羅技 (LOGI) 2012 Q2 法說會逐字稿

Good day, and welcome to the Logitech Second Quarter Financial Results Conference Call.

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

We will be conducting a 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.

Please proceed, sir.

Welcome to the Logitech Conference Call to discuss the Company's results for the second quarter, ended September 30, 2011.

The press release, our prepared remarks and slides and a live webcast of this call are available online www.logitech.com.

As noted in our press release, we have published our prepared remarks on our website, in advance of this call.

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

During the course of this call, we may make forward-looking statements, including forward-looking statements with respect to future operating results that are being made under the Safe Harbor and Securities Litigation Reform Act of 1995.

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 the annual report on Form 10-K, dated May 27, 2011, and subsequent filings which are available online, on the SEC Edgar database, and the final paragraphs of the final press release and prepared remarks reporting second quarter results available at www.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 a 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 and Chief Financial Officer.

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

Thanks Joe.

Thanks to all of you for joining us today.

I'd like to add some color and some additional perspective to the prepared remarks that we posted on the web.

Our Q2 results are consistent with the findings I shared with you last month.

There are parts of the business that are not yet performing as well as they need to, and there are others that are doing quite well.

I will address several of these areas, and I will start with China.

We continue to deliver very strong sales growth in China.

I was in Shanghai last week, spent time with our general manager there and his team, and I came away even more enthusiastic about the potential and our capabilities in this large and growing market.

We have a strong team in place, a sound strategy, and I believe this will serve us well in the quarters to come.

In Q2, we achieved solid growth in our LifeSize business.

The growth was constrained, somewhat, by the uncertain economic situation in several key markets, and this is a category that is more vulnerable to economic downturns than the rest of our business, given the customer base purchasing dynamics.

But, our long term outlook remains bullish.

I recently spent time with the LifeSize team as well, and I had a first-hand look at their product road map, which includes a number of disruptive technologies and highly innovative offerings that I believe will provide the fuel for future growth.

Let me turn, now, to our EMEA in Americas sales regions.

Our business in the EMEA is firmly in recovery mode.

We continue to drive operational improvements in our sales and marketing organization.

Our channel partner's inventory levels have gradually come down over the last 2 quarters.

They are still not quite as low as they should be in the current economic climate.

I'm pleased with the progress that we have seen, and I believe it will continue, as we get our largest region back to health.

In the America's region, we have seen an increased degree of caution in the face of economic uncertainty by our channel partners.

While our channel partners are, understandably concerned, about carrying too much inventory as we enter the high volume holiday selling season, we believe the level of channel stock is healthy, and we're actually becoming concerned about the potential for stock house in key categories.

Looking at both the Americas and EMEA, probably the most telling fact to note, is that the metrics we track point to the underlying level of demand in Q2, being higher than our sales would suggest.

While our sales into the channels in the Americas fell by 1%, compared to the prior year, the sell through by our channel partners increased by 14%.

Looking at the EMEA region and local currency, the gap between sales in and sell-through, was essentially the same as in the Americas.

What this tells us, is that despite sluggish economic conditions, negative consumer sentiment, and a products line that is not as strong as it should be, the dynamics around our market portfolio are healthier than most might assume.

So let me shift to our products.

Our sales in Q2 confirm that there are several gaps in our retail product portfolio.

Regardless of the specific categories, what these gaps have in common, is that they leave us with a weak up-sell proposition.

Over the last few years, we have significantly strengthened our low end products in nearly every category, providing consumers with a compelling value proposition.

Unfortunately, we have too often fallen short of providing an equally compelling value proposition in the mid-range, and especially in the higher end of these categories.

There's no question in my mind, that strength at the entry level and a strong up-sell proposition are not incompatible, and in fact, have been a hallmark of our portfolio for a long time.

We know that consumers are willing to move up to higher price points, to buy great products, but of late, we have not given them enough reasons to do so.

We will fix that.

So, the way forward is clear; we need to consistently develop more great products, across our entire retail product portfolio.

We will do that by reinvigorating our focus on innovation.

Innovation, at Logitech has never exclusively been about inventing a new technology.

It's been about creating and delivering new value propositions that consumers are willing to pay for.

One of the conclusions from my recent assessment of our business, is that in some cases, we have not being close enough to consumers.

We have sometimes failed to understand the true drivers of consumer demand for driven products, the hidden paying points and the innovative solutions that deliver high value.

