羅技 (LOGI) 2013 Q2 法說會逐字稿

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

(Operator Instructions).

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

I'd now like to introduce your host for today's call, Mr. Joe Greenhalgh, Vice President of Investor Relations and Corporate Treasurer at Logitech.

Please, proceed, sir.

Welcome to the Logitech conference call to discuss the Company's results for the second quarter ended September 30, 2012.

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 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 of the 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 Logitech's annual report on form 10-K dated May 30, 2012 and subsequent filings, which are available online on the SEC/EDGAR database, and in the final paragraphs of the press release and prepared remarks reporting second 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 are Guerrino De Luca, Chairman and Chief Executive Officer; Bracken Darrell, President; and Erik Bardman, Senior Vice President of Finance and Chief Financial Officer.

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

Thanks to all of you for joining us today.

The recent, significant slowdown in the PC market took a toll on our sales in Q2.

Sales in all of our PC-related, retail product categories were below our expectations, and the category with the largest shortfall was pointing devices.

We believe the lower than anticipated sales in our PC-related categories were significantly influenced by the deteriorating condition in the global PC market, and it is increasingly clear that our pointing device category is the one most correlated with new PC sales at this point.

I must say I was quite pleased with the quality of our execution during Q2.

In spite of the 7% decline in our sales compared to the prior year, we delivered slightly more operating income.

And the primary driver of our improved leverage was the 210-basis-point increase in our gross margin, which reflected several operational improvements and more than offset the negative impact of a weaker euro.

We continue to execute per plan with our new product launches with the release of compelling new products for tablets, smartphones, the digital home, Mac, and Windows 8 in time for the holiday season.

I'm excited about all of our new products, and let me highlight a few of them for you now.

As part of the late Q2 rollout of our line of Logitech UE music products, we launched the Logitech UE Mobile Boombox, an ultra-portable speaker that connects to up to two smartphones or tablets at the same time to play and control music wirelessly from up to 50 feet away.

The Logitech UE Mobile Boombox sets a new price performance level in the emerging wireless speaker category.

We decided to make our new Logitech UE offerings initially available, primarily, through the Apple stores.

Distribution will expand significantly as we progress through the current quarter and beyond.

We announced a new lineup of products specifically designed to work with the Windows 8 touch interface, including two touch-enabled mice and a wireless touchpad.

We introduced our Logitech broadcast Wi-Fi Webcam, which provides the flexibility to do more than other Webcams, including live streaming and shooting professional-grade videos from different perspectives.

We also recently revitalized our Harmony remote offering with the Harmony Touch, our first new high-end Harmony in several years.

This is all to say that our plan of revitalizing our product portfolio is on track.

We are focused on large, non-PC-related categories, as well as on preparing to take advantage of the major discontinuity in PC navigation brought by Windows 8.

Speaking of products, we are very pleased with the sales of our ultrathin keyboard cover, which includes a protective cover for the iPad screen, as well as a built-in keyboard that pairs via Bluetooth.

This feature list does not do justice to the appeal of this product.

It was our best-selling product, by far, in Q2, all categories included.

And demand continues to be quite strong as we enter the holiday selling season.

Let me turn the call over to Bracken now, and I will return shortly to provide a wrap-up before we start the Q&A.

We witnessed significant deterioration in the PC landscape in the last 90 days.

The global market for new PCs has proven itself even weaker than we anticipated.

It's unclear how much of this weakness can be attributed to the pending launch of Windows 8, but it has negatively impacted our second half sales outlook for our PC peripheral categories.

In addition, we've also experienced much more softening in the emerging market demand, with China the most significant.

We believe our weakness in China is primarily a result of the country's softening macro conditions.

We continue to see a significant growth potential for Logitech in China.

The PC penetration rate is relatively low.

Our brand is well established in our categories, and we're focused on making our products available wherever consumers choose to shop.

For the last several years, we developed our China presence primarily in the big IT malls.

These malls were consumer hubs for all things PC related.

We're seeing a gradual shift now toward more modern retailing with the expansion of both big-box retailers and e-commerce in China.

As you would expect, we're aligning our retail sources within China with the evolving retail environment.

China remains a large opportunity for Logitech, and we expect to return to growth there this fiscal year.

I'm also, as Guerrino was, pleased with our execution across multiple dimensions of our operations.

We're executing our bigger and fewer products strategy with the benefits expected to become visible in the second half of this fiscal year and continuing into fiscal 2014 and beyond.

