羅技 (LOGI) 2012 Q3 法說會逐字稿

Good day and welcome to the Logitech third quarter financial results conference call.

At this time, all participants are in 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 now like to introduce today's host, Mr.

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

Please proceed.

Welcome to the Logitech conference call to discuss the Company's results for the second quarter -- the third quarter, excuse me, ended December 31, 2011.

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

As noted in our press release, we had 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 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 and subsequent filings, which are available online in the SEC Edgar database, and in the final paragraphs of the press release, and prepared remarks reporting third 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 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 Office, 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.

Our Q3 results were consistent with the findings from the assessment of our business that we completed earlier, last fiscal year.

The most significant inhibitor to higher sales continues to be product gaps across all of our retail product categories, particularly in the high end, where we do not have enough compelling offering to drive upsell.

One metric says it all.

Last quarter, products priced above $100 represented just 16% of our retail sales.

That figure was 24% one year ago.

Despite the general weakness of our offerings in the high end, many of our categories are performing well in the mid range and the low end, as demonstrated by the 8% year over year growth in unit shipments of our retail products in Q3.

The product gaps are particularly noticeable in the remote category.

The remote that generated the highest sales in Q3 was the Harmony One, a product that we launched four years ago.

As successful as the Harmony One has been during that time, we're late to bring a next generation high end remote to market.

The biggest reason for this was the shifting of our digital home resources away from Harmony to bring Logitech Revue, our Google TV box, to market last year, during the timeframe where they normally would have been developing a replacement for the Harmony One.

We're making good progress on it now, and we'll fill the gaps of -- in our remote line with the innovative offerings that will ship during fiscal '13.

Unlike remotes, the webcam category is one where we have consistently refreshed our product lineup during the last several years.

However, some of these products have missed the mark, due to shifting consumer preferences.

Many consumers find the embedded webcam experience adequate for their video calling needs.

Our product development focus has recently shifted to enabling the experiences that cannot be easily achieved with an embedded webcam.

Let me turn now to digital music, a large and growing market that is increasingly driven by the mobility lifestyle.

As I've said before, we did not take advantage of this strength for a long while, given our focus on PC speakers and sound quality at the expense of mobility, convenience, and frankly, coolness.

We have retargeted our product roadmap accordingly.

In the second half of Q3, we launched our the first of our new digital music products, the Logitech Mini Boombox.

We are pleased with the initial response to this mobile speaker and speakerphone combo, priced at under $100.

There is more to come in fiscal '13.

While not yet fully visible in our results, I am pleased to report improved execution across many aspects of our business.

One indicator was our Q3 gross margin of 36.2%, which reflected both supply chain efficiencies, as well as the benefit of improved margins on a number of products.

Speaking of products, I am also pleased with the progress of the new product initiatives we put in place over the past several months, both for the retail and enterprise market.

Addressing our many product line gaps and weaknesses is a multiple quarter process.

We believe the new products will make a substantial contribution to improved performance by the second half of fiscal '13.

The most significant operational improvement is in our EMEA sales region.

We believe our channel partners' inventory levels are now aligned with the current demand environment in Europe.

Even more importantly, we have resolved the channel pricing program related issues that caused many of our sales and profitability problems in EMEA during the previous four quarters.

We cannot control economic conditions, but we have largely fixed the things in the EMEA that are under our control.

As a result, we believe the region is well positioned for improved performance in the coming quarters.

Now, let me close by highlighting our strong cash generation in Q3.

We generated over $150 million in cash flow from operations, and we ended the quarter with $523 million in cash.

We have $177 million remaining under our existing share repurchase program, with all regulatory approvals in place to begin repurchases on our second [training] line.

With that, we're now available to take your questions.

Please follow the instructions of the operator.

Thank you.

(Operator instructions) And your first question will come from the line of John Bright with Avondale Partners.

Please proceed.

Thank you.

Guerrino, in the quarter, I don't think that the weak webcam or the remote sales, candidly, were that surprising, given what we've talked about and the information that's out there.

But I will say what kind of surprised me is the LifeSize sales.

Can you give me some thoughts on those?

Yes.

LifeSize grew less than what (inaudible) used to, and as you might recall, last quarter, we mentioned that there had been a lengthening of the sales (inaudible) cycles.