The good news is, is that we are at it again.

As one of the steps we are taking to improve our product development and performance, during Q2, we implemented a number of organizational changes to the structure of our global product teams.

These changes were designed to better align our product development efforts with today's consumers and his or her new usage models.

In addition, we have created a small, independent group with the mission of incubating new innovation opportunities.

We believe that this highly focused and flexible team will allow us, not only to evaluate more potential innovations, but to do so faster, and more efficiently.

Just to be clear, these changes are being made within the envelope of our existing product development resources.

We're not adding incremental costs to the Company, as a result.

With about 1000 product development staff worldwide, our teams have the fire power to deliver, once they focus on the right thing.

It's still early, but I'm very encouraged by the results I've seen so far.

Changes to our product portfolio don't happen overnight, but you should expect to start seeing some of the fruits of our re-focused efforts before the end of the current fiscal year.

Let me wrap up by saying, that I believe, over the last few months, we have achieved increased stability across the company.

There is much more work still to be done.

The direction is clear, and I'm looking forward to improved performance in the quarters ahead.

And with that, we are now available to take your questions, and please follow the instructions of the operator.

(Operator Instructions) Jonathan Tseng, Merrill Lynch.

Couple of questions on keyboards and videos.

Keyboards' strong ASP growth this quarter and last quarter, how much of that was attributable to the solar keyboard, and to tablets and how much to other products?

And secondly, just a commentary on the video and embedded web cams being a threat.

I don't think I have seen that before.

Was there something that has changed in the market that made you put that commentary in?

Thanks.

Thanks for the questions.

On the keyboards, it's been our best classic category growth, and, guess what?

It grew on the tablet side and it grew on the PC side.

We had great response to our tablet products, but our core business is also growing.

And, as you noted, the main driver of the growth is the solar keyboard.

We sold the entire portfolio, but this is a classic example of a great up-sell proposition lifting the entire category.

I think this is -- I could not find a better example of what I mean when I say that some products don't have that.

And I'm referring, specifically, to mice, for example, which have done reasonably well, under the circumstances, but they could do much, much, better.

Once we strengthen the mid-range and high-end of our product line, which we plan to do.

So, just a note, keyboards are supposed to be, probably, one of the lamest categories.

The PC is dead.

Who else -- wants a keyboard, right?

And, guess what?

When you have the right portfolio, keyboards grow.

Because people do want to be more comfortable, to be more productive, both on the PC and on their tablet.

On the video side, I alluded to the fact that embedded web cams are a reason for consumers not to, necessarily, want to buy a new web cam.

The quality that they get, even though inferior to the quality that you would get by using an HD web cam, is sufficient for the kind of purpose that they use video calling for.

That is not true on the business side, by the way.

Web cams, in a general video communication in the business, as manifested by LifeSize, require higher quality.

The emotional content that exists in a video call, and consumers, it does not exist in the business world, so quality is essential, as opposed to just the emotion of seeing your buddy on the other side of the call.

So our strategy for web cams is to acknowledge this fact and make sure that our after-market web cams do things that the embedded web cams don't do.

And, you will see, over the course of the coming months, what it means in our new offering in our web cam business.

We believe, we can confront the intrinsic potential decline of the category by shifting our focus in the product development portfolio and shifting our focus, of course, in providing a profitable business.

This is a very profitable business today, and we want to continue to support it with the right product angle.

Thanks.

Just the last question, this is for your the third thing, you have had tough times launching in the past; 1980s with the scanners, [poised] in a tough market in 2003.

You've been in here for a few quarters, now.

Just talk us through how this feels versus previous times in terms of the seriousness and nature of the challenges facing Logitech.

Thanks.

Well, thank you for bringing me back through history, here.

If I understand your question well, it's about scanners.

Scanners -- I think we sold the scanner business at the end of '97, so just a few months before I joined.

So, I participated in the decisions of-- that we were taken at the time.

You know, the situation then was very, very different.

We had no growth drivers, intrinsically, in the portfolio, and, the scanner was a drag.

We had just missed a few beats, if I recall well, and we were focused on certain kinds of hand-held scanners and things that are now part of the museum of Logitech.

And the market went completely another way.

And we couldn't follow it, and we decided, thank God, to abandon it.

Nothing in the portfolio today, looks like that.

First of all, we have significant growth drivers, both outside the PC and around the PC, and even if you are trying to equate the video business and scanners; nothing could be more different.

