羅技 (LOGI) 2014 Q1 法說會逐字稿

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

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

We will be conducting a question-and-answer session, 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, Ms. Teresa Thuruthiyil, Senior Director of Investor Relations at Logitech.

Good morning and good afternoon.

Welcome to the Logitech conference call to discuss the Company's financial results for the first quarter ended June 30, 2013.

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

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

Those remarks are intended to serve in place of extended formal comments today.

They will not be read 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.

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 30, 2013, and any subsequent filings, all of which are available online on the SEC/EDGAR database and in the final paragraphs of the press release and prepared remarks from Logitech reporting first quarter financial results for fiscal 2014.

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 for the call today are Bracken Darrell, President and Chief Executive Officer, and Joe Greenhalgh, Vice President of Investor Relations and Corporate Treasurer.

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

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

Our first quarter results demonstrate that our turnaround is on track.

We grew sales for the first time in seven quarters and improved profitability significantly compared to the prior year.

The overall performance in Q1 reveals many positive indicators.

Let me briefly share some of them with you.

At our Investor Day in May, we identified tablet accessories, PC gaming peripherals, and wireless speakers as categories with strong growth potential over the next several years.

Those three were in fact our strongest growing categories by far in Q1.

In total, they grew by nearly 90% over the prior year, with much of the growth driven by products that we launched this quarter, in Q1.

We are pleased with the initial selling for these new products, but it's premature to draw conclusions about consumer demand, especially in PC gaming and tablet cases.

Our first quarter has historically been a relatively quiet period for new product introductions, but we changed that for several reasons.

As I've said before, making Logitech faster is one of my top priorities.

That means taking a more aggressive approach to win and how frequently we refresh our portfolio in growth categories.

We launched a relatively large number of new products in the quarter.

This helped us achieve our first Q1 with sequential sales growth in well over a decade.

To be clear, our new product rollout in Q1 wasn't the result of just moving our launches up earlier in the year though.

It reflects the progress we've made in shortening the product cycles for key products and the speed with which we can drive process improvements across the organization.

We will continue to introduce new products in high potential categories, such as tablet accessories and PC gaming, as we move through the fiscal year.

Our next major product launch for tablet accessories is dependent on the release date for new tablets.

I'm pleased to report that our faster and more aggressive product development approach to tablets should enable us to ship our initial lineup of new products shortly after the next big tablet release.

Note that should that release be later than planned, a significant portion of our Q2 tablet accessories sales would likely move into Q3.

I was encouraged that our sales in pointing devices and keyboards and desktops categories once again outperformed the PC market.

We continue to plan for a depressed PC market, but we believe our mice and keyboard sales should do better than that market, as we look forward to delivering innovative new products in the coming months.

Our Americas region delivered very strong performance in Q1, with sales up by 12% despite the significant decline in sales of the product lines that we are in the process of exiting.

While we don't plan for sustained growth of this magnitude, we believe that the outlook for our business in the Americas is the strongest it's been in many quarters.

Now let me give you an update on our Harmony remotes.

After exploring a number of unattractive offers for this business, I concluded that retaining ownership is in the best interest of our shareholders.

I was pleased to see a return to growth in the remotes category in Q1, although we aren't planning for that growth to be sustained.

Our short-term strategic priority with Harmony is to improve profitability over the course of the fiscal year.

Speaking of profitability, I was very pleased with the strength of our gross margin in Q1, especially given the quarter's retail product mix.

Two of our fastest growing, relatively low-margin categories, tablet accessories and wireless speakers, significantly grew their share of the overall mix.

The dilutive impact on gross margin from this mix shift was offset by a number of factors, with one of the most important being product cost reductions that we delivered across all of our PC-related products.

Profit maximization is our primary goal in categories such as mice, keyboards, webcams, and PC speakers, and our Q1 results demonstrate the progress we're making.

The performance of our LifeSize division has fallen short of our expectations during the last year, with this Q1 being a particularly disappointing quarter.

LifeSize is facing a variety of challenges including a changing industry landscape, the impact of an evolving product line, and weak execution.

Under the circumstances, I determined that we need to make a leadership change.

We have initiated an external search for a new LifeSize CEO.

While we conduct our search, Craig Malloy, who served as LifeSize CEO from its inception through the end of 2011, will return in an acting capacity.

