羅技 (LOGI) 2019 Q2 法說會逐字稿

Good day, and welcome to the Logitech Second Quarter Fiscal 2019 Financial Results Conference Call.

(Operator Instructions).

I would like to introduce your host for today's call; Mr. Benjamin Lu, Head of Investor Relations.

Hi, thank you.

Welcome to Logitech conference call to discuss the company's financial results for the second quarter of fiscal year 2019.

The press release, the prepared remarks and slides as well as a live webcast of this call are available online at the Investor Relations page of our website ir.logitech.com.

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

The forward-looking statements involve risks and uncertainties and actual results could differ materially as noted in our quarterly and other filings with the SEC.

The company undertakes no obligation to update or revise any forward-looking statements as a result of new developments or otherwise.

Please note that today's calls will include results reported on a non-GAAP basis, except as otherwise noted.

Non-GAAP operating is provided to help you better understand our business.

However, non-GAAP financial results are not meant to be considered in isolation from or as a substitute for or superior to GAAP results.

Non-GAAP measures have inherent limitations and should be used only in conjunction with Logitech's consolidated financial statements prepared in accordance with GAAP.

Our press release and slides provide a reconciliation between GAAP and non-GAAP numbers and are posted on our IR website, we encourage listeners to review these items.

Unless noted otherwise, comparisons between periods are year-over-year and in constant currency.

This call is being recorded and will be available for replay on the Investor Relations page of our IR website.

Joining us today from California are Bracken Darrell, President and Chief Executive Officer; and Vincent Pilette, Chief Financial Officer.

I'll now turn the call over to Bracken.

Thanks, Ben, and thanks all of you for joining us.

Over the past few years, we've built our business as a portfolio of categories across a steadily increasing number of brands.

That's the way we've talked about it with you.

Today I want to shine light on a slightly different aspect of our portfolio, category leadership.

Everyone knows category leadership is an advantage, but some might think that category leadership is almost automatic as an advantage, but we know better.

If you don't put in place the powerhouse innovation engine, your strength is wasted.

We know that very well.

When Vincent and I started here, Logitech was a perfect example.

We were the leader in about five categories, but our innovation was failing us.

Over the past six years, we've not only gained share in all those categories we lead before but we've about doubled the number of category-leading franchises we have to 11.

Today, those leadership categories represent nearly 70% of our net sales.

We did that by deeply understanding consumers and using design as our central approach.

This unlocked the power we always had in engineering.

And for those who -- and for those where we're not a clear leader, we view them all as works in progress.

We're working to either innovate and grow toward leadership, like we are in Bluetooth speakers, or redefine the category to create a new subcategory where we believe we can satisfy a true consumer need and lead, like Jaybird.

Will we always attain leadership?

Maybe not.

But you can see by our record, we're having some strong success so far, and we will serially enter new categories that we believe we can lead.

Our ambition is to be a vibrant portfolio of category-leading product groups combined with a strategic set of product groups striving to lead their category.

How can you see that in our business today?

And how can you see it this quarter?

The category leadership ambition and vision is behind our results, our sales are growing consistently, our gross margins are strong and our operating income is leveraged with that growth.

That's enabled by disproportionate growth in the category over time and strong value-creation in the category reflected by our gross margins.

Growing market share and growing gross margins, those are the ultimate measures.

Gross margin is the ultimate truth.

Sub par innovation sees compression relative to the category in gross margin.

But if your innovation is good and you're building your brand and serving your customers' needs, your gross margins improve relative to the category.

Is this universally true?

No.

But it normally is and it's certainly been for us.

In Q2, our overall sales grew 10% to our highest ever for a September quarter and our gross margin improved strongly.

Our operating profits increased much more than sales of better than expected 18%.

Our Gaming franchise delivered another powerful quarter with sales up 43%.

Today, Gaming is our single largest product category.

But in Gaming, you could see an example of our striving for leadership.

When I arrived, we were #2 in mice.

Back then, there were literally 4 people on our entire Gaming team.

The tremendous growth we've achieved in Gaming since then is through the playbook you started to know us for.

It all starts with great products.

And with the product portfolio that we're proud of, we were able to align the Gaming group with the structural growth of the market that was just starting to accelerate 5 years ago.

Now we're #1 in Gaming mice.

While we worked on products, we also focused on the rise of eSports.

We were early in positioning our portfolio around the burgeoning eSports phenomenon and the rise of mainstream gamers.

And this is paying off as we're seeing new blockbuster gaming genres like the Battle Royale format of Fortnite popularized, transforming Gaming not just into a form of entertainment to play, but also as a type of social expression.