First of all, we have segments of the video businesses, in the business market, as well, and we know what to do in the consumer market.

So I believe that the -- it's very different.

It feels different, it is different.

Thanks so much.

John Bright, Avondale Partners.

Thank you, good day.

Let me stay with the inventory correction.

Using the baseball analogy, 1, what inning would you say that we are in the EMEA markets, and, 2, could you go over your comments on the Americas market on stock-outs?

Okay.

I'm not familiar with baseball, but if I had to, sort of, guess, if I get the gist.

I'm Italian, the football, the way we call it, is my preferred metaphor base.

I think we are well into recovery in Europe.

It is very hard to indicate the innings.

I think we are in the second half, if you want to talk football.

I think the team has done great in execution.

There is a lot to digest, but all the metrics we have are positive, even margins in Europe are improving, which is an indication of some less pressure to just incentivize the cleanout of channel inventory.

We're not there.

We believe we'll be there before the end of the year.

And whatever there means.

Things change all the time, and fluctuate, but, so to be very clear, the process of overcoming the impact of the pricing and terms and conditions changing with our channel that generated that kind of over-inventory and complexity in the channel, is ongoing, and let's say we are in the second half.

On the stock-out comment, my comment means it relates to the fact, while I do understand the concern of our large customers in the US, and it is a concern that, of course, doesn't apply specifically to us.

It applies specifically to the amount of inventory that they are prepared to carry.

They're very nervous; I understand them.

But then, when it comes to the effect of the way of the concern of the channel, on the little fish that is the Logitech supply, we look at the metrics in the channel, and we believe these metrics are barely manageable in terms of avoiding stock-outs.

And, if demand is as we expect, or even marginally better, that we will have to run, to make sure we supply what they will eventually need.

That's all I wanted to say.

I believe that, that was more of an indication of health of the channel, than anything else, but, of course, health gets to a point where it becomes unhealthy.

I don't know if it's unhealthy today, in terms of supporting the expected demand, but it might.

That's all I wanted to say.

Second question is on new products and in your organization changes, you mentioned an independent group.

Talk about what the focus of the independent group is.

Is that only towards the peripheral side of the products?

Does it have any application or any focus towards the LifeSize business?

It is specifically on the non-LifeSize part of the business.

And, it covers, though, PC and non-PC dimensions.

It is across product line effort.

And it's actually funded, if you want, by key engineers from different parts of the company that transition into this group on a sort of, you know, on a month basis, 2 months basis.

This is a fast analysis, fast check, fast fail, and fast succeed, kind of group.

This is not an R&D facility that is going to plant the seeds for Logitech products 25 years from now.

This is not the way we work.

Remember, I said in the past, we are chefs, we are not farmers, we don't develop core technology.

We develop ways to put together existing, mature, or new technology together to provide great proposition.

This group is charged to do just that.

We will use our best engineers, to rotate them into this group, and they will provide seeds to each product line.

It is, though, restricted within the Logitech portfolio.

Final question, 2 parts.

1, talk about the LifeSize profitability outlook, and then 2, touch on the share repurchase Swiss approval required.

Where does that stand?

When do you think it might happen?

To take your share ownership higher than 10%.

Hi, John, this is Erik.

On the LifeSize profitability, at this point, we're not disclosing specifics of LifeSize's income statement.

But suffice it to say, that we feel very good about LifeSize's growth prospects.

You heard Guerrino talk about, not only are they positioned well today, but we feel very excited about the product road map they have got.

There's a number of things you are going to see over the coming months and quarters.

So LifeSize, feel good about the direction they're going in and where we are headed.

In terms of the share repurchase, as you saw in our press release, we have approached the Swiss authorities and asked for an amendment to our existing $250 million buy-back programs.

So we have that program that has been approved.

It has about $177 million available to it, still, and really can't comment on the process.

It's pending with the Swiss authorities.

Assuming we get approval for that, then our intent is to repurchase shares on that second trading line.

Something that we can do as a Swiss company, and in the future, those would be shares that would be eligible for us to cancel, and that is something that would be only be with shareholder approval, which we would plan on doing as part of our normal, annual shareholder meeting proxy vote, that we would do on an annual basis.

Is it reasonable to assume any sort of time frame for that approval?

You know, if I could say how fast a regulator would move on something, I'd be giving you knowledge I don't have.

We think it's not something that takes real long.