We're making good progress reducing our product costs and our operating expenses, in line with the goals of our restructuring.

And we're simplifying many of our key processes.

These improvements should start to become visible externally beginning in fiscal 2014.

In looking at the remaining two quarters of fiscal 2013, we're planning for continued, strong headwinds in the global PC market and expect this will have a negative impact on our PC peripheral sales.

It's possible that the launch of Windows 8 could become a positive for our PC-related categories this fiscal year.

We will be present around Windows 8 with a compelling array of targeted products from launch, but we do not believe it would be prudent to plan for a quick rebound of the PC platform and our sales around it this fiscal year.

Because, on this -- based on this planning assumption, we now believe the weakness across our PC categories will more than offset the gains we expect to achieve from a stronger product lineup, our increased presence in non-PC-related categories, improved execution, and reduced costs.

Consequently, we now anticipate our sales and operating income for the second half of fiscal 2013 will be below that of the second half of our prior fiscal year.

As you'd expect, we'll manage our spending in line with the current environment.

In addition, we're taking a hard look at the various categories of our business to assess where we should accelerate or change any parts of our strategic plan with the goal of improving the Company's performance.

I look forward to updating you on our progress in January.

Now let me turn it back to Guerrino.

When I look back at the plans we shared with you last quarter, it's clear to me that the most significant change has been the accelerated deterioration of conditions in the global PC market.

Conditions are even worse than we expected, and that has led us to reduce our expectations for sale in our PC peripheral categories for the remainder of the fiscal year.

We are pleased with our execution in delivering great products in hot categories, reducing our cost base, and simplifying our portfolio and our Company.

We've entered the holiday selling season with our strongest product portfolio in several years.

We are encouraged by the initial response to our new products from our channel partners and from consumers, and we will continue to manage the things that we control to drive improved performance.

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

Please, follow the instructions of the operator.

(Operator Instructions).

Alexander Peterc, Exane BNP.

I just have two category questions.

The first one will be on audio, which was actually very weak and one of the key disappointments in the report.

And, of course, the PC cycle doesn't help.

But perhaps it was the sudden death of the docking speaker which was behind the decline in revenue as well.

So it would help if you could quantify how much of the decline was down to dock speakers and how much to the PC cycle overall.

Or, perhaps, tell us how much docking revenue is left that will disappear from your portfolio there.

And, also, do you expect audio to improve in the current quarter with the new range, or will that not be enough to come back to growth in that category?

And then, secondly, on iPads keyboards, obviously, very strong momentum there with the ultrathin, in particular.

Do you expect that to accelerate further?

And do you have any plans to upgrade the existing lineup of tablets' keyboards or an expansion of that range?

And do you think a cover keyboard for the Apple mini, for example, is feasible?

Thanks a lot for taking my questions.

I'll begin answering.

I'll let Bracken sort of give you a more rounded answer.

You are right in identifying -- audio is a catchall category.

There's legacy products in there, and there's the future of our music business in there.

The future of music business is doing well.

It's impossible to compare it with the past because there was no future music business in the past.

So the business -- the audio category was fundamentally PC speakers, PC headsets, and docks.

So you're right.

Both the PC speakers and PC headsets are influenced by the PC decline.

And docks have been condemned to extinction at some point; in particular, by the changes in connectors that Apple made.

So they all contributed to the decline.

I will leave it to Bracken to add to this and to talk about the iPad product.

Yes.

Just to round out that answer, as Guerrino said, on the music categories, it's about -- it's proceeding about as we expected.

It's a decline in the legacy markets, especially the docking.

And then we've got growth as we expected in the new markets, where we see not only the category growth but our opportunity to really gain significant market share over time.

On the iPad, yes, we're very excited about what's happening in iPad accessories.

I mean, we've got -- I think we've said we've almost tripled our business versus year ago.

And, yes, we absolutely will continue to work on products for the future, as you would expect, related to the iPad mini.

We're not going to announce anything today.

Okay.

Thanks a lot.

John Bright, Avondale Partners.

Guerrino, Bracken, I'll follow up on the last question first.

He asked -- could you quantify, maybe in the quarter, how much of the sales were from, let's call it, in the audio segment, traditional audio products versus new products looking forward?

Let me give you a little bit of sense there.

Guerrino touched on it briefly.

When you look at our audio portfolio today, even though we just launched the products that we've talked about, the ones in headphones, the one in wireless, Bluetooth speakers, it's very small relative to the legacy business.

We just launched it at the beginning of September, and we just started to get full distribution as we got into the month of September.