Particularly in the Americas, we believe it's economy related.

So, we saw the same in this quarter.

I think this is temporary.

I don't believe we've lost any market share at the room system level.

I think you will dramatic improvements in our infrastructure offerings disrupting, in a way, the way infrastructure is delivered for video conferencing.

So I'm confident that this is temporary, and I believe that LifeSize continues to have a significant potential for growth, moving forward.

But the current situation, I believe, is particularly driven by lengthening of the sales cycle, particularly in the -- sort of, established economies, United States, Western Europe.

We're making tremendous progress in emerging countries, but we're starting from a very low base.

So while the growth numbers are pretty significant, they don't yet contribute to a full growth that we expect to come back in the coming quarters.

Can you talk about the price and profitability of LifeSize?

Your gross margin, certainly sequentially up nicely.

I think you've fixed the problems in Europe, certainly exiting Google TV.

LifeSize, on a gross margin basis, certainly much more profitable.

What about on an operating margin basis for LifeSize?

Hi, John.

This is Erik.

Hey, Erik.

You know, from an operating perspective, LifeSize isn't yet profitable.

But as Guerrino talked about, and as we talked about in terms of it as we think about LifeSize, their product roadmap, and really, the opportunity in front of them to disrupt the market, gain share, we talked about how we want to grow in emerging markets, that's our primary focus.

And we feel very good about where that business is positions.

We do see the short-term problem that Guerrino talked about, but our focus is on growing that business going forward.

Okay.

Last question for me.

Guerrino, part of the new strategy you have in place is to penetrate the enterprise channel specifically from the peripheral side.

Can you talk about what you're doing along that strategy, and how is that strategy -- how far along are we in that strategy?

It's moving very well, John.

Our strategy is a combination of taking advantage of the UC opportunity, that by being the only company that provides both headsets and webcams to this growing market, and to focus our commercial efforts more aggressively on the traditional PC peripherals.

But obviously, the benefit in the enterprise are kind of much healthier than in the consumer market in established economies.

Both things are working.

We've signed up significant numbers of second tier VARs and distributors.

We're using, fundamentally, a distribution network at the first tier, but we are targeting them towards more enterprise focused resellers.

We've also closed our first enterprise only distributor, very -- a short time ago.

So it -- they're moving forward, moving along.

I think that that element of our business has a great potential for growing, and I'm glad that we're pursuing that.

Well, I'm going to hit one last one.

How big (inaudible) is that opportunity?

Well, we have not completely disclosed all this details, but I believe that this is a double digit growth opportunity in the segment for our -- both our PC peripherals and our UC peripherals.

Thank you.

And our next question will come from the line of Stefan Gachter with Helvea.

Please proceed.

Yes, thanks a lot for taking my questions.

I have two short questions.

Number one, I recently have learned that you guys secured a revolving credit line of up to $400 million.

I'm just wondering what's this all about, I mean, since you guys are highly net cash positive.

I was (inaudible) myself whether you are going to go for a large acquisition.

And number two, could you give us an update on the (inaudible) arena?

Okay, I'll let Erik comment a little bit more in detail about the credit line.

It's actually $250 million.

And in the past, we've had unsecured credit lines.

This was a routine operation to secure them.

There's nothing behind it.

There's no specific plan -- in fact, there is no plan for utilizing these lines in the short to medium term, so -- but it's much, much healthier in an economy that is very, very, very scary to secure as much resources for the Company as possible.

But, behind that, no plan for a large acquisition -- or, no plan for actually tapping into a line.

As you said, we have a substantial amount of cash, and we can develop our business on a regular basis through our cash flow.

On the CEO search, thank you for the question, maybe I expected all of you would love to see me gone, because I've now become so bad at predicting our future results.

I don't think that that's the case.

I hope it's not the case.

But the search is progressing very well.

I'm not in a position to tell you, to give you a schedule, a deadline.

But I am pleased by the candidates that I'm seeing, and a lot of smart people are interested in Logitech and the opportunity to make this icon shine again.

Okay, thanks a lot.

(Operator instructions) And our next question will come from the line of Rob Lamb with Citigroup.

Please proceed.

Mr.

Lamb, please check your mute feature on your phone.

And our next question will come from the line of Andy Hargreaves with Pacific Crest.