More and more gamers, who broadcast themselves, playing their favorite games is a way of expressing who they are and interacting with other gamers on other social platforms and that's unlocking new opportunities for us.

And so with Gaming becoming increasingly pervasive across the mainstream, we're doubling down and investing more to drive for continued momentum in our Gaming businesses.

Video Collaboration is a different example of striving for category leadership.

Here we had really no business 5 years ago and there was no category.

But we are a leader in a developing category with an annual sales run rate of over $200 million now.

Again, for us, it all starts with great products.

We've serially added products, and now Machine Learning, to further improve our offering.

In this case, we also had to make investments in building out our direct enterprise sales force.

Because our products are outstanding, we've seen tremendous correlation between hiring an enterprise salesperson and a commensurate increase in our revenues.

The limiting factor in growing video collaboration even bigger and faster is hiring the right people, the right salespeople around the world.

You can expect us to take the appropriate steps to ensure that we're investing in the right people, products and capabilities to support our powerful long-term growth outlook for VC.

The growth trajectory of the cloud-based Video Collaboration market continues unabated.

Zoom just hosted its third annual Zoomtopia Conference in San Jose nearby 2 weeks ago.

And they're seeing over 45 billion minutes a year of meetings conducted over Zoom and this was up 50% from the end of last year.

We aren't surprised by that.

In Q2, our Video Collaboration sales grew 25%.

There's nothing wrong with 25% sales growth, but don't be deceived by it.

The underlying sales out was over 50%, again a record high.

And how that category is worthy of a long and sustained category leadership record.

PC peripherals grew -- sales grew 8% in Q2, its strongest quarter in -- strongest growth in 6 quarters.

Pointing devices, Keyboards and WebCams, all of which we lead, all contributed to growth.

And we haven't stopped innovating for uses with all kinds of needs.

There are still many, many opportunities here.

We just released our MX Vertical mouse, which extends our focus on the importance of ergonomics in the workplace.

MX Vertical had the strongest first quarter sales launch in the Americas of any pointing device product that launched in last 3 years.

Stay tuned because we'll continue to drive innovations and make every consumer more free to work and create whether it's at home or in the office.

Our Tablets & Other Accessories had another robust quarter with sales up 20%.

And it's even more impressive when you consider that last year Q2 sales rose 50%.

Both new products, such as Crayon, our first digital pencil for the 9.7-inch iPad, and POWERED, our wireless charging dock for the iPhone, as well as existing products, like our Slim Folio, drove the strong performance in Q2.

Now let me update everyone on our Mobile Speakers business.

While sales were still down this quarter, the underlying trends improved versus the prior 2 quarters.

We've made great progress in transitioning out our older products to our newest ones.

We updated our BOOM and MEGABOOM Mobile Speakers and make them better, much better.

They have stronger bass, improved sound and longer Bluetooth range, while still keeping their waterproof and drop-proof features that everybody loves.

In fact, they even now float.

Sales of BOOM 3 and MEGABOOM 3 are off to a good start, and I can't wait to see how they do over the holidays.

We got more attention from the media here than any launch since I've been here and probably any launch in our history.

Audio & Wearables sales were flat in Q2.

Blue Microphone sales contributed approximately 1 percentage point to our overall sales growth and offset the decline in desktop speakers and Jaybird.

As we've said previously, we're resetting our Jaybird portfolio and focusing the brand even more towards running, and the channels that make sense for that focus.

We launched 2 new Jaybird earbuds, X4 and Tarah, and both just came out in late Q2.

They retained Jaybird's reputation for ruggedness and comfort while being sweatproof and now, for the first time, even waterproof.

We remain committed to building and positioning Jaybird for the niche-worth segment of the market over the medium term.

And with that, let me turn the call over to Vincent to walk you through our key financial metrics.

Thanks, and good morning, everyone.

As Bracken said, our strong momentum continued this past quarter with sales up 10% in constant currency.

We had strong growth momentum in Asia Pacific, up 26%; solid growth in the Americas of 9%; and a stabilizing business in Europe.

It was just over a year ago when we acquired ASTRO Gaming.

Since then, the ASTRO business more than tripled in size as we leveraged a strong market growth, reached into new channels and regions and expanded the product portfolio through the launch of new headsets into lower price points.

ASTRO is a great example of how we can take an acquired asset and build value by leveraging our core capabilities.

This quarter, we closed the acquisition of Blue Microphones, which added roughly 1 percentage point to our overall growth, and we're very optimistic about its future.

Also on an accounting note with regard to revenue, I mentioned last quarter that we implemented the new 606 revenue recognition standard.

