition.

And if you add to that the incredible value of that plus our TV cam that would enable you to have a truly social video communication experience in your living room for $250 or less, it's unheard of.

And I believe the consumers will see that.

Michael Foeth, Vontobel.

I have two questions, starting with the remote controls, obviously very weak quarter there.

You gave some explanation in your prepared remarks, but could you go into more depths?

It was really a sharp drop, and where do you see the growth coming from in the second quarter?

And the second question goes back to Revue again.

Will you still be able to generate margin from that at the lower price?

Let me answer in part the Harmony question, and maybe Erik will want to comment on this.

Let me distinguish between the bad performance of the EMEA and the bad performance of AMR, relatively poor performance of AMR.

In EMEA, I'm afraid we have to put the performance of harmony in context of a very difficult recovery of our business in EMEA.

And let me say that of course we made a lot of progress, our channel situation is significantly better, across-the-board, not just for Harmony.

But we are not there yet and it will take more time for us to run on all cylinders in EMEA.

So the EMEA Harmony issue is an EMEA issue.

The Harmony issue in AMR is largely due to a couple of things that are - - an incredibly difficult comparable with Q1 last year where we introduced a series of products, and of course when you look at that, you can realize that it hurts on the short-term.

Second, we also saw -- I realized that one of our customers pulled in a significant promotion that was planned for Q1.

They pulled it into Q4, which obviously boosted our performance in Q4 substantially, but of course hurts now.

We have also made some moves in the channel and pricing, the products, because we believe we have a tremendous opportunity in the segment of the market that we have not fully addressed yet.

So, I would call the Harmony problems in AMR specific of this quarter, because of what I told you.

Let me continue on Revue.

You specifically asked a question on whether we sell this -- we do have margin selling it.

The rules of the game here in accounting are such that you take a lower cost of market charge on the basis of what is fundamentally a break-even proposition.

We'll see, of course, there are multiple things that change, channel mix and how many accessories can we add on top of this.

It's kind of freaky to say, but this is not going to be our most profitable line, let's put it this way.

But it's absolutely essential that we widen penetration, because as you remember, the main reason to be in this business was to create a large base, not to sell many boxes.

We are going to sell many boxes, too, but that was more of a catalyst than a long-term strategic intention.

Erik, do you want to add anything?

Guerrino, I think I would add, and I think, Guerrino, you did a very good job capturing it, Back to your question about Harmony sales in the Americas, so even though it was down in the quarter, there are a couple things that we look at that make us feel good about the health and getting back to growth in Q2.

Our connections number, these are the new Harmony remotes that are set up within the quarter in the Americas were are up 13% year-over-year, which is a nice indicator.

The other thing, too, is within the quarter for the Americas, is we gain dollar and unit share.

That leads us to the other part of your question as to why we will feel confident that we will see a return to growth for Harmony sales in the Americas in Q2.

Okay, thank you.

And maybe last one, on share buyback, I'm sill wondering what you are waiting for to buy back your own shares?

Yes, Michael, to give you some sense on that, the way I look at it and I think strategically the way the Company looks at it.

It's really a question about how do we use excess cash in the Company?

And we have been very clear I think that we gave three priorities, and those are unchanged.

First and foremost, it's investing in the working capital to run and grow the business.

To make sure that we're funding the things that are really going to drive growth, both now and over the long-term.

Any then the other two priorities are the purchases and acquisitions.

So, those three priorities haven't changed.

The other thing that we also try to make sure we are clear with folks on, is we continue to target a cash balance of about 20% of our trailing 12-month sales.

We feel that's the appropriate level of cash to have both in this macroeconomic environment, as well as to effectively run the business.

We ended the quarter at about $476 million in cash, which puts us almost squarely at the 20% level.

The reason why I say that is so that the odds of a repurchase become a little bit higher when we get above that level, but at any one point in time when we are in that excess cash position, we'll take that and other variables into consideration.

But to bring it back, it is really the same strategic priorities and focus for us, is how we think about how we use our cash.

Simon Schafer, Goldman Sachs.