Please proceed.

Hey, guys.

I apologize if this is a repeat, because I was a couple minutes late.

But I just wanted to ask, on the gross margin, I mean, for a decade, basically, it was a really, really consistent number.

And so, what's changed to get you into this kind of mid to upper 30s, from the lower 30 range, and is that a sustainable number in you guys' mind?

Well, you know, it's -- we have been indicating a higher target for gross margin for a long time, and if there is one thing that has stayed intact in our -- in the business model, in the long-term model that we've tabled, as we all know, expecting, waiting to revise it when we have a better sense of what the engine is doing.

Certainly gross margin is a feature that I do not expect to see dramatically changing.

We are an efficient company.

Our mix drives that.

We execute well.

I believe LifeSize does help in that portfolio.

So, I would say that this is part of the operating effectiveness of Logitech, that in spite of some glitches over the past couple of years, is still a feature of the Company.

Okay, and then just on the keyboard side, on the iPad keyboard side, can you update us -- are you guys manufacturing all of those units at this point, and can you give us any sense for, kind of what the mix of the licensed keyboards versus Logitech keyboards is?

The number of keyboards that we designed, we may or may not manufacture them, by the way.

There's a lot of products that we design and do not manufacture, and iPad keyboards fall into that category largely.

The mix is increasing towards product design by Logitech, but our partnership products continue to do well, and in fact, the entire category is doing well.

We believe we are just growing nicely.

And you should expect significant Logitech designed products coming in fiscal '13 in this category.

Do you have a sense for what the overall keyboard attached to tablets is?

It's high, and we are taking advantage of that.

It's -- I don't have a number with me, but it's certainly in the, sort of, mid single digits -- double digits, sort of talking about maybe 20%.

But you know, don't quote me.

I think -- I know, I don't remember it right now, but I know it's very high.

It's one of the most attractive categories around the pad except for covers and things that we don't do.

And -- sorry, the thing I'd add to that, the trend that you're seeing more and more as the iPad and as tablets go into enterprise, go into business, we see it as an opportunity where that's going to continue to be a nice opportunity for keyboards, and things that enhance your tablet, make it more productive, make it more a true portability device, where you can do more things in a business environment.

Okay.

Thank you.

And our next question will come from the line of Rob Lamb with Citigroup.

Please proceed.

Apologies for before.

We had some technical difficulty.

I just wanted to know, how confident you are in the $60 million operating profit guidance, and if there were some issues with revenue in the (inaudible) for the year, what do you suppose you can pull in OpEx to achieve that?

Well, thanks.

I do understand the reason for your question.

We have been, as I said before, pretty poor in projecting our revenue moving forward, and I can only say that I'm the only one to blame.

I believe that, as we said in our release, the biggest driver for the decline in our guidance, the outlook, is the euro.

When we set the guidance, the euro was substantially higher, and it has declined at probably the most rapid rate we've seen in a long time.

I'm not telling you anything new.

So we have now factored in the current trading range of the euro, of course.

And that -- no, I can't say if that is going to be the actual exchange rate that will apply on average for Q4.

But you know, just for your information, this guidance comes with an assumption of current trading range for the euro.

Other than that, yes, I am confident that we will meet that number.

All right, thank you.

And just to clarify, if there was another issue, then what levers could you pull?

In OpEx, maybe?

While we try to have a company that is responsive against a collapse of the euro, it's very hard to pull any lever in the very short term.

As you know, when the euro goes down, our sort of structural weapons are pricing.

But you don't just change pricing overnight, just because the euro collapses.

At least, I don't expect that.

In terms of the long term, maybe your question is suggesting what are you going to do in the medium term?

It's clear that the focus number one of the Company is to sort of regenerate growth, (inaudible) innovation, and execute increasingly effectively.

And the cost structure will then sort of be consistent with what these actions will create.

And so, rest assured that that's part of my fiscal responsibility, and I will act accordingly when and if necessary.

Okay.

Thank you very much.

And our next question will come from the line of Michael Foeth with Bank Vontobel.

Please proceed.

Yes, hi, Guerrino.

Hi, Erik.

Hi.

First question, on gaming.

How are you thinking about the future of this category, both in console and PC?

We've seen our retail gaming results being scattered.

You know, we will do very well, and then less well.