We feel well positioned for it, but really can't comment until we receive that approval and we go from there.

This is not something that will happen in 25 years.

It's something that will happen in the relatively short term.

I think that Erik has positioned that well.

Thank you.

Ashish Sinha, Morgan Stanley.

Just 2 questions from my side.

On LifeSize, you did mention about some caution towards the end of the quarter, just trying to get a feel for what's going on in terms of your pipeline and prospects.

Has the pipeline shrunk or is it customers dealing with the decision making?

And, secondly, could you give us an update on Logitech for business, please?

Thank you.

Thank you.

So, thank you for the question.

It helps me to clarify.

We have seen a slow down in closing of deals in the pipeline.

We do not believe to have lost any of these deals to any competitor, but we've seen people more cautious, and that's kind of an indication of economic concerns.

The pipeline is healthy, and it just took longer to close than what we had expected.

On Logitech for business, this is -- the first signs are great.

We are signing up buyers, where it used to carry Logitech products in the past, but without any support on our side.

And as we sign them, at pretty reasonable rates, we're talking in the multiple tens of buyers, we see immediately, the business that they do with us increase significantly.

And that's a great sign.

So, all signs are fine, this business is growing, and I'm very, very excited for the prospects.

Sooner or later, we'll be in a position to actually break it down and be more specific, but we're not in this position right now, so that's the qualitative color that I can provide.

Thank you.

(Operator Instructions) Alexander Peterc representing Exane BPN Paribas.

I would like to understand a little bit more about the channels and what telling us about the fundamentals in your markets.

I thought we were going into this year with a channel reset kind of objective, which will be completed by the end of the calendar year.

So, this reset seems to be going on with a big mismatch between what you sold in to the channel and what has went out of the channel in the quarter.

But now you seem to be saying that the channel guys -- the position is getting a little too close to talk about stock options, so is it that the distribution partners of yours, have a better feel, perhaps, for what is going on and they see demand actually declining in the coming quarter?

Do you think they are being over-cautious?

Let me qualify your statement with saying the situation is slightly different in the EMEA and the US.

My reference to our concern about the level of inventory being relatively too low, and I don't want to say what I didn't.

I believe that the inventory in the EMEA is healthy, there is no reset needed, in fact, there was no reset needed for a while.

I only said, based on what we believe, we may be on the low side, okay?

As you said, our distributors and customers may be smarter than we are.

It has happened in the past.

In this particular case, I believe the overwhelming concern is about totality of inventory.

The concern cannot be, is usually not on specific categories.

And so, I would be surprised if they have a better insight of our customer base than we do.

In the case of Europe, it's different, yes, we were into a significant effort to lower the weeks on hands, and that effort has been very successful.

But, we believe that under the economic situations of Europe, the channel may be still a little bit high, so we're driving it lower, and we expect it to be lower in weeks on hands as we move forward.

So, that's all I can say at this point.

Thanks.

I have another question on the video conferencing sector as a whole.

We've seen some market share shifts there, with one of your large competitors having to report quite weak revenue trends.

Do you see any significant market share shifts and is that in your favor, notwithstanding the slow-down in growth we've done in this quarter?

Thanks.

Too early to tell.

We are faced with very formidable competitors, including the 1 that you, sort of note, has announced weaker than expected results.

It is a very strong competitor, so is the big fish in this pond, Cisco Tandberg.

It's too early to tell.

We're not losing share, we're not losing deals, that's the most important thing to note.

Where we play, we tend to win, or nobody wins.

Meaning the customer decides to delay buying.

By the way, interestingly enough, this category should not be as sensitive to economic downturns, because it's actually a cost reduction category, eventually.

The problem with IT departments and telecommunications departments is that they have a budget, and sometimes these decisions are made based on the budget and not necessarily on the overall cost savings.

It is classic, you know.

The world isn't perfect, and that's my reference to the sort of caution within the buyers community.

But, no, we're not losing against anybody.

Whether we're gaining, it is too early to tell.

We've been gaining share over the course of the last 12 months.

Reports are scattered, in terms of market share, so I don't have my latest one.

I do not expect us to have lost share.

Whether we did gain, I don't know.

Thanks a lot.

Andy Hargreaves, Pacific Crest.

Can you comment on how much ZAGG, or tablet products, in general, attributed to sales in the quarter?

Erik, do you want to comment on that?

We're not breaking out the specific details of our tablet peripheral sales at this stage.