Craig's been a member of LifeSize's supervisory board for the last 18 months and is well positioned to provide interim leadership.

We believe we have the right strategy for LifeSzie.

We have a combination of compelling new room systems, scalable and rich software infrastructure, and the promise of a highly differentiated cloud solution.

As we execute our strategy, our top priority for this business continues to be getting LifeSize to profitability by the end of fiscal 2014.

I'm pleased with the momentum we established in Q1, and with the proof points that our turnaround strategy is working.

We're on track to deliver against our fiscal year '14 targets of $2 billion in sales and $50 million in operating income.

Our plan to achieve our operating income target assumes we will opportunistically manage the mix between gross margin and operating expenses.

If we see gross margin upside, we may increase our spending to drive sales growth.

If our gross margin tracks closely with our 34% outlook, we will manage our spending accordingly.

Improving our profitability remains my top priority, and I look forward to updating you on our progress in the coming quarters.

Joe and I are now available to take your questions.

Please follow the instructions of the operator.

Thank you.

(Operator Instructions) Alexander Peterc, Exane BNP Paribas.

Yes.

Hi.

Thank you for taking the questions and congratulations on a very solid quarter.

I'm just wondering on the gross margin mechanics.

Can you maybe give us a little bit more granularity here?

Was this down to mice and keyboards doing just fine versus planned steeper declines?

Or, did you have good progress in profitability in lower-margin categories such as the new growth ones -- tablets, keyboards, and wireless speakers?

Thanks.

Yes, the improvement in gross margin is a combination of a couple of different things.

We certainly did have better gross margins than we've had in prior year in most of our categories.

And in pointing devices, keyboards, and desktops, we had a significant improvement as we'd planned.

So, I think it's a little bit of everything.

We saw improvement across both the growth categories and the non-growth categories, and we felt good about where we are in gross margin.

I wouldn't get over the tips of our skis, as we say in the US, meaning too excited about that, because we will certainly manage the gross margin operating expense equation going forward to make sure we deliver our profitability commitment.

OK.

Thanks very much.

Paul Coster, J.P. Morgan.

Yes, thanks.

Bracken, you seem to have made a big stride in the right direction here, but you seem a little hesitant to read too much into it.

Why not?

If your product cadence is accelerating, why should we really be too concerned about a dip moving forward?

And going back to margins, why should they dip significantly from here?

Well, I think margins aside when I look at the top line, I think we basically shifted our seasonality from Q2 to Q1 with our new product launches in Q1.

Those product launches probably would have happened in Q2, and some of those would have happened in Q2 in prior years.

We also have a factor that is the unknown on the launch of the new iPad in Q2.

So, when you put those together, our expectation is we'll probably be down in top line in the mid-single digits, could be a couple of points higher than that, depending on the iPad launch, in Q2.

So, I think if you look at us at the first two quarters taken together, that's probably the right way to think about the picture, and if we sound hesitant we're not.

We're very confident.

I feel very good about the first quarter.

But I want to make sure that we look at this as a first half, not just a first quarter.

Can you just give us a little bit of color around the tablet accessories?

Why did it make such a huge leap forward versus this time last year?

This time last year we told you that we were -- well, actually, we were just starting to get into tablet accessories at all.

We had a couple of products out there that frankly weren't homegrown products.

We had just launched the ultrathin keyboard cover, and now that's become our number one product in the Company.

It's doing very, very well.

You'll remember last quarter we launched the -- or, I think it was last quarter, or the beginning of last quarter -- we launched the mini, and now this quarter we expanded that into folio covers with keyboards, and even some regular folio covers without keyboards.

So, we've expanded our lineup pretty significantly now.

We're now attacking a broader portfolio of the market, and that's why you're seeing significant growth.

OK.

Thanks very much.

Thank you.

Michael Foeth, Bank of Vontobel.

Yes.

Hello.

Just a question regarding remotes.

You decided to keep it now, but you haven't adjusted your guidance for it, and I'm a bit puzzled why it is.

It's a significant revenue contributor over the full year.

So, is it included in guidance, or not?

Yes, Michael.

This is Joe.

When we set out the start of the year and provided our guidance, while we intended to sell the Harmony business, we didn't know when that would happen or even if it would.

So, we assumed we'd have it for the full year.

So, it's been there from the beginning.

OK.

Good.

That's clear.