The major driver in the short term, in the past couple of quarters, has been this resurgence of a steering wheel.

That has been driven by particular games.

Every time you have a success which is driven by one particular game, it tends to be very -- you know, if it works, it tends to be very good in that first short period of time, medium period of time, and then it sort of fades away.

The biggest gaming opportunities exist in the PC gaming category.

It's been actually growing, and we're talking about mice and keyboards designed specifically for gamers.

It has been growing, and I think it can grow faster.

It's one of the subset, (inaudible) of the PC business which has potential, and we'll take advantage of that.

So will you continue to serve the console gaming space, or are you withdrawing from that over time?

At this point, we are not.

But increasingly, consoles will provide cross platform opportunities.

And when that happens, we will take advantage of those.

Let's be more specific.

Dedicated controllers, or dedicated consoles that do not allow cross platform utilization, we are not interested.

But for example, the Xbox is promising substantial cross platform opportunities across the entirety of Windows 8, and we'll certainly take advantage of that.

Okay, great.

And then my second questions would be regarding mice.

I've recently seen more and more, kind of branded HP mice in retail shops.

So my question is, are they moving away from the OEM approach, or are they trying to compete with Logitech in retail, or what is going on with that?

Well, thinking that HP would actually focus on mice is a little bit extreme.

We have not lost market share.

Actually, we gain market share.

Just to give you a sense, in the last data that I have, we have more than 50% of the US market in mice.

It never happened.

So I -- we are definitely the mouse king.

We will continue to be the mouse king.

I have no reason to believe that HP is doing anything else that they have done in the long time.

I don't even know if they design their mice.

They do have mice.

They sell them mostly in the enterprise market as attachments to their own other enterprise products.

No, I don't consider that this is a matter that should give us any pause for concern.

But then, you are not producing these, or --

No, we're not.

Okay.

So we are still -- just to be very clear, we're still a supplier of HP and virtually every other PC manufacturer on the OEM side.

But we're not building retail mice for these companies.

Okay, thanks a lot.

(Operator instructions) And our next question will come from the line of Michael Studer with Bellevue.

Please proceed.

Yes, hello, good afternoon.

I've got also three questions.

Maybe the first one, pretty simple, on the tax rate.

I mean, you've changed pretty significantly your guidance now for this year.

Can you elaborate a bit what influences this tax rate, and what should we think going forward?

Yes -- no, happy to answer that question, Michael.

You know, in terms of when you look at a quarterly tax rate, that can be very volatile.

There can be things such as discrete events in last year versus this year.

So I'd actually say, to your point, the right way to look at us from a tax rate perspective is to look at the full year basis.

And when you look at the full year basis, the single biggest factor in terms of why our rate is changing on an outlook basis is related to the fact that the drop in our outlook in profitability for the year.

All right?

Because you estimate that as you go through the year, and you estimate your provisions needed, you know, etc., in terms of how you think about your taxes and the tax rate you end up with.

And also, to give you a little bit of, just perspective on it, is when you look at us over the last several years, as we've seen, our tax rate does tend to move inversely to the growth in our profits, and that's what you're -- that's the reaction you're seeing here.

Very consistent with that.

Okay.

So there is not much geographic impact.

So, thinking of your upper US being -- growing way slower than Asia doesn't have a big impact on tax rate.

It's more (inaudible) reaction on growth, actually.

Yes.

It -- the last part of what you said there is right.

In this particular case, the biggest driver is that factor, in terms of the change in our outlook.

But just to make it clear is, yes, we -- all the time, we have changes in geographic mix, which does move around.

But it wasn't the primary driver in terms of what changed this time.

All right.

And then one question on your cost structure in general.

I mean, what we've acknowledged a bit is that, as you say, the gross profit margin is actually rising in the recent years, whereas marketing and selling costs is rising as well.

So, actually, your operational leverage exposure has risen recently.

And therefore, the risk actually on the operational leverage has increased the profile.

So my question is a bit, is that how we should think -- that's how we -- it's going forward, or can we assume that your marketing and selling costs, so your fixed cost block, will kind of tend to go towards the levels we've seen in the, let's say, two years back or so?

That's a complex question to answer.

Let me say that on a sort of non-marketing side, we do not expect our G&A, for example, to grow, in absolute terms.