So, for now, suffice it to say that the vast majority of audio is made up of the legacy business.

Now, we would see that changing over time.

And I think, in Q3, when we show you the results for Q3, we'll be able to give you a sense of how have we gained traction in the new products and sort of where does the legacy stand.

But, today, it's significantly legacy products.

I said in the prepared remarks that we are fundamentally -- first of all, we launched the Logitech UE line late in the quarter, and we restricted distribution at the beginning to the Apple stores, fundamentally.

We did that because we believe there is an enormous value -- marketing value in being present in the Apple stores.

Our presence there is the biggest presence that Logitech ever had in Apple stores.

And we believe that will benefit the category, ourselves, beyond those distribution channels.

But Erik said it right.

Our results in Q3 -- we'll be able to sort of better articulate how well this category is doing.

A question on the guidance you provided.

Can you offer any level of magnitude that sales and operating income might be down, one, and then, two, whether or not you have much impact built in from Windows 8 associated with that?

And, I guess, three, help us get a sense of how much of this is related to -- I'd assume the majority is related to traditional PC-type products just not -- or declining faster than your new products, you think, are going to contribute.

Yes, I'll go through each one of those.

Can we give more guidance than we've given you in the release on our outlook for the back half?

The answer is [not no].

But we do see -- we see a pretty big range there, and it's based on the fact that the Windows 8 impact is pretty difficult to predict right now.

And the impact of our new products that are rolling out is also -- it's very early, so it's hard to say, although we feel very good about them.

Yes, Windows 8 as a platform is coming through -- it's rolling out right now.

So we certainly have products around it that we're very excited about.

How quickly it takes hold is a question mark.

And the last part -- we feel very good about the new products, as I said, it's about Tablet accessories, music, the products that are attacking the new computing platforms.

And we feel not so good about the PC platform right now.

It's in a slowdown.

And, as Guerrino said in the beginning of the call, the second quarter was a pretty big dip.

What's going to happen in Q3 and Q4 is, I think, anybody's guess.

But we're going to plan conservatively.

Let's talk about the -- reassessing your strategy within some of the PC-related product categories.

What specific, strategic changes could you share with us that might be under consideration?

Well, we're not prepared to get specific today, although I'll come back to you in January and give you some specifics.

What I can say is we're going through every category, the strategic choices we've made within the categories -- distribution, product portfolio, the whole range of strategic options, as well as-- you know, are there categories that we just simply shouldn't be in?

So we're going to look at everything.

Last question.

LifeSize.

Could you talk to its profitability or lack thereof in the quarter and whether or not you still view that as a strategic fit?

Lack thereof is probably a better way to position the profitability of LifeSize this quarter.

I must say, even though we're not disclosing a P&L of LifeSize, that we're working hard at improving the profitability situation, even with a market demand that has been so feeble.

The decline in sales is something that we're not pleased to see.

But we look around, and everybody's saying the same things about what's happening now with video conferencing.

And I won't use the rest of this call to discuss all the dynamics that are playing in there.

Suffice to say that our priority is to return LifeSize to profitability at any level of sale or virtually any level of sale.

We want to make sure that the asset begins to deliver what we hope it would.

Other than that, it remains within the portfolio the same way it has remained in the portfolio in the last 24 months, and there's nothing else I want to add.

Thank you.

Simon Schafer, Goldman Sachs.

Actually, I had a question about the gross margin in the quarter.

It seems like, actually, a good surprise there.

Maybe you can just share some of the dynamics that drove that.

I guess what I'm trying to understand is to whether that's a sustainable uptick now or whether there was anything extraordinary at work in the quarter, whether it's mix or any other efficiencies that you've been able to push through.

I'm just trying to get a sense on the duration of that.

Let me give you a little bit of sense of gross margin in the quarter.

There were really two primary things in terms of what drove it.

Both in our Americas region and in our European region, our teams did a very good job of managing our channel pricing programs and the way in which we ran our promotions during the quarter.

Now, to your point a little bit, is all of that sustainable?

Some of it is what I would call program improvements, things where we are, I think, operating a little bit smarter and being very intelligent about where we put our dollars to work.

Some of them were opportunities that we took advantage of in the quarter and may not necessarily go forward.

The other piece is we've been working very hard, as we always are.

But I think we saw some good results in Q2 in terms of trying to get efficiencies out of our supply chain.

Now, there's no one factor here that I would call out and say this the most significant thing.

What I would say is that it's across a range of things.