Yes, Guerrino, I was wondering, just in terms of your own thoughts on the initial priorities for an new CEO, I'd be interested in your perspective as to where the primary senses of urgency lie.

Is it reshaping the PC portfolio?

Is it really getting the initial stages of the B2B strategy right?

Or is it accelerating digital home?

I just wonder where the priorities as you have taken over that role for now and are looking for replacement.

Thank you.

Thank you, Simon.

It's nice to be called the new CEO.

The answer to your question is yes.

This is not a one-trick pony business, it will never be.

In fact one of our historic approaches to this was to have a portfolio business and make sure that we can compensate weaknesses in one with strength in others.

And I think we have significant work to do across all the legs of the portfolio.

Yes, I mentioned my point-of-view on the PC.

Just put aside that the emerging markets, which are such an obvious and tremendous opportunity for us and we are taking advantage of that.

Let's concentrate on where the worries are, which is mature PC markets.

I do believe that not every apple is the same there, and no pun intended with the reference to Apple.

We have been behind on the Mac, we are going to have to fix that and we are fixing that.

I think we will come our with products that are specifically designed for Macintosh, and of course that is going to help.

Beyond that, as I said, there are categories that are obviously categories that -- with which there's not much growth to be had.

But the nature of the beast is the nature of the PC today.

Other categories are in fact wrongly considered as non-growth.

I contend that the category that is most wrongly considered as non-growth is keyboards.

In the past I have heard, can we all agree that the keyword category is gone?

In fact, no, we can't.

In fact the numbers are showing that it isn't.

In fact, I contend that the growth of tablets and iPads will benefit keyboards bought for laptops.

And the reason why I believe that is that people will increasingly travel with their tablet or iPad and will increasingly use their laptops in a stationary way, which demands more comfortable peripherals like keyboards and mice.

So, yes, we will focus on the reshaping and recalibrating the PC portfolio according to those views.

Yes, we will focus on the digital home, because I do believe that we have a tremendous untapped opportunity in areas like music, for which we have not done well enough beyond our focus on PC speakers.

We have had good products here and there but never a strong, consistent and sustained strategy.

Music, together with Harmony, will be a big player in the digital home.

And, yes, we will focus on B2B.

I have not much to add to what I said in the prepared comments.

I am very thrilled about it.

And for the consumer guy that people perceive me to be, to be excited about this opportunity means that I truly believe that things have changed dramatically in the business market and we have a unique opportunity.

The LifeSize acquisition, which I hope many of you now believe it's a good thing, in fact, it's one of the greatest things that Jerry did, is a foundation that will bring us very, very far away in the future.

OKay thank you very much.

My second question would be more financial in nature.

You omitted an indication of what your gross margin may be in the fiscal year 2012, it's sort of unusual.

What are the reasons?

Is it just that pricing dynamics are too variable right now, is it a question of input price sensation.

I just wonder why that's an omission there, it's unusual.

The decision not to include a gross margin percent guidance or outlook is mine.

I talked to you just a moment ago about recalibrating the portfolio of our products and understanding where we are going to put more emphasis and where we are going to put less emphasis, where are we going to spend our money in OpEx versus where we are going to spend our money in gross-to-net.

That leads to some uncertainty, not enormous uncertainty, as to where the percentage of gross margin will fall.

It has much less to do with the external environment and much more to do with a reassessment of a portfolio and the product line by product line priorities that I need to go through in the coming weeks.

Andrew Gardiner, Barclays Capital.

My first question is on GoogleTV and the Revue box.

You highlighted in your prepared commentary pending enhancements to the GoogleTV platform software update.

I'm just wondering, first of all, your expectations as to when that is going to come through?

And also, will it allow for a change in architecture of the box so that can be redesigned to help the margin profile of that particular product?

The question as to when our next [rev] of Google TV will come, it is high in our mind.

Google has stated and repeated that it will be by the end of September.

We expect that to be the case.

As I said in my prepared remarks, it's a major update to the platform.

It's what the platform should always have been, particularly the addition of the App Store for Android apps for the TV.

The good news is that all these beautiful new things will run on the existing box.