So there will be substantial leverage on that front.

On the marketing side, it depends on the mix.

On certain initiatives, the marketing requirements are higher than others.

Driving, for example, LifeSize, is a substantial operating expense embedded, but comes with a much, much higher margin than the mix of the company.

Certain consumer initiatives will require marketing.

Others will require less marketing.

So net, I would say that at worse, you should expect marketing to grow with sales, but it should be doing better.

And the -- my view on the long-term business model of the Company, while I am not prepared to [numerize], or just completely quantify it, I do believe that the leverage is embedded, and we will resume it as soon as our growth resumes.

And I think that's the number one driver for the Company, number one focus for me at this point.

Reigniting growth will benefit all the structure of the business model.

There is no reason to believe that that's not going to be the case.

But assuming, let's say, this decline, for example, into next year, would you assume that you're flexible, especially on the marketing and selling front as well?

Or should we already think of a fixed cost block that --

Absolutely not.

Absolutely.

Thanks for clarifying that.

A, we're not assuming that we will -- our sales will decline next year, and I will -- I would not say more than that, at this point.

But in that, I'm positive we do have our fixed, our true fixed, is actually much lower than the number that we actually spent, and we do have marketing leverage.

And we exercise it all the time.

That is one that we can exercise and will exercise, even in the short-term.

So, that's not -- no, it would not be correct to consider those fixed costs.

Thanks.

And our next question will come from the line of Joern Iffert with UBS.

Please proceed.

Hello, gentlemen.

Thanks for taking my question.

Quick one on the R&D expenditures.

Can you maybe give us a more detailed product category?

How much, for example, are tablet peripherals, LifeSize, webcam and remotes?

Thanks.

Yes, Joern, in terms of the growth that we saw in R&D on a you basis in the quarter, it's almost exclusively driven by investments in LifeSize.

So, no other specifics in terms of seeing it grow at a high rate in other categories.

It was driven by the investments in LifeSize.

Let me add something here.

I said and repeated many times that the right products, great products, are essential to our growth.

And if you take everything out, if you take the euro out, if you take anything else that we discussed in this call and in the past, this is the single biggest, most important priority of the Company, and this is where we are most behind.

So, if I need to spend more in R&D to make that happen -- I'm not expecting to, because this is not a question of quantity, it's a question of quality.

But that is the lever that I'm ready to pull.

Because -- because -- you know.

All successful companies in the consumer market have proven that great products drive everything.

And we just have to do more.

Now, if I look at the roadmap in the next 12 months, I'm actually pretty excited.

I like what I see, and I want to see that these products happen, happen on time, and eventually get the impact that I expect they will have.

It is -- there is nothing more important for Logitech.

Thanks.

Can you then also confirm that you are further investing R&D in webcams and remotes?

Well, that's a (multiple speakers) --

So the R&D expenses, it's not declining in absolute terms?

Well, that is -- I can't say that.

I cannot say that.

We're not crazy.

We will look -- we will put our R&D money where we expect we can deliver maximum consumer benefit.

And in some categories, we can.

In some categories, we can less.

But we're not splitting, we don't talk about how much we invest in each of the categories, and certainly, I won't make that exception today.

But just be clear.

We are not flattening, saying every -- you know, we could put more money in everything, because we think everything is great.

I mean, we are a little bit smarter than that, even though it may not look like it today.

We are definitely identifying the areas where the best opportunities for us to differentiate and to provide a meaningful consumer experience exist.

And this may or may not be webcams or Harmony.

But you know, I wouldn't go further than that.

Thank you very much.

(Operator instructions) And our next question is follow up question from the line of John Bright with Avondale Partners.

Please proceed.

Thanks, Guerrino.

Let me dovetail on those questions.

And I think the basis for that questions is that any time a company is doing a product refresh, there's a concern that OpEx gets out of control.

I think they were dealing directly with R&D.

Can you talk about the sales and marketing side of that as well?

And do you actually look at R&D on a product basis, i.e., the spend, or does it have overlap?

We definitely look at R&D on a product and product category basis, absolutely.

We definitely do that.

But if -- thanks for clarifying what's the concern behind the prior question could be.

The last thing I would say about our total expense envelope, and it is, that it is out of control.

It is completely in control.