And can you comment whether the remotes business right now is profitable?

You said you're focusing on profitability improvements there, but is it profitable, or not?

No, it's not profitable, and on a fully loaded basis, it's not profitable.

And our objective is to be profitable as we exit the fiscal year.

I want to add a couple more things about the remotes decision, because I think it's worth -- it's important that investors understand it.

When we went into it, we had every interest in selling it.

As I said in my opening remarks, we decided not to because, frankly, the offers just weren't very good.

In the meantime, we launched new products.

They've done very well.

We got new distribution that looks very promising.

And we've now, after the decision to keep it, we've separated key parts of that business, so that it's not a distraction on our primary growth-focus areas.

So, I feel good about the decision.

I think we're in a good spot, and I think we can make this business profitable and ultimately turn it back into something interesting from a growth standpoint, potentially.

OK.

Excellent.

And then, just a last question, can you update us on your search for a CFO?

Yes, absolutely.

The search continues.

I don't have names to mention on the call, but we're certainly on the right path.

And I think we're in a good spot, and we'll deliver against the original timing that I mentioned in, I think, the first call, which is I think this often takes four to six months.

And I think we'll certainly do that.

OK.

Excellent.

Thank you.

Thank you.

Andreas Mueller, Zurcher Kantonalbank.

Yes, thank you for taking my question.

I've got two questions on this.

Can you give us an update basically on the measures and the success for these measures to get to your medium targets later on?

And which measures are still sort of a challenge and on which you are maybe more than on track?

And then, the next question will be on the cost savings programs.

Are there still any costs to be had which we could implement in our models from these cost savings?

And the last one is, are there still any restructuring charges ahead of us?

OK.

Thanks, Andreas.

Let me answer each of those.

First, in terms of measures for how we look in terms of -- and I'm assuming you're referring to the Analyst and Investor Day, fiscal year '15/fiscal year '16 numbers we put out there.

We're one quarter in to a long path.

So, it's way too early to give you any sense for which measures we feel good about, which measures we don't.

I would just say Q1, we feel good.

It indicates we're on track, but it's too early to go back and reflect on what specifically might be different from those measures.

Nothing, so far.

The second thing on cost savings, I think we certainly do have a lot of cost savings completed.

They're already in our P&L.

Now, you're seeing some reinvestment into the OpEx as we increase the number of activities we had in Q1 versus what we'd normally do.

Those cost savings will show up as we go through the year in OpEx.

We continue to have aggressive cost savings on all of our portfolio, and we always have and we're going to continue to do that going forward.

In terms of restructuring, this quarter we took advantage, or Q1 we took advantage, of an opportunity we saw where we really needed to reduce costs, because something wasn't performing well enough.

And we'll continue to do that if we see an opportunity going through the year, but I don't have any specific plans to mention now.

OK.

Thanks.

Thank you.

Andrew Humphrey, Morgan Stanley.

Hi.

Thank you for taking my question.

Clearly, growth has been very strong in some of the growth areas that you've called out.

I think what I wanted to ask was whether you've been reluctant to highlight actually a very strong revenue performance in some of the traditional areas, areas that we might view as being managed for cash?

You had pointing devices flat year on year.

Keyboards looked better than normal seasonality.

So, what I wanted to try and establish was whether you think we're seeing a bottoming, or at least a kind of stabilizing of revenues in those -- not legacy, but -- more conventional segments?

Or, whether this quarter was also the result of just a particularly strong product offering in those areas, and if that might normalize again over the next few quarters?

Yes, I would say -- first, it's probably best to take them in total and then go through some of the individual categories.

If you start in total, the PC market was down 11%.

That's pretty close to what we expect it to be.

You might remember when we started the year, we said we expect the PC platforms to decline globally by about 10% over the next three years, and that was more conservative and continues to be more conservative than the big experts in the field would say.

But, they've adjusted their expectations for this year -- I think they finally got them right, at least for this fiscal year -- to about that number.

I think they're expecting about that kind of decline rate.

So, that does have an impact overall.

Now, we also said that we expect to be in a position where we could, or should even, grow share in some of those categories that support that.

So, PC accessories.

You're seeing that in pointing devices.

You're seeing it in keyboards.

There are two different stories there.

In pointing devices, as you said, we have a good product offering.

We'll continue to make sure we have a very competitive product offering.