And it could be things that are making good progress in terms of warehousing costs, freight, and duty.

Again, I think it's a similar mixture to what I told you about on the pricing program side.

Some of this is things that we think we can carry forward, and we're going to work very hard to do that.

But some of it was unique and just some timing and things within Q2.

You have to consider, also, that the performance of gross margin will depend, especially in the holiday season, by the actual performance of the PC market and our PC peripherals.

We don't want to lose positions on the shelf.

We may have to promote certain products more aggressively based on where things are.

So this is part of the enormity of the uncertainty around the performance of our PC peripherals, which led Bracken to sort of indicate that we expect, at this point, and we plan to be lower than last year.

As he said, there's a very wide range of outcomes here.

And I'm telling you we'll certainly be working on the upside of this.

But there is a significant downside possible.

That includes some gross margin because of what we may want to do and have to do across the promotional range.

Understood.

That's very clear.

Thanks.

My second question, actually, is sort of along the same lines, on pricing and what you're doing in the channel in the sense that, I guess, in your figures, it seems like sell-in, specifically in Europe, has outpaced sell-through very materially on a year-over-year basis.

I think it's the third quarter in a row now.

So how much of that gross margin upside is, effectively, channel fill at some pricing but, perhaps, less certainty of how much of that is actually going to get sold through?

Some risks around that?

Or how should I think about it?

Thanks.

Sure, Simon.

To your last point there, I don't think there's a strong linkage at all in terms of the good performance of gross margin in the quarter and what you're seeing in the divergence in sell-in and sell-through.

So I don't think that was a significant factor at all.

And, when you look at the European region itself, there's, primarily, this, and we've talked about this.

One of the challenges you have when you're comparing year-over-year growth rates is you really have to look at what was happening in the year-ago period and what's happening now.

And, when you specifically look at Europe, in Q2 of last year, our sales-in were down in local currency about 7%.

That provided a pretty easy comp when you look at the growth that we were able to achieve this year in sell-in.

And, then, what compounds it a little bit is when the opposite exactly -- the opposite is true on sell-through, which was plus 6% last year but down this year.

So, at any one point in time, we always expect to have a couple of points, for sure, of gap.

This is never something that's perfectly balanced.

When you take these two divergent comparables, it creates the bigger gap in Europe.

But, to come back to the very first part of your question, I would say that we feel that we're watching channel very closely.

I think we've got a good handle on it.

And I think we are reasonable, in total, in terms of how I think about the channel.

But it's one of these things.

This is a snapshot metric in time.

This is something that we're looking at every day.

And, obviously, to what both Guerrino and Bracken have said, if the market changes, I think we've got appropriate levers to move within the quarter.

But I think we started about the appropriate place.

Understood.

And, actually, I wanted to ask a follow-up question on Bracken's statement about let's see what happens with the Windows 8 and maybe come back to investors in January about what may or may not be required in terms of strategy.

But let's assume for a second that maybe some of the stuff we're seeing in the PC channel is somewhat more structural than perhaps thought.

Are you seriously contemplating exiting some of these lines more aggressively?

I'm trying to get a better understanding on how much appetite you have to take some really drastic decisions to slim down some of the areas that have a high PC correlation historically.

Thanks.

Again, we're not going to be specific today.

But everything -- we're going through each category.

We're looking, first and foremost, within the category.

What's the strategy?

What choices have we made?

Where are we in the portfolio?

Are we driving the price value equation appropriately enough?

Is our innovation pipeline strong enough?

So that's our first priority.

The second one is, as I said, to go through each individual category and ask the question -- is this a business we want to be in long term based on its growth profile, its level of profitability, our potential to win?

And we're going to go through each one of those.

And, in January, we'll give you a good, solid update.

Great.

Thanks so much.

Andrew Gardiner, Barclays.

Two, if I could, again, on the financial side of things.

I'm just wondering if you can help us understand how much, if any, of the $80 million in cost savings that you've been able to see so far -- I know most of it was going to be back half loaded.

But if you can just say whether -- just how much is in there in the first half?

And, also, around the cash flow, you've had some fairly big swings in terms of inventory up, receivables up.

Payables also seem to have been stretched in the quarter.

So, if you can, just give a bit of color around what's going on in working capital, particularly, sort of with a view to the new product launches you've got going on and prepping for the holiday season.

Thanks very much.

Sure, Andrew.

I can touch on all of those for you.

In terms of the cost savings for the restructuring that we've done, we did see some benefits in Q2.