We know what we're spending, and we know what we're spending for.

As I said and repeat, our R&D expenditure, which actually happened to be a very small percentage of our total revenue, continue to be precious to me as long as we know where to apply it.

Then we will use marketing where we need it, in a more extensive way, or in a less extensive way, depending on the category.

But no, there's -- again, my concern is not whether we are able to control our expenses.

My definite concern is, how do we set the business model so that it is consistent with our growth opportunities?

And that is something that we definitely are looking at.

Different question.

Certainly at CES, ultrabooks were a big theme, and they look to be so in calendar '12 looking forward.

How are you thinking about ultrabooks, and peripherals for ultrabooks?

We think that is great.

Anything that moves the PC forward is great, and ultrabooks are one of those elements.

We believe that mice are going to be very attractive for ultrabooks.

We have products today.

And more will come.

Ultrabooks, and also, I would add, Windows 8, will create another dynamic in the PC market, will make touch more mainstream.

And that's another thing that we will take advantage of.

If you remember, Investor Day in November, we sort of alluded to something in that front, and I still believe that that's a great opportunity.

So, ultrabooks are a good thing, and I've seen the same kind of myriads of ultrabooks.

Everybody wants to have their own Mac Air these days, and that's a good thing.

That's a good thing.

We don't believe that there is any reason why ultrabook users would not want to work more comfortably with a mouse as much as a notebook user would.

Erik, a follow up question for you on my original questions.

One, what size in sales does LifeSize need to be to become profitable?

And then, a separate question is, on an overall basis, particularly on the peripheral side, what's the health of the inventory?

So, to your question about LifeSize, it's not a question of absolute, that you get to a particular number and you magically get to a certain level of profitability.

You know, we are really running that business, as I mentioned, in terms of looking for where we continue to be able to find opportunities to take share, and as Guerrino mentioned, really disintermediate and disrupt that market.

And we feel very good about the product lineup, and we think there's several things over the course of the next couple of quarters that are going to continue that trend.

You know, when it gets to thinking about their income statement, we don't disclose income statement details about LifeSize, but when you think about it, it is a scaling aspect.

So today, the operating expenses and other things are typically moving in line with the top line.

So it comes to us continuing to focus on how we grow that business, and we feel very good about the profit potential.

But the focus right now today, it doesn't matter to me today, it doesn't matter to me to get another dollar of profit out of LifeSize.

It is, how much share can they gain, how much can they go after that space?

To your other question about the health of the inventory overall, are you asking about channel, or are you talking about our inventory itself?

Both.

Both.

So to give you a little bit of sense, on the channel side, I think -- and Guerrino mentioned it, and we talked about it in our prepared remarks as well.

We've talked about that we've struggled the last couple of quarters in EMEA a little bit.

We've actually made very good progress operationally there.

We have -- our channel was down 22% year over year in Q3 in the EMEA region, so we're making good progress.

We feel good about where we're positioned.

And so overall, I would say, channel is definitely healthier than it was several quarters ago.

We obviously watch it very closely, and you know, as we said, we can't control the macroeconomic environment, but we're going to respond to it and go from there.

In terms of Logitech inventory, it was down about $29 million sequentially, about 9%.

And down just a little bit year over year.

So I would say it's appropriate, given where we are.

It's another thing where we are currently -- constantly managing transition of products in and out.

But I think overall, the health is solid.

That's how I'd describe it.

Thank you.

And our next question will come from the line of Zahid Hussein with Citi.

Please proceed.

Mr.

Hussein, your line is open.

And our next question will come from the line of Tavis McCourt with Morgan, Keegan.

Please proceed.

Hi, thanks for taking my question.

I apologize if you answered this.

I missed a good part of the call.

But in terms of LifeSize, I guess, could you characterize the competitive environment now, and where you actually see those market share gain potentials?

Because it certainly appears like the market share gains LifeSize was making over the previous couple of years have slowed down.

Thanks.

We definitely believe we can continue to compete in the room system level.

We continue to plan for further disruption at that level.

I think the biggest opportunity, though, as the market is going increasingly mobility, and sort of cloud, we are definitely planning to aggressively play those two cards.

We made acquisitions on that front, we made a products announcement in outsourced video conferencing, large size connect.

That is a direction that we will employ increasingly, to play a different game.