But, I think, suffice it to say, we've been very pleased.

You heard Guerrino talk about things like the keyboard case for iPad 2, very strong seller for us.

And, when you look at the keyboard and desktop category, in and of itself, it was material to our growth.

The other piece of it, I would say, as well, over the coming months and quarters, you are going to see us expand our lineup in this part of the portfolio.

So not only do we feel that it's significant contribution today, it's going to continue to grow as we look at it going forward.

Let me add some color here.

What you have seen from us, to date, is keyboard and keyboards in cases.

It's a tremendous opportunity around iPad.

By the way, one of the funniest things that happened in our customer research about tablets, as we tried to understand what the consumers want.

Do you know what the number 1 consumer desire for tablets is today?

A mouse.

It's amazing.

People are interested in keyboard, why don't we have a mouse for this thing?

Because, when you use a keyboard, of course, you are sort of engaged in this combination of typing and touching the screen.

Which is not the most ergonomic thing in the world, but, unfortunately to date, iPad does not support pointing devices.

Android does.

And in fact, we have a mouse for android tablets, as this market grows, that's a very interesting and attractive opportunity.

But besides the classic productivity devices, that we classify as, create devices, as opposed to consume devices, you should expect a number of very interesting consume products to come up, let's say, beyond our keyboard and mice, to come up for tablets soon, and these are more fundamentally music-related, and I'm very excited by the pipeline there.

And, then can you give us any metrics on Logitech for business, and revenue is not necessary, but how many people are part of that effort now?

What do you intend to get to, and are there any forecast targets for growth that you could give us?

Yes.

It's a relatively small team against the tremendous opportunity we have.

And the reason it's small is that it is a very, very leveraged business model.

Our first tier distribution is the same that we have in consumer, and the second tier and third tier, mean distributors that are specific to the business market as well as VARS and system integrators, already somewhat do business with Logitech products, without any intervention from our side.

So here, it is providing the accelerator, the team has only had to provide the accelerator of the specific market programs, the specific conditions, much more than convincing these customers to carry our products for their customers.

That's a fundamental difference between a new channel development and just an acceleration of that existing channel.

This is what the team is charged to do.

So, we're talking on a size of multiple tens of people, I will not be more specific.

Which, relative to the tremendous opportunity is, probably the highest potential profit of the business that we can embark in.

And we have begun to see the impact of that, as I mentioned before.

This area is one that we will go over a little bit more in detail at our analyst day, at our investor day in New York, and so I look forward to attending so we will have more intelligent conversation about it.

Finally, can you give us an update on the CEO search, and comment on whether or not you're a candidate for the long-term job?

I'm not a candidate for the long-term.

I'm a candidate for the long-term Chairmanship of the Company, unless people kick me out.

The search is ongoing.

As it was, there is no deadline.

I'm happily driving the ship for now, I want to make sure it improves as it is, and continues to.

I think I still can contribute something, and I will continue to do so until I am confident and the Board is confident that we have the right person to replace me and be the long-term CEO of Logitech.

There is no expected time of arrival, and that's not the way we're driving the search.

We're driving the search, looking for the best person, and we'll update you when the time comes.

Thanks.

Stefan Gachter, Helvea.

Please proceed.

Thanks for taking my question.

I would like to come back to the profitability of LifeSize.

I understand, you do not wish to disclose large details as of right now.

On the other hand, you are saying that you feel pretty comfortable about the direction of LifeSize.

Maybe you're going to add more color on that topic on your investor day, but as of today, could you at least, maybe, tell us whether it's a matter of quarters or years until LifeSize will turn profitable?

LifeSize is, in my view pretty important to Logitech, and for that reason, I would just love to get a little bit more insight on your targets going forward.

Yes.

I appreciate the curiosity and I understand it.

Our goal for LifeSize is to equip it to win in the long term.

It's a fact; it's a strategy, we're sacrificing or willing to sacrifice short-term profit, to a company that has the size, the momentum, and most importantly, the footprint in the market, to compete.

We have seen that every time we compete, we win.

We just do not compete enough, so we are broadening our ability to compete on a deal-by-deal basis, across the spectrum of the customer base.

That's the primary goal.

That's the driver of the expense growth in LifeSize, which, by the way, drives most of the expense growth of Logitech today.

With that in mind, we obviously have profitability in the line of sight for LifeSize.

We just won't tell you if it's next quarter, the quarter after next, or next year.