But you really touched on the point right -- is that we still anticipate that the vast majority of the savings start to show up in the second half and, particularly, as we go into next year.

And, just to dimensionalize it a little bit is what we're seeing in Q2 is we saw some benefit on our operating expense line from the restructuring.

We saw a little bit in cost of goods sold, and that flowed through gross margin.

But, more importantly, is we had the series of planned investments.

These are the things around our music launch, as well as things that we're doing around tablet peripherals that, in the near term, is offsetting those savings.

But I feel very confident in saying that we are on track to achieve that $80 million of net savings.

And the way that we really see it working is that, when we get to the end of this fiscal year, that we would be on an exit path to make sure that our run rate is set up to do that and then fully realizing in the P&L the $80 million net next year, in FY 2014.

So on track and to give you a sense of where we are right now.

Now, to your second question about cash flow overall, I think, a couple of things.

Right now, today, given the cash balance that we have, we do feel comfortable that we've got adequate working capital for everything that we need to do -- I know you mentioned product launches, as well as other things that we've got on our roadmap -- and feel very comfortably positioned.

And let me just remind everyone in terms of there's some unique seasonality a little bit in terms of how our cash flows during the year.

In the second half of the fiscal year is typically when we produce literally all of our operating cash flow.

I think, just to give you a representative example, I think, last year, it was just under $200 million that we produced, literally, all in Q3 and Q4.

So I'm sitting at the point in the year where I have my seasonally strongest cash flow.

And we fully expect to be able to rebuild our cash balance over time.

But let me make sure I come back to the point that we feel very good in terms of where we are today in terms of flexibility.

And I think, to the other part of your question in terms of working capital and the increases that we've been talking about, you mentioned you saw some swings in our payables and our inventory as well.

If you take a step back -- particularly, I'll use payables as an example.

Over the last four or five years, the swings that you saw, even though they seem large, were pretty much in line with the range that we've had.

Remember, this is a pretty high-volume period of the year for us when it comes to working with suppliers and other things as we ramp for the holiday season.

So just the movement of the timing of just a few payments can really swing a DPO metric or something like that.

So, to bring it all the way back, we feel comfortable with the working capital we have, and we feel well positioned in terms of knowing what our business typically produces in cash flow over the second half of the year.

That's great.

Thanks very much for the details.

Tavis McCourt, Raymond James.

I've got a couple of questions.

The first is a bigger-picture one.

One of the things we see going on is kind of this multi-decade trend from kind of bricks-and-mortar retail to e-commerce playing out in the developed world.

And I'm wondering.

Do you have enough data to know whether your market share in some of the e-commerce channels is as high in the bricks and mortar?

Better?

Worse?

And is that something that -- ? Is that trend meaningful enough to kind of impact you in any single given year?

Let me try to add to this.

We are increasingly present online.

We want to be.

We love our brick-and-mortar retailers, and we love the e-tailers.

The large e-tailers are increasingly sort of weighting in terms of our customer list.

And the overall level of profitability that we accomplish this channel is very sort of similar.

So there is -- we don't have a preference in terms of profitability that things go one way or another.

We know -- we completely see this trend.

We see it even in the emerging economies.

A reference to e-tail in China that Bracken made is an indication.

So we're embracing it, and it's not -- of all the secular or macro sort of questions, it's not the one that has most significance when it comes to our future performance.

The most significant question, if I can expand, is actually the PC platform and how the dynamic evolves there.

In calendar Q2, PC sales were flat.

In calendar Q3, PC sales were down almost double digit.

IDC Data -- so it's not us talking.

A collapse of that nature is unusual.

It is totally unexpected.

Nobody did expect it.

We were very prudent, believe me, in our anticipation of sales of PC peripherals, but evidently not as prudent.

Is it going to continue and, if it continues, at which level?

Those are the fundamental questions for us in the coming -- not in the coming 6 months, in the coming 18 or 24 months.

I think we'll learn a little bit the dynamic there through the launch of Windows 8 and not just because of Windows 8. People -- it's because Windows 8 comes with a flurry of exceptionally good PCs that the PC industry hasn't seen.

The only place to find an exceptional PC was the Apple store up until now.

You want a thin thing?

You go to the Apple store.

You want a light thing?

You go to the Apple store.

You still do, by the way.

But PC makers are doing enormous progress, and they will take advantage of the introduction of Windows 8 to come with very sexy products.

Will that make a difference?

That's the biggest question mark that our industry is facing and much more than the shift in channel at this point.