So I believe that that's -- the outcome of that will determine the growth opportunity and the market share opportunity of LifeSize.

Now, the market is complex, so market share is measured in many, many different ways.

And we are interested in taking advantage of the discontinuities -- in fact, to lead those discontinuities in certain cases, and that's our primary focus.

Great, and then a follow up.

One of the things you mentioned at the Analyst Day, Guerrino, was really trying to get to market faster with Apple products, where you've kind of lagged historically.

Yes.

Yes, yes.

Where can we -- you know, when you walk into a retail store now, we see almost a different set of competitors on a lot of the Apple peripherals than we've seen traditionally in PCs.

And so, there are big companies that literally bet their entire businesses on Apple.

You know, to what degree do you expect to kind of be on par, in terms of number of SKUs and speed to market, with those types of companies?

We are more focused on velocity and the sales than number of SKUs, frankly, but your observation is correct.

We have been kind of pretty absent, or marginally present in Apple stores.

Our presence has increased.

You know, we have increased the number of products in the wearables area, the Logitech UE products.

In fact, they're doing well.

We have -- we will increase soon, and I'm not sure if I'm at liberty to discuss that, but some further presence in music, let's put it this way.

We happen to be one of the best selling keyboards for the Mac on the Apple site, and our solar keyboard for the Mac has been received incredibly well.

We've actually been short of that product for a while, because -- you know, the response has been much better than we expected.

In general, you should expect us to be more present, both in the categories that exist in the Apple store today -- music, definitely, but also in categories that are more traditionally Logitech.

We intend to pursue the strategy of making our best product first for the Mac, and move them on the PC, and you will see examples of that in fiscal '13.

Great, thank you.

And our next question comes from the line of Zahid Hussein with Citi.

Please proceed.

Hi.

Can you hear me?

Yes, I can.

Hi, yes.

I'm sorry, we're having technical problems on our side.

It's Zahid Hussein from Citigroup.

Just a couple of questions, if I may.

The first one is really around visibility, Guerrino.

So, this is not the first downgrade we've seen, and obviously, it's not the first time you've had to take your profit guidance down.

(inaudible) come down about $200 million, $300 million, I think $400 million so far this year.

What I really want to understand is, you've now taken it down again.

Obviously, you've factored in FX at the last quarter of the year, you know your portfolio coming up.

I want to know how convinced you are that there's no way that your revenue number will be below $2.3 billion.

And also, why you're so confident that you'll definitely hit the $60 million, because it is a very, very big downgrade to -- I guess where even the most bearish are sitting.

That's kind of the first question, really.

The second question is, obviously, you've got a very, very solid cash pile now.

I understand that you're trying to be strategic about the environment that's coming up.

And other areas that you'd look to grow the business is on a small, bolt-on acquisitions you'd think about, other things around LifeSize that you could do to maybe make the portfolio slightly more attractive?

And finally, just really, on OpEx control.

Obviously, you've got to kind of invest a little bit more in APAC to build up that channel.

How quickly can you kind of cut down your -- your sort of overheads if you needed to?

Let's say, demand really falls off a cliff in the next six to ten weeks.

Thanks.

Wow.

Six to ten weeks is actually a short time, and we do not expect the demand for -- to fall off the cliff.

And yes, we have some levers, as I said in another question -- in answering another question.

Let me go to the core of your question.

I could not be more disappointed by the fact that for four times, we had to lower our outlook.

I mean, you can understand that.

And every time we did, we had our best minds on it, we had our best data on it, and we just -- you know, mis-forecasted.

This is the last time.

I mean, I would not even answer that question, because you know, what kind of credibility do I have?

If I tell you that I am confident, you will say, yeah, right, you were confident three months ago.

So, we actually struggled on the fact of whether we wanted to put out a number or not, and we expect -- it's two months into -- one month into the quarter, almost.

We know what we think.

Not to share it with our investors and analysts would be a little bit silly.

But I understand the risk.

The risk is, hey, you may be wrong again.

What I say, is that I will just -- you know, I will swear on the head of my children that the numbers, we're going to make?

No, of course not.

But believe me, we have considered everything we could consider.

The trends, the channel, the products, the consumer, the customers, and that's what we come up with.