At some point, we won't be able to gain share anymore, but we think we can continue to gain share for the foreseeable future.

And in the keyboard segment, you might remember that really underneath that is a tale of two cities.

On the one side, you've got a keyboard combo category that looks a lot like pointing devices.

On the other side, you have a keyboard segment that's now going into the living room and supporting smart TVs and PCs being hooked up to smart TVs.

It's growing.

So, that combination is giving us growth in Q1, but if you look at Q4 we had growth in Q4, too.

So, we expect that to continue.

Maybe one follow-up, if I may.

Sure.

Your prepared comments highlight some increase in inventories at channel partners in Asia and the US.

Is that also contributing to maybe your slightly more cautious outlook comments for the second quarter?

No, not at all.

That has really nothing to do with that.

At the end of the day, we're really looking at our Q1 saying we shifted seasonality.

So, we did things in Q1 that we haven't done in the past.

We feel good about them.

The early feedback in terms of a real sell-out, sell-through looks good.

So, there's nothing about that that causes us to pause at all.

OK.

Very clear.

Thank you.

Thank you.

Tavis McCourt, Raymond James.

Hey, Bracken.

A couple of questions.

It looks like in a lot of the product lines the revenue growth was quite a bit better than the unit growth, and I'm wondering are you guys taking pricing action on an individual level?

Or, rejiggering the product mix and that ASP increase is more related to product mix than actual price increases?

And then, secondly, in those more traditional categories, mice and keyboards, was there anything in there in terms of new products this quarter that were pushed ahead?

Or, is the new product introductions that were pushed into the first quarter here more related to the growth categories?

Thanks.

Let me take that one first.

Yes, we didn't push or pull anything forward from Q2 into any of those categories.

So, there isn't something we pulled forward from Q2 that we normally would have done -- or pull it forward into Q1 that we normally would have done in Q2, in those categories or in any category.

So, the answer to that is, no, there's nothing unusual going on there.

In terms of specific products, we don't -- so, in other words, I guess the rest of the story is we don't have any specific products that I'd say we launched that are really driving that, with the exception of we've done very well in the TV area, and that was a product we launched last year and we expect to continue to do well there.

On your ASP question, it's a good question, and I'd say there are two things going on there.

First, we've done a few selective price increases to offset currency in Japan, but that's really minor.

Overall, no, we are not increasing pricing.

We are seeing improvement of product mix, and that's driven off a couple of things.

First, you remember we've been talking about that we went through a product line simplification, where we got rid of some of our worst performing products at the low end of the market.

Guess what?

That's now showing up.

And the second part is we are focusing -- we continue to focus on the medium- and high-end of our lineups.

So, we like that profile.

It's pretty strong this quarter.

Will it stay that strong?

I don't know, but it is -- we expect to continue to see an improvement in ASP.

Great.

Thanks very much.

(Operator Instructions) John Bright, Avondale Partners.

Thank you, Bracken and Joe.

Bracken, you expressed some confidence in that sell-in being higher than sell-through wasn't a concern.

What gives you the confidence?

I guess at the end of the day we have a decent glimpse into what's happening at the retail level, and so far we see good signs.

I'll give you an example.

Our tablet keyboard business, we launched a lot of new products this quarter.

The first round of market share that we saw was a 12-point increase.

That's real sell-through.

So, that's what we expected.

It's what we're getting.

And I think that gives us confidence that we're not going to see a channel inventory issue at all.

In fact, I would say we're in pretty good shape from that standpoint.

On Harmony, you talked about improved profitability as a goal.

Can you talk about how you're going to go about accomplishing that?

Yes, we've already started it.

So, we've reduced the overall operating expense on that business pretty substantially, and we'll continue to whittle away at that as we go through the year.

You may remember that part of our overall strategy in the portfolio was to reduce or eliminate the low, especially the low, end of that lineup, up to about the midpoint, and we've done that.

And you can see it in the ASPs.

So, those two steps along with the continued, very focused innovation path puts us in a pretty good spot, I think.

I would remind everybody on the call, when I said we were going to exit Harmony, I said one thing.

I said -- boy, this is a business that in many ways we should love.

It's got leadership market share, by far.

It's got intellectual property that nobody else has, which is really impressive.

It's got technology that is really state of the art, and we're ahead of most of the field.