They will not need any of the architected box.

They will be just completely be available to people that bought the first Revue box a year ago.

So, that is good.

That's is one reasons why we feel confident that this price move is going to accomplish a lot and is going to help us proliferate both the old and new GoogleTV out there.

So, we do not plan any change in the box because of this change in GoogleTV.

But as you suggested it won't be as profitable at the current price point quite obviously as you had originally planned for.

Are there things you might be able to change over time to improve the profitability of that line?

Let me withdraw from discussing future products and trends here.

I prefer not to answer the question.

And also quickly, on the B2B opportunity, will you have to invest in your own sales force more in order to target that market or is it something you think you may be able to target more through a distribution network?

We are investing on our own sales force on LifeSize.

When it comes to the rest of the opportunity, no.

There is not going to be meaningful direct sales investment on the Logitech for Business side.

Jonathan Tseng, Merrill Lynch,

Two questions.

The first one, just on a guess that there had been internal productivity.

One interesting thing about it obviously is you have maintained the dollar R&D investment through the downturn, and you have produced innovative devices before and after, MicroGear wheel, solar-powered keyboard.

But I can't help feel they haven't been -- that they've kind of been very high in innovation but it hasn't been told to the mass markets.

Do you feel you have to retool how your R&D engine works and the productivity there?

Is that something you need to reorganize that to make it work or how do you think about the issues there?

Or is there an issue there?

And I have a follow-up question after that.

You know I am a product guy, so I'm very passionate about what we do in product development, and I'm eager to get back there and figure out how much better we can do.

No, I don't expect a major retooling of anything, we are great engineers and focus on the right things.

They have to live in a world of a higher sense of urgency and targeting of what they do, particularly the understanding of what the consumers want today.

So, I'm very confident in our ability on our ability to do that and I will leave it at that.

And just on the enterprise side, I'm probably coming at it from a different angle.

I can see why you're always say Logitech differentiates, not only in a digital product differentiation, you also have scale, apart from Microsoft, you guys are the gorilla in consumer peripherals.

Enterprise, you could still have the differentiation won't have the scale, you'll be the smallest guy at the party, both in terms of competition, in terms of distributors, channel and customers.

So, how do you address that challenge, how do you build a position when you're the smallest guy in the room?

Well, first of all, in the part of the business market where we are going to increasingly play in UC, we are not at all the smallest scale.

Every bit of scale that we have in the consumer marketplace plays there.

We will be the largest provider of web cams across the board and video communication, and that is obviously is leveragable entirely in the enterprise market.

So, I disagree, we are not maybe the gorilla, but we are not small at all in the UC space.

And by the way, we are the only ones that provide both audio and video and video conferencing, which makes us the gorilla by definition in a world where nobody else does it.

On LifeSize, it's a very good point.

We are the third player there, but boy, we've been gaining share, and, boy, we have a disruptive offering.

The way you win when you are small.

And look at what we did with remotes, we were nobody in remotes.

The way you win is by disrupting the market.

We created Harmony, which is total disruption of the market.

We creating now a LifeSize offering, if you have seen the latest offers that I'm very excited about, we have something that nobody else does.

And we will use that disruption to compensate for scale.

Then one day scale will come, and we will have different conversation.

Andy Hargreaves, Pacific Crest.

Just staying on LifeSize real quick, I was a little surprised to see sales down sequentially just given the bookings growth last year and relatively stable demand it seemed like in the market.

So, could you just described that dynamic?

Am I thinking about the progressions of bookings wrong and did you maintain share in the quarter?

Sure, Andy, I can give you some perspective on that.

So, the sequential decline in revenue for LifeSize was really related to some timing issues on deferred revenue between Q4 and Q1.

And to give you a sense of why we feel very good about the top line growth and expansion at LifeSize within the quarter and going forward, is when you look at the billings for LifeSize, they did increase 6% sequentially and we reached a record all-time high for billings in the quarter for LifeSize.

So, LifeSize is doing very well in the top line.

And as we look forward, we're very excited, and you heard Guerrino talking about it.