Got you.

And can you give us, at least, maybe some rough numbers to think about in terms of -- you mentioned audio was kind of a catchall category.

But how much of that is kind of PC audio, the speakers, versus what's kind of iPod and Bluetooth Wi-Fi for tablet-type audio.

Tavis, just let me give you a little bit of a view to that.

When you look at the business, like I said, today, what we reported for Q2 for audio, the vast majority is the legacy businesses.

Now, when you go into that and you see, for example, our PC speaker category, I believe is the largest piece of that today.

Right?

So, first and foremost, the vast majority in Q2 is not related to the new music launch.

It's related to the legacy.

Then, when you break it down a little bit further, PC speakers is, by far, the biggest.

And then you're going to have the pieces that Guerrino talked about in terms of headsets and, then, the dock business.

Now, the dock business, which it's interesting is that, yes, there is a structural decline that you're going to see in the dock business.

I think it's been present there for a period of time.

That doesn't mean that we're not going to try and make money on it.

We still have docks in the market.

We're still trying to actively make sure that we can profit, even as that market declines.

But, as we play this forward, particularly when we get to the end of Q3 and we talk to you about how audio is playing and how our new music products are doing, we'll continue to make sure we can make money where it's declining.

But, also, our main focus, where our R&D, our marketing, and everything is going, is around the new products we have out.

Let me add one thing to Erik's comment.

If you were to -- we don't break these subcategories out.

But, if you were to break them out, what you'd see is very significant growth, because we, basically, weren't in it, on the digital speaker segment and good growth on the earphone/headphone segment.

Streaming music is still very good.

And you'll start to see a strong decline on the docks, which you know we're not positive about docks because of the move that Apple made, which we think actually favors us.

So there's going to be that.

That story is going to run through the next several quarters, and you won't be surprised by that the next time we talk about it.

But, underneath that, we feel good about our music launch so far.

Got you.

Thanks a lot.

Corey Barrett, Pacific Crest Securities.

First, I was just wanting to touch on tablet peripherals.

I didn't know if you could provide any more information on what your percent of revenue is there, either for mice and keyboards, specifically, or just overall product portfolio.

And then, specifically on the ultrathin keyboard cover, that was a lot stronger in the quarter than we anticipated, and I was hoping that you could -- any color you can provide on your attach rate to iPad there would be very helpful.

We aren't disclosing an attach rate.

It's actually pretty difficult to even measure an attach rate.

The growth of both the iPads themselves and our ultrathin keyboard are so high that it's difficult to say.

I'll just give a little more color than I gave earlier.

I hope I'm not too repetitive.

We saw a tripling of our tablet accessories business.

We're not disclosing exactly what percentage that is.

It occupies -- it sits in the keyboard category though.

It was the primary driver of growth in our keyboard category, and so the rest of our business was relatively flat in keyboards but still strong.

And you know we're very optimistic about the future in that business.

We certainly are excited every time Apple comes out and talks about a new product because we see that as a potential growth area for us.

Let me add one thing about something that may have escaped in the Apple announcement because everybody wanted to see the mini.

We saw it.

They also announced an upgrade to the iPad, and that's a very interesting thing because what they said is the iPad is mechanically identical, with the only exception of the connector, which bodes very well for a continuing business around the current peripherals that we sell, particularly, obviously, the keyboard cover and the Solar Folio.

So that's good news, in my opinion.

We make no illusion that this is going to be an easy market without competition.

You're kidding me.

I mean, Apple is rumored every morning to be looking at the success of the ultrathin and saying -- why don't we get a little bit of that business ourselves?

You know, we're used to it.

We see the same thing on Surface, by the way.

We are used to this kind of competition, and we usually do well in this space.

Witness what we did around the PC in the great days of the PC.

I don't think there's any reason we cannot replicate that around the tablet platforms.

So we're sorry not to be able to be more specific.

The way we sort of classify our products today sort of tends to be a little bit kind of confusing.

Over time, I think we'll have to fix that.

But I hope that the color that Bracken provided and what I added sort of helps a bit.

Yes, it does.

And then, following up on the gross margin sustainability question from earlier, can you provide any sort of directional expectations for gross margin in the second half?

And then, not to beat a dead horse, but can you say how much of the gross margin improvement is attributable to the pricing programs versus how much is attributable to the supply chain efficiency improvements?

Sure, Corey.

I'll try and touch on both of those for you.

So, obviously, we mentioned all the reasons why we're not in a position to provide you detailed guidance today.