This quarter, our sales were impacted negatively by about 1 percentage point compared to Q2 last year, which was reported under the old standard.

For the full year, we expect an immature impact from 606.

In Q2, our non-GAAP gross margin improved by 110 basis points to 37.6% due to our continued cost reduction efforts, favorable mix and currency tailwind, partially offset by investments in customer sales programs to support our growth.

It is worth noting that we also benefited from a onetime $7 million tax duty refund, which favorably impacted our gross margin.

The net impact of the 2 one-timers this quarter, the headwind of the 606 accounting standards and the tailwind from the duty refund, is a favorable half a point benefit on gross margin.

Nonetheless, it was just great execution from our operations team that enabled us to deliver a gross margin slightly above our long-term target and helped to balance investments in our business in the face of various cost headwinds, such as logistics and component cost, exchange rate volatility and more recently tariffs.

Now I know there has been a lot of interest and questions in what is going with tariffs and more specifically, tariffs on imports into the U.S. from China.

As we had mentioned last quarter, the first round of tariffs had no material impact on our business as only a few of our products were on the tariff list.

The second round of U.S. tariffs, that just went into effect on September 24, impacted more of our product.

But through various mitigation efforts, such as product reclassifications, tactical inventory pullings, supply chain or production shifts and potential pricing adjustments in the future, we believe that we can manage the overall impact of tariffs this year within our previously announced profit guidance range.

As some mitigation actions take time to implement, the net impact is estimated to be about half a point of gross margin in the second half, which we can absorb in our full year outlook.

Our non-GAAP operating expenses increased 10% this past quarter.

We invested in R&D, up 7%, and sales and marketing expenses were 13% to support the expected strong top line growth in the year and also impacted by the acquisition of Blue.

At the same time, we continued to drive G&A efficiencies with G&A spend down 3% year-over-year.

The one thing you can expect from us, as always, is very tight control of our OpEx, creating efficiencies, but also investing in resources to support long-term growth opportunities, which are funded by gross margin expansion.

That discipline and leverage is on display with our Q2 non-GAAP operating income, which increased 18% to $85 million and resulted in 12.2% operating profit margin.

Non-GAAP EPS grew 26% to $0.49.

Cash from operations year-to-date is $97 million, up $30 million or 44% from the same period last year.

In the quarter, we spent $134 million in total consideration for the acquisition of Blue Microphones.

We also paid $114 million in dividends and $10 million in share buyback.

Leading to a total cash balance of $426 million at the end of September.

Excluding the non-cash impact of ASC 606, working capital metrics and related balance sheet items inventory, AR, AP were all in line to historical trends for September quarter.

I'm very excited about how we are positioned for the rest of the year.

As Bracken had mentioned earlier, we'll keep applying our methodology of resetting, positioning and investing in each category depending on the respective life cycle in order to build, over time, a portfolio of category leadership and capture the long-term growth opportunities.

And with that, Bracken, I'll pass it back to you.

Thanks, Vincent.

It's great to start the year -- it's a great start to the year, but there's still so much more to come.

I really love this time of the year.

In most of our categories, those who're looking for gifts, and probably like most of you, for their loved ones or maybe just for themselves, I have more to give -- we have more to give this year than ever.

ASTRO headsets, Blue Microphones, Jaybird Tarah earphones, MEGABOOM 3, MX vertical and I could go on and on.

But they're really for everyone, whether you're a player at home or at work, but anyone who wants to stay connected, and maybe you can even give a Video Collaboration equipment with AI built into it to your loved one, might be an odd gift, but we're promoting that.

And I'm even more excited about the other new things that we're working on right now that won't be available for this Christmas, but maybe for the next.

Now tariffs, as Vincent said, are on everyone's mind, but we view it as another reality you should just expect us to adjust to and we are.

We're confirming your outlook for fiscal year 2019 from both net sales growth of 9% to 11% and for non-GAAP operating income of $325 million to $335 million.

And with that, Vincent and I are ready to take your questions.

(Operator Instructions) Your next question comes from line of Jörn Iffert from UBS.

The first one would be, please, on the tariffs.

Can you -- you stated that there will be a negative impact on the gross profit margin of 50 basis points in the second half.

Can you help me to reengineer the math and what percentage of revenues is impacted by this, so how many products are on the list?

Second question would be please again to clarify the gross profit margin.

You stated that it's a net 50 basis points benefit from the duty refund and the accounting changes.

Can you also please highlight what was the benefit of the FX?

And as a third question please, I mean your supply chain set up.

I mean, how are you reacting to the tariff risk?

Are you already considering to diversify your whole supply chain in the next 2 to 3 years?