So, it's got a lot of things to love -- and a brand by the way that's a leader in its category.

So, there's a lot of things to love about that business that are very strong.

Getting it back to a level where it is actually profitable is step one.

But there might be a step two and a step three beyond that.

Right now, we're very focused on profitability.

Greg Malloy's return as the new head of LifeSize, is there a timeline for a turnaround in that business?

It's been struggling for a bit now.

Give us your thought process on what we should expect, as far as that turnaround is concerned.

Yes, we haven't changed our expectation.

We announced our commitment to stay in the LifeSize business and that we felt good about the strategy.

We still do.

We still stay committed to the timeline for getting to EBITDA positive as Q4.

So, that's our game plan, and we're excited about having Craig back in, even for an interim period.

Yes.

So, no change there.

Looking forward on new products, have you identified organically or through M&A new product either categories or potential products that would be a good fit going forward that can help drive growth?

The Logitech brand and the engineering technology capabilities within Logitech give us more opportunities than we could ever do.

Right now, we're very focused on the pieces that you see on the board.

So, we're very, very focused there.

But we're looking at other things.

So, you know that we announced this quarter we bought a very small smartphone cover business.

It came with a couple of designers and a cool little design.

That was an experiment to see how that market works, and we're testing and understanding that now.

We're also looking at other things all the time, and we certainly are looking at some other categories, but I can't talk about them now, and I don't want to get anybody excited about them.

I think we're going to continue to learn.

We'll take our shots where we see a really good, strong opportunity.

We'll risk manage them well.

And in the meantime, we're going to make sure that we transform the business in the categories that are very obvious to you.

Thank you.

Thank you, John.

Andy Hargreaves, Pacific Crest.

Thanks.

Just wondering if you would dig into the more frequent product launches a little bit more?

And specifically, what are the risks of that strategy?

Obviously, it shifts the seasonality a little bit.

Is there --?

Well, I don't know, just talk about the puts and takes of that a little bit.

Sure.

I think it's probably a little bit deceiving to say that we're shifting -- we're changing something.

We're actually adding something.

So, we're not changing our strategy within the core PC peripherals business.

It's very much the same.

What we're doing is we're adding a strategy to attack the new business areas that we're focused on now.

So, especially tablet accessories.

That's a business that's fast.

There are frequent tablet upgrades, and we need to be in the market.

We need to be playing aggressively there, and that's our game plan.

In terms of risks, it creates [a broad path].

It is a very different business.

So, the life of a tablet is significantly -- first of all, our tablet peripherals so far have been formfitting.

And so the life of a tablet is a shorter shelf life.

So, we have to manage our phase-in's and phase-out's of new products much better.

I would say we're learning how to do that.

We're getting better and better, and that I think it's very exciting because as we learn how to do that better and better, we're beginning to apply it the rest of our business.

So, product line simplification won't have to happen once every three or four years in that business.

So, yes, I could give you more color than that, but I would say higher frequency of tablet accessory, for example, launches is something you can expect from us, but we're not going to go crazy with it.

We're going to focus on making sure we launch really great products consistently on the frequency that the market dictates.

And, can we just take by your commentary that the vast majority of the tablet accessory purchases are made essentially at the time of the tablet purchase?

I'm not sure that's true.

It's really a mixed bag.

OK.

The only other question I had was a little bit more on the gross margin.

Should we take then that you guys feel really good about where you are in the core and it's just a matter of managing the costs in the remotes business?

Tablet business, are you guys comfortable with where the margins are, and it's just a matter of driving volume there?

Or, are you trying to improve margins there as well?

So, Andy, I think on the latter point there, one of the things that we talked about on our Investor Day was that the tablet accessories have a gross margin that's a little lower than certainly the PC-related categories.

Our goal is to bring that up over time.

We actually are making good progress on that.

We did in Q1.

So, it wasn't just the PC-related categories where our gross margin improved.

It was also in tablet accessories.

So, that's a category where we see opportunity to continue doing that going forward.

It's obviously never going to look like mice, but by the same token we think it can be a very, very profitable business for us.

So, yes, it's going to be a combination of continued improvements on the PC peripherals, which is in line with what we said about our goal of maximizing profitability in those categories, combined with continued improvements with the faster growing areas like tablet accessories.

OK.

Thank you.

(Operator Instructions) Felix Remmers, Credit Suisse.