But, to talk a little bit more about what might move gross margin going forward as you go into the second half, the big variables for us, and I think Guerrino even touched on it a little bit, is, given the weakness in the market -- and it's interesting, too, because, when you look at our business, we have a normal, historical, seasonal pattern.

But, given what's happened in the PC market, I would venture to say that this isn't true, normal seasonality from that perspective.

So, when you put that on the backdrop and you look at, if the PC market stays as weak as it is or, hopefully not, but if it were to become a little bit weaker, what you could see suppress gross margin going forward would be some increasing price promotional pressure in terms of where you are, depending if you're transitioning products and things like that.

So that's one of the things.

The other thing, as well, and this has typically been one of the biggest variables in our gross margin, both whether it be quarter over quarter or year over year -- it comes down to product mix.

And this is both product mix within a category -- so, if we're selling mice at the higher end of our gross margin range versus the lower end -- or between categories -- if I'm able to sell more or less of products that are above or below my Company gross margin average.

So those would be the variables that we watch that could, unfortunately, suppress gross margin, especially in this weak environment.

To come to the second part of your question in terms of in Q2, sort of parsing it out, I really am not in a position to be extremely precise.

But I'd say it's, roughly, probably about equal in terms of when you look at the benefits on the supply chain versus the things that we were able to do in terms of controlling our pricing programs and being pretty effective with our promotional dollars.

Okay.

That's very helpful.

And that's my last question.

Thank you.

Paul Coster, JPMorgan.

The OEM business -- is it -- Do you think there's been a kind of secular change here in terms of the OEMs' willingness to outsource to you?

Or is it just simply a function of the dislocation in the PC market at this time?

No, Paul.

I don't think we think there's a big change going on here.

I think, at the end of the day -- first, I should say, the OEM business is a smaller and smaller part of our total business.

But it still plays an important role for us.

It gives us a window into, really, what's happening in the industry, and it also provides some scale benefit that we continue to enjoy in our total mouse and -- mouse business especially.

So we continue to be in that business, and it's been helpful.

In terms of a secular change in it?

No.

We don't think so.

To be very clear, just let me -- so that everybody's on the same page here.

If you model vastly our OEM business around sales of desktop PCs, as you know, the hottest category in PCs on the planet today -- it's an ironic comment, of course.

Actually, our (inaudible) is actually pretty decent.

So we haven't lost share.

And the business continues to be profitable and healthful.

So it's going to be on a secular decline.

There is no question in my mind.

And we'll have to make the right decisions at the right time about it when it becomes too small to matter.

My follow-up is on Harmony, where, clearly, the space is more contended than it was previously, with Google, Apple, Samsung, and others taking the user interface quite seriously.

Obviously, IP-addressable equipment and IR blasters are included in some of these handsets.

Where do you think that business is going?

And is that part of your strategic review as well?

Every category is part of our strategic review, and you can bet Harmony is right in the middle of that too.

In terms of how the category has changed over time, honestly, we don't see an enormous change happening out there.

You're right.

There continue to be innovations happening by all the TV makers in remotes.

And you see innovations coming from us.

So, we just launched Harmony Touch this quarter, and we're excited about what that could potentially do.

So, yes, we still think that's a very interesting space to play in, and we're very interested to see how we can execute and pull off something here in Q3 and in Q4 as we launch Harmony Touch.

Okay.

Thank you.

(Operator Instructions).

Andrew Humphrey, Morgan Stanley.

I've just got a question on gross margins.

I was wondering how much of the gross margin benefit was due to a write-off taken this quarter.

And can you quantify in an absolute dollar amount the sales of goods you wrote down last quarter?

Well, maybe, I think, to give you a sense, there were no significant write-offs taken in Q2 that would have impacted gross margin.

I don't know if there's something you're seeing that's leading to that question.

But, no, nothing of any size or significance.

Okay.

Great.

And my follow-up is just about -- you previously mentioned 60% of OpEx savings from personnel.

How much of the rest have you identified, and will you not identify specifically?

Sorry.

You broke up there a little bit.

You mentioned a percentage.

Was it 60%?

Yes.

60% on --

60%.

Got you.

No.

So, in terms of where we are in the restructuring and the savings that we're seeing is we are on track.

And what I mean by that is not only in terms of achieving the run rate that we talked about but, also, most of the geography of where it was going to come from.

And, particularly on the personnel side, we've made all of those decisions, and all of those employees impacted have left the Company and have left our payroll.