But, we're not talking once again, when our children will be adults, LifeSize will be profitable.

That's not the intention, but, definitely, I am a strong proponent to strengthen LifeSize before we begin squeezing profit out of it, and I think the strategy has been successful to date, and we've seen no reason to change it.

Okay.

Thanks a lot.

(Operator Instructions) Maria Rakavic, JPMorgan.

Please proceed.

It's Paul Coster from JPMorgan.

Guerrino, you've come in and quickly mobilized resources to address some of the product gaps and things like that, sort of quickly having an effect.

Could you talk about a little bit about the brand, and are you happy with the brand, particularly as you see more life-style type brands, particularly in North America, addressing adjacencies to your market?

Thank you for the question.

Am I happy with my brand?

Yes.

Can my brand be strengthened, particularly, in certain sectors that are increasingly strategic for us?

Absolutely, yes.

And you will see some manifestation of that pretty shortly, I should say.

So, I believe that the Logitech brand can expand and be very strong in adjacencies, as you refer to, and we intend to do so.

So, I am keenly aware.

This is -- you know and I've said many times, it's all about products.

It's definitely all about product, definitely all about great products.

However, the brand umbrella is critical, and we're not forgetting that.

My follow-up question, is on those product categories where you've identified gaps, generally speaking, what is the timeline for filling a gap?

Are we talking months, quarters, years?

Not years.

Our product development cycle is not so long, but depending on the degree of break-through or innovation or -- product gets developed in 6 months, and some products get developed in 18 months.

So, there will not be a day in which you wake up, and say, oh my God, Logitech is now a perfect product portfolio.

That's not going to happen.

It never happened, we never had a perfect portfolio, if you ask me.

So, you will start seeing some manifestation of this renewed focus on mid-range, high-end products and cool products, before the end of fiscal.

This quarter, next quarter.

I'm hedging my bets, here, particularly because I want to make sure the products we ship are absolutely perfect.

This is not an issue of filling the shelf.

This is an issue of coming up with blockbuster products that can really deliver the promise.

So, we will see some of that in the -- before the end of the year -- fiscal, and we'll begin to see a lot of that in the first half of fiscal '13, and that will be a continuous effort beyond that.

Thank you.

Michael Foeth, Vontobel.

Hello.

Just 2 questions.

First of all, in terms of your share buy-back, obviously, you started to buy back quite some shares, and I was wondering if anything has changed with respect to your policy to make use of cash?

You had talked about the cash buffer that you wanted in the past.

Or, has anything changed in terms of your focus on acquisitions?

So, Michael, to address your question.

So, no change to our overall strategy in terms of how we use cash.

We've been very consistent, I think, in first priority is always working capital for the business, right?

That we have the cash to invest in the right places, and we feel we absolutely have that, and have the resources we need to do that.

Beyond that, so once we get beyond the right working capital to help drive and invest in the business, it is always going to be a balance of share buy-back as well as acquisition.

No change to our acquisition strategy, obviously, we don't talk about future acquisitions on a look-forward basis, but we're going to continue to be acquisitive when it makes sense, looking for particular technologies or capabilities.

And, we feel comfortable that we have the right balance sheet flexibility to do those things.

And, in the case of share buy-back, when it's the right combination of when we look at having the right cash levels and we also feel that the repurchase of shares is the right value investment; to me, a combination of those things.

No change to strategy, and that's how we are going to continue to look at it.

Okay.

My second question, thank you, my second question would be an update on Google TV.

I thought, I saw you still had some revenues also generated from this side of the business.

What is the plan going forward?

Are you still putting money into this, what's the next steps?

As you've seen, we're selling Revue and will continue to sell Revue at least for the remainder of this quarter.

A price change, as painful as it was, from the financial point of view, was the right thing to do.

We are accomplishing exactly the goals that we wanted to accomplish.

Google, at some point will announce the availability of 2.0.

I think 2.0 will provide more breathing-room to the category.

We have no plans to replace Revue, refresh Revue.

Revue, as is, supports 2.0.

Doesn't need to be changed in any way.

All the installed base of Revue will be upgradeable, meaning over the air, with 2.0.

But we have no plans to build a successor of Revue.

Our strategy in Google TV has always been a strategy of facilitating the establishment of an ecosystem and a platform, and then taking advantage of it as a peripheral vendor.

We have done what we needed to do to help the platform.

I think the platform has a chance to continue to grow, and hopefully will.