We are very excited not only about what they are doing today, but there was a series of announcements that LifeSize made in the last two weeks that really gives you a sense of how fast we see this growth, where we are going to continue to invest.

But feel very good about where LifeSize is positioned right now.

We expect the sequential performance to continue throughout the year.

The one that we highlighted, so we expect to be very clear continued sequential growth of LifeSize throughout the year.

And then the creation of Logitech for Business, does that change at all on the face of the global expansion?

I'm not sure I understand fully the question, on the base of global expansion.

What we did is put together existing resources and given them an exclusive mandate to address the UC and the general Logitech for Business opportunity.

That's what we have done.

It's a global scale undertaking, this is not something that applies to one specific region, but I'm not sure I completely understand.

Well, I guess the question is just, it seems like it's based around UC where most of your business as I understand it right now is in the US.

So does it change how fast you tried to expand into Europe or Asia PAC with that effort?

I would not agree that most of our business in the current audio/video offering that are the basis of UC are in the US.

I would say that we are certainly further ahead in establishing a strong relationship with the distributors that actually are useful to this undertaking in the US.

But we're not talking a generation behind here.

So, yes, this is a global undertaking.

John Bright, Avondale.

Guerrino, typically Logitech has been viewed as a brand marketing and distribution Company.

You are talking about more on the B2B side now.

How much are you going to need to change the culture DNA to focus more on the R&D side of the equation to go after that market.

I don't want to answer with a provocatory statement, and please take this with the grain of salt.

I don't think Apple changed one bit when they saw the explosion of iPads and iPhones in enterprise.

But we are not Apple, we don't have an iPhone and an iPad, so don't get me wrong.

What I strongly believe today -- I was in the pack, we're talking 10 years ago, 5 years ago, not very excited to consider us going into the enterprise, because I thought we would all have to wear suits and ties and we would have to deny the roots of the Company.

I completely do not believe that any longer.

I think that the enterprise market is ready for products that are naturally attractive to the consumer.

The enterprise employees are consumers at the end of the day.

The same as consumerization is not just a slogan, it's reality.

I see that in our Company, the kind of things they employees demand our consumer products.

Now thank God we have a lot of them, so we don't have to spend a lot for third parties.

But I see that the world has changed, we have not.

So I believe that we don't have to change our DNA to fulfill the market.

Now, I am a pragmatist, we needed a portfolio, you just don't go there with a brand.

And that's what we did by putting together the LifeSize acquisition and most recently the partnership with Jabra on the audio side.

And so have a portfolio.

We need a dedicated group of people that focus there.

So, this is not going to happen just because of the consumerization of IT but it is going to be absolutely enabled and will allow us not to have to change our DNA to get there.

The second question is on the emerging markets, China, India.

How do you see the traditional products in that market and the platforms for developing?

Do you still think we are going to see the desktop and evolve the laptops into the tablet, or are we going to skip strictly to the laptop maybe then the tablet in that market?

I definitely believe this is going to be an accelerated development.

I think it's a great thing that we are going substantially and therefore establishing a strong brand in a number of markets, China being the first example.

Now everybody is growing in China, maybe not everybody, but we are going really, really strongly here and not from a small base at this point.

So, to me the most important strategic value of this growth and investment in the emerging market is not only the capturing of the existing opportunity, but readying us for the next step, which will come faster.

I agree with you.

In fact, I would not be surprised if we began selling non-PC products in these emerging market quite soon.

So it's critical that we take advantage of the current conditions that see a still buoyant PC market there, nobody denies that.

But, no, we're not counting on the fact that this is going to be the same and at the same pace of the developed markets.

Not at all.

We are completely prepared and, in fact, eager to be able to expand our brand in the consumer space beyond the PC platform in emerging markets.

Guerrino, welcome back, at least, albeit short term.

Thank you.

(Operator Instructions) Ashish Sinha, Morgan Stanley.

Just a couple of questions.

Thinking about some of the newer initiatives you guys have been taking, [regarding] the Revue price got, your distribution arrangements with Jabra, your increasing focus on enterprise.