So, from that perspective, those changes are done, and we're on track overall in terms of the things we're doing.

Okay.

That's great.

Thank you very much.

Andreas Mueller, Zurcher Kantonalbank.

Can you say if there are any restructuring or other charges in your operating profit guidance for the second half maybe related also to this strategic review?

Yes, Andreas.

Right now, today, I would say that, related to the restructuring that we announced back in Q1, there's probably another couple million dollars.

Maybe it's $2 million or $3 million of charges that we would anticipate, all related to decisions, some of them that were timing delayed, that will happen in the second half.

I won't be specific about whether Q3 or Q4, but we would fully anticipate getting that done by the end of the year.

And then, to the other part of your question, way too premature to say that -- what Bracken and the team and what we're looking through in terms of strategic assessment of our businesses.

No charge is planned.

We'll obviously talk to you in January in terms of where we're at, any decisions we're going to make differently, and then, obviously, whatever benefits or other impacts come from that.

Okay.

Thanks.

And the follow-up would be on the tax audit in the US.

Would that have any changes to the tax rate in the US, or is that just a one-time matter?

So, in terms of the tax -- and I'll be careful here because I'm sure people don't want to get into tax accounting on a call.

But it is primarily a one-time benefit here in terms of audits that we were able to reach closure with the IRS on.

And these are things that we've had in our 10-Qs over the last number of periods.

We'd been audited by the IRS, and we were able to reach closure.

So we had the benefit within the quarter.

Now, we do anticipate -- the only piece I would say going forward is we do anticipate in Q3 that we should be able to reach closure with the IRS on two other audit years.

This would be FY 2008 and FY 2009.

And, if that does happen during Q3, we would expect to also see a benefit; so, a reserve release.

It would be significantly smaller than the $32 million this quarter.

So that would be a little bit of what we'd see going forward.

But no other tax rate guidance that we're in a position to share today.

Okay.

Thanks.

(Operator Instructions).

Maria Ancupova of AKO Capital.

I was just wondering if you could comment on inventories in the Asia region and EMEA.

Thank you.

Sure, Maria.

I'd be happy to give you a little bit of a sense.

Let me start with the second part of your question, in EMEA.

Actually, I'll give you a picture overall, and then I can talk about the regions a little bit.

So, when you look at our inventory in total, it was up sequentially.

And it's pretty normal to see that this time of year.

It's within the normal range of sequential increase that we would see.

And it was down slightly year over year on a total basis.

So up sequentially, within the normal range; down a little bit year over year in total.

Now, obviously, this is something similar to when we were talking about our channel inventories.

This is something -- we give you a snapshot in time, it's as of the reported quarter.

But this is something that we're looking at on a daily basis.

And so, right now, today, I would say, overall, we're at about a reasonable level.

It varies a little bit by regions.

We could be a little higher or a little lower in certain regions.

But it's something that, particularly given the environment that we expect, we're going to watch this very closely.

And we do have some levers that we can move and changes we can make as we get into the quarter.

As it gets specific to -- I think you had asked about Asia and Europe.

Right now, today, I would say, in Europe -- I'd say we're appropriately positioned.

Could I be a hair high in Europe but maybe a hair low in the Americas?

That absolutely could be the case.

We [tend] to take that up and then look at the totality of it.

Specific to Asia-Pacific, I think we're, again, in about the right place.

The biggest part of our business there today is China.

And we've talked to you about the fact that we've seen a slowdown.

But then, specifically, when you look at our channel inventory in China, it is down sequentially.

And we have a much bigger business there than we did a year ago.

So we've got the appropriate investments for that footprint.

But a long answer to your question, I think we're reasonably positioned, and we're watching it very closely.

Let me add some further color here.

We have in market or bound to get to market the most -- the richest portfolio that we've ever had for a holiday season.

So do not sort of confuse our very prudent outlook vis-a-vis what we see the PC market out there and, therefore, the prudent outlook vis-a-vis our short- and mid-term performance with the degree of opportunities that exist around our portfolio.

So we are confronted with two very contrasting pictures.

And, when it comes to inventory, a lot of the inventory is the new products coming.

And so it's very normal.

And it's particularly important this year, when we have big products in the pipeline and sort of in the inventory and in the channel.

So it's the most uncertain holiday season that I recall in my 15 years at Logitech.

Bracken chose, appropriately, to call it the way we called it.

And now it's about execution.

Okay.

Thank you so much.

That concludes our conference call today.

Ladies and gentlemen, you may now all disconnect.

And thank you.