Yes.

Hi.

Thank you for taking my question.

Only two quick questions here.

I was wondering if you want to share sales growth CAGR guidance for the remotes business, as you did for all the other product categories during your Investor Day?

And then, secondly, I was wondering how confident are you to reach your OpEx guidance for the year of $630 million?

Let me answer the latter first.

So, our OpEx guidance, as you put it, for the year, we're going to be looking at managing OpEx and gross margin in a coordinated way, as I said in my opening remarks.

So, our commitment is we really will make sure that we deliver the guidance of $50 million in profit.

So, if we have higher gross margins, we may invest more in OpEx to see if we can manage the top line better.

If the gross margin comes in about where we gave in the original guidance, our OpEx, we'll make sure we deliver the OpEx commitment.

On the remotes, yes, that's a very fair question.

We aren't going to give you a specific number today, but what I would say is we don't have an expectation of growth this year.

We should see -- well, I expect we'll see some decline this year.

We're making sure that we've got the right products in the right places so that we can manage the appropriate level of intensity in merchandising and sell-through.

So, we're looking at that right now, really going to try to make sure we manage this to improve the profitability equation and get this business in a position where we want to grow it.

So, it's got to be profitable in order to grow it.

And so, yes, I wouldn't expect growth.

We'll probably see some decline there this year, and then we'll position ourselves for later.

Thank you very much.

Thank you.

Vikram Kumar, TT International.

Yes.

Hi there.

Thanks for the time.

Just on that point you just made about OpEx, I'm a bit confused about the strategy on that, because if you look at OpEx to sales for this group, whether it's because of LifeSize or because of operational gearing effects, that's the biggest hit to the margin we've had over the last few years.

If we now go to a point where we're more efficient in the way we spend R&D, and we get product release right, we move towards mid-, high-end, and the gross margin blends it up, why should that necessarily then involve you guys having the discretion or a decision to reinvest back into that OpEx?

Why don't we let the natural effects of the improving gross margin and some very hard top line defense -- and in some areas, attack -- drop through to you then get that operational leverage back on the OpEx to sales?

Because it sounds to me as if you're basically capping your upside to sales.

You're saying -- if we do a good job, we'll reinvest back in, because it was hard work getting there, and if we don't do a good job, well, OK.

Fine.

We admit we should take some costs out.

I don't see why it's a tradeoff there.

Yes, I think that's a very fair interpretation, Vikram.

Let me be really clear.

Any increase or change in our commitment, our guidance for OpEx, because we saw how our gross margin, would be a temporary thing.

So, when we talked about our fiscal year '15/fiscal year '16 guidance, we're very committed to that, and we think we can deliver that.

As you might guess, we're always looking at more cost savings opportunity in every line, but especially in OpEx.

So, we're going to continue to guide it.

But in the short-term basis, we're certainly going to look at whether we should be investing more to drive the top line better.

And if we see stronger gross margin, we may do that.

But, don't misinterpret it.

It's not a conclusion that we should have a higher level of spending in OpEx in the fiscal year '15/fiscal year '16 guidance we gave at Analyst and Investor Day.

Yes, because ultimately we're still talking about a business that even in your targets we're talking about low, mid-single digit EBIT margin, and this year the $50 million-plus EBIT that people are expecting is very low single-digit.

So, from my point of view, if we do a good job defending revenue better than the cynics expect and we get the added kicker of the gross margin -- whether it's mix or price, whatever that's driving it -- you want to see that dropping through, given I guess that inefficient on OpEx to sales.

That would be my viewpoint.

More of a statement than a question, to be honest.

Yes, I appreciate your view.

But I guess the thing I'd add is if you look at the split of our OpEx G&A, R&D, and sales and marketing, where you're seeing it right now is the sales and marketing line.

That's a discretionary line we make a choice in.

To your point, we can choose to do it or choose not to do it, and it really will be dependent on whether we feel like it's merited over the next quarter or two or three.

But I think over the mid- and long term, our expectation is we're going to deliver the kind of OpEx that we should be delivering for a business the size we are.

So, if you look at our Analyst and Investor Day commitments, I think those are the kinds of levels of OpEx we think we should be.

OK.

Thanks, Vikram.

Thank you.

As there are no further questions, that concludes our conference call for today.

You may now all disconnect.

Thank you.