I was trying to think in terms of how does that translate into longer-term gross margins, because am I right in thinking that gross margins is essentially where you'll have to take the hit with these sources becoming more prominent in your top line?

First of all, let me clarify.

I do not think that these sources becoming more prominent is an accurate statement.

Do not confuse tactical opportunities with our approach through growth across both business and consumer markets.

We are a product company, we will continue to be, we invest in R&D.

We have our own innovation.

So, not at all.

I'd do not identify this as a new model, a new behavior for Logitech.

This is tactical in nature, and I'm very excited by both things that we have done, but don't read anything more than what it is in there.

On the margin question, I would say that obviously one of the main driver of our long-term model is the belief that some parts of our business will drive higher gross margins, and this means LifeSize.

So, if there is a benefit in that approach to broaden the price market, it is in gross margin.

But of course it comes also with expenses, so we are not talking about a total revolution.

But, yes, it's net-net our broader approach to the consumer and the business market will need to higher gross margins for Logitech, yes.

My next question is on emerging markets, and the steps you took in China penetrating Tier 3, Tier 4 and much more deeper into those markets.

Could we expect something similar in other emerging markets very soon based on the China model, and what timeframe do you have for that?

We are already active in several, if not all, of the markets that we want to play in.

We are certainly very strong in Russia, we are growing in India.

We are targeting Latin America.

And I choose the words carefully here.

We're certainly further ahead in Russia, and then in India, and then we are in Latin America, that's probably our next big opportunity.

However, there are lessons we learned in China and the lessons do not include the fact that the China model is the only model.

The model that works for China works for China.

It may be replicated occasionally in some other places, but it's not the framework.

There are other ways to get there, so each of these like markets will require a custom approach.

All of them are very promising.

Nothing's going to be as big as China, maybe I'm wrong.

But we will learn from China and we will adapt China to other markets.

The other thing you shouldn't forget is that there are incredible lessons in leverage between what we are doing in China and other emerging markets vis a vis what we are doing in mature markets.

And one of the best long-term benefits of our engagement in China and India is reading the new consumer.

Because believe you me, that is the new consumer.

And sooner or later, that will be the dominant consumer.

And at this point we want to connect to that consumer and see what that consumer likes.

Tavis McCourt, Morgan Keegan.

If I look at the tablet portfolio you guys have now, it's a couple on iPad, a couple on Android.

How significant should we expect the breadth of product offerings there to expand this year and next, versus how much are you still doing R&D to figure out what peripherals people may want?

Secondly, on the UC opportunity, UC tends to be defined differently by every company that's attacking it from different angles.

What are the actual products that you guys suspect you'll be selling to that opportunity and will all of that leverage be LifeSize channel or do you have to make new reseller relationships to tell some of the products?

All right, let me try to answer both questions.

On the tablet side, you have not seen the majority of it yet.

So, the portfolio at the end of this fiscal year and hopefully before Christmas will be substantially larger and will cover more category, and I will leave it at that.

So, it's a real opportunity.

We are becoming the leader in supply certain class of products for the tablet market.

It still remains to be seen how big this market is, we all believe it is big, but who knows.

On the UC front, you are right.

UC is one of those catch words that now everybody uses their own advantage.

In our case, we are talking about video, web cams, we are talking about headsets.

We are talking about video calling and video conferencing, both at the desktop level and at the room level and at the enterprise level.

So, that's what we mean by UC.

We will use the LifeSize channel in part, but we will use existing relationships with distributors that are targeting retailers and [bars] that are serving that market, and we are developing programs for those bars and retailers to carry our products.

So, it's a combination of an existing market, existing channel, which is being developed.

LifeSize is not there yet in building that channel.

That is one of the investments that we're making on that front.

And leveraging existing relationships with distributors adding specific programs targeted to retailers and resellers the target the enterprise.

Guerrino, did you comment about the timing of the CEO search and whether that would be both external and internal candidates?

I said that the search is external.

I don't have a target timing.

We have started to search.

I will be here as long as it takes until we find the right guy or girl.

Ladies and gentlemen, that concludes our conference call for today.

You may now disconnect.