But, we're not participating in the infrastructure, if you want, of that category growth or the platform growth.

So for the time being we are sitting on the bench and seeing if this becomes a significant peripheral opportunity, we will take advantage of it.

And the fact that Intel has, kind of, retreated from the business, or -- does that pose any changes for you?

I don't know -- the decision of Intel is independent from what our strategy always has been on Google TV.

I think that you should not count Google out of this.

This is a very long-term strategic environment for Google and for a number of players.

Google is determined to be successful in the platform, and I wish them well, because if they are successful, we are going to take advantage of it.

Thanks.

Thank you.

Luc Mouzon, Amundi Asset Management.

Hi.

Thank you for taking the question.

My question is mostly regarding the gross margin dynamics and what are the underlying triggers, or items, we should look over the next 2 quarters?

By the way, is that recurring guidance will require the portfolio refresh to be accelerated or is that very much independent from the portfolio refresh at this stage, with it's 30% -- 33% guidance?

Yes, to give you a sense in terms of the gross margin dynamics, and you look at the second half of FY'12.

The single biggest factor in terms of helping us improve that gross margin, as implied in our guidance, is related to the improvements that Guerrino has talked about getting a healthier business in Europe.

We've made good progress to date.

This is everything from things that we have done with our channel partners, to sales execution, to promotions, other things, all the blocking and tackling that we know we needed to do better in Europe.

We're making good progress, so what you see in terms of that gross margin getting better over the second half, that's the single biggest factor.

Obviously, the other dynamics -- the things we can't control, I can't control macroeconomic, those types of things.

So, we take a current view and we pull that forward.

But, when we look at the things we do control, we feel comfortable that we are focused on the right things and executing against them from that standpoint.

To be more specific to your question, the gross margin implies trend up in our guidance for fiscal '12, includes whatever our product plans include for product.

They do include neither an acceleration or a deceleration of our product portfolio renewal.

They are consistent with what we expect to do over the course of the next 6 months.

I think that the current portfolio, across the board, has already the potential to deliver higher margin when it comes to a -- when supported by a cleaner execution in both live regions.

I think there is nothing exceptional that you should expect that lifts the margin other than the continuation of the trend that you are seeing.

Okay, and just a brief follow up on the Harmony line up.

It is difficult to just to figure out from the digital home category, at the moment, with the Revue situation, could you give us a bit of little light on the Harmony product line?

Should we expect some new product, as well, coming up from this line, and how do you see this category at this stage?

We definitely see exceptional products coming.

In fact, we are long overdue for new products in this category.

We just recently announced a very innovative product -- Harmony Link, which is very tied to smartphones and tablets, another sort of version of the Harmony line-up.

We just introduced it at the end of Q2, so it's too early to tell.

But, in general, we have focused on the entry level of the category.

I would say enormously successfully.

And, if you want my opinion, too successfully, in the sense we have provided decreasing upsell proposition for the Harmony user to actually get a better Harmony.

Some might say, ironically, that our entry level Harmony has become too good.

In fact, it's the mid-range and high-end that are not good enough, and we believe we can work there.

So the prospects of the category are significant.

There is still a very low penetration in the base of people that have 3 or more entertainment devices in their living room and, therefore, would benefit for Harmony.

The penetration level is abysmally low, and so, the potential is high, and we continue to lead the category in share.

So, we are the growth driver and engine of the category, and we need to strengthen, dramatically, our mid-range particularly in this case, and our high-end.

Our best products are 2 or 3 years old; it's not necessarily meaning they are obsolete, but they are no longer the exciting lineup that they were a couple years ago.

So we're working on it, you should see something, hopefully, before the end of the fiscal year.

It's another one of those categories that will require careful attention and absolutely obsessive focus.

As a matter of side information, in this particular case, our long efforts on developing Revue for Google TV has sucked resources from the Harmony organization.

It comes from the same, sort of, competence, in our living room teams and, of course, that hurt the short-term product delivery of the Harmony team.

The Harmony team is back on Harmony, fully, and therefore that's why I'm optimistic we will see great things from them.

Thank you very much.

That is all of the questions for today.

I would now like to turn the call over to Management for closing remarks.

Thank you everybody for being here.

And we all hope to see many of you at our up-coming investor day on November 9, 2011 in New York City.

Have a good day.

Thank you for your participation in the conference, this concludes the presentation.

You may now disconnect and have a great day.