That's all I can say, and frankly, you know, there is not additional reassurance I can give you that will take away your concern that we actually were wrong four times.

And I have to live with that.

On the investments, and how quickly they return, etc., as I said, and I repeat, there are areas of our business, products, regions, markets in which we are investing and we will invest.

We expect those investments not -- that these are not a semiconductor company investment.

They will not just have to return in six years from now.

They are all relatively short-term.

We've seen what we've done in China.

China continues to grow spectacularly well.

We continue to invest, but China is a profitable element of our portfolio, and will continue to be.

So, I would expect similar profile in geographic and commercial investments.

There will be some increase, and then a short-term return.

Or, we'll stop it, if it doesn't return.

On the R&D side, as I said, we are investing, and will continue to invest moderately, because I think it's -- in R&D, it's not throwing additional engineers to the portfolio.

We are refocusing those engineers.

We have almost 1,000 in our product group.

We are refocusing on products that are more meaningful -- maybe fewer products.

But definitely, more meaningful, more impactful, than the sort of quantity is good strategy we have had for the past three or four years.

That has changed.

Will it require more R&D?

Not necessarily.

Will it require R&D?

Definitely.

I'm not sure if I answered -- sort of the portfolio of the question here.

Yes, but -- mainly.

I guess just a follow up to the first, then, and I'll ask you what the other ones were.

I mean, in terms of your confidence, then -- I mean, that's the best way to look at it.

So very -- last time we spoke, you were very confident about the $90 million --

Yes, I was.

-- now coming to the $60 million.

How has your confidence changed?

I mean, you knew what your portfolio looked like six weekends, 10 weeks ago, 15 weeks ago.

You knew what it looked like on your Capital Markets Day.

So what has changed today that makes you even more confident?

Is it the magnitude of the downgrade?

Or is it the fact that right now, that's the kind of minimum level you'll be at?

That's what I'm trying to gauge, because the $90 million for me was always unachievable, whereas the $60 million for me looks like it's very much a sort of low end target for you.

Is that, for you, an aggressive target?

I would not characterize the target.

Let me tell you two things.

The difference between the $90 million and the $60 million is fundamentally -- there are two reasons.

Number one, as we said and repeated, there's a significant component in currency, and that, we cannot control.

Remember, when we gave that guidance, the euro was at the end of its sort of high -- I say the end, because the euro will probably never get back there -- at the end of its trading range, at the highest point of the trading range.

And that -- the impact, if you just calculate arithmetically on the top line and on the bottom line, it is very significant.

And responding in a short time to those currency changes is virtually impossible for any company.

So that's one element that says, yes, maybe I was wrong in guessing the euro.

We never do guess the euro.

We take the current trading range, and supply it.

So, that's number one.

Number two, the $90 million was looking at a six month period.

Now the $60 million looks at a much shorter period.

So these are the two big differences.

Is the $60 million aggressive, conservative, regular?

I won't even characterize it any way.

It's the number that we are comfortable for sharing today.

Okay, great.

And finally, just in terms of the investments that you could potentially do -- so obviously, there must be some certain things that you'll be looking at, not only in terms of R&D, organically where you can go into that.

Clearly, evaluations of a lot of your businesses that you might be looking into are coming down a lot, and certainly, with that sort of cash pile, it maybe makes sense to -- you know, add to your top line.

Yes, I'm sorry.

I missed that part of the question, so I apologize.

As usual, we are definitely always looking.

We are not considering a major acquisition, to be very clear, and that's sort of -- I am tying to the question about the credit lines, etc.

No, we're not.

But bolt-on, small acquisitions, absolutely.

In the LifeSize space, outside the LifeSize space, absolutely.

But bringing top line has never been the strategy with any of our acquisitions, and I don't believe it will be the strategy of any of our future acquisitions.

We are always -- we've always acquired growth engines, and that's the kind of focus.

Or, ingredients.

The Mirial and (inaudible) acquisition were great ingredients to enable LifeSize to play into this disrupted -- sort of, mobility-slash-cloud infrastructure development.

And so things of this nature, absolutely.

In the more traditional Logitech space, certainly.

But acquisitions that add top line upfront, not the priority.

Great.

Thanks very much.

Thank you.

Ladies and gentlemen, that concludes our conference call today.

You may all now disconnect.

Good day, everyone.