And if yes, what do you think will be the cost on the P&L and in the CapEx?

Great.

Jörn, let me take first the number question out of the way and then Bracken will address some of the risk and how we see the diversification of our risk here.

So in term of overall tariff, I'd say that for the second half, we're going to have about half a point of unmitigated impact.

Obviously, over the long term, we have mitigation plan, but some take a little bit longer to implement than others.

We do not quantify per each product, there's a bunch of codes that are impacted, some that are not.

As you know, it goes below the category.

It's not 1 full category that's impacted.

And half a point you can easily, if you want, play a reverse engineer.

But I will focus on that, I would just say that for the second half, building to our guidance, we have half a point built from tariff.

And that will continue to go down as we progress with our mitigation effort.

So that's number one.

Secondly, on the gross margin impact from the one-timer this quarter, as you mentioned, and I'll repeat, we have about half a point of mix of unfavorable and favorable.

This quarter, if you take the euro, we trended for -- which is the main exchange rate, we traded at about where it was last year.

It's a little bit of a tailwind still.

As you know, we commit to a growth in constant currency.

That's how we focus developing the business.

But everything below into our P&L, we manage in US dollars.

And when we have a little bit of favorable tailwind from currency, then we may use it in various ways as long as we meet our profit commitment, which is in US dollars.

That currency effect, as you know, if it stays at 115 for the euro exchange rate, as one example, may move into a tailwind by Q4, but one quarter at a time.

Vincent already talked about some of the short-term impacts, but you also asked about the longer-term impacts over the next 2 or 3 year of the effect of new world with where there are tariffs coming from China.

We're -- we have a manufacturing strategy in place and we're always updating that.

And that's part -- as we view tariffs as just another impact on our manufacturing strategy.

So certainly, we are looking at supply chain changes in the context of where we are today and where we might be tomorrow.

Do I expect that to have big impacts on OpEx?

No.

All right.

And Vincent, just to follow-up on the gross profit margin, 50 basis points, was this including the FX benefits or was it excluding the FX benefits, the plus 50 basis points you were saying for Q2?

For Q2, excluding the currency benefit, we do not isolate or report the specific currency benefit on the gross margin, as you know, we manage differently.

And some of that benefit may be capitalized in our inventory.

There's hedging, there's many different dimensions, if you want, that really lead us to drive the gross margin on US dollars.

So that -- to answer your question, it was excluding the currency benefit.

But then, shall we think about gross profit margin as you also indicate this to be one of the key KPIs?

So do we expect this to fall back to the midpoint of your guidance between 35% to 37% for the second half?

Or can it stay around 37% for the next 2 quarters?

How should we think about this?

Yes, that's a very good question.

So we manage the business in the long-term -- still in the long-term range of 35% to 37%.

Operationally in the first half, we've been on the high end of that range and, as you know, normally in Q3 and Q4, your margin trends historically a little bit lower.

So would be prudent if you model at the midpoint of that gross margin.

Now of course, we don't guide the gross margin per se.

We manage the business on the bottom line and top line perspective.

Your next question comes from the line of Alexander Duval from Goldman Sachs.

Just a couple of quick ones.

First of all, on the music side of things.

It seemed in, sort of, the recent -- or the last quarter, this had been potential need to reset the channel a bit, given some lower-price offerings from digital assistance players, but you actually stated today that you're seeing some underlying improvements in trends.

So I wondered if you could give a bit more color on what you're seeing and how confident you are that growth could return.

And secondly, just on this China tariffs point, you did obviously mention that you are able to manage these impacts within your prior full year guidance range.

I wondered if you could just clarify to what extent you're confident that you're baking in all the potential impacts.

Obviously, there's a lot of complex moving parts.

So just trying to understand to what degree you've been conservative on that.

Okay.

Let me take the music question and Vincent will take the tariff question.

Yes, I would say -- yes, you've seen -- I think, we're pretty clear over the last 2 quarters, we've been pretty aggressively selling out the old product out of the channel to make sure it's very clean or as clean as we can make it as we bring in the new product and that's traditional for us.

And we did that, and as we've done that, now we've started to ship in the new product.

And it's a little too early to say, exactly what that will do, but we're confident that the new products are very compelling, they're priced well, they're good value and the feedback has been tremendous.

So I think this is the big -- one of the big quarters for Bluetooth speakers.

Q4 is also pretty good because we go into the summer season when the waterproof speakers are really valuable.

So I say, so far so good.

I think you'll -- certainly you'll see improvement versus the last 2 quarters.

And will it go back to growth or strong growth?

We don't know yet.

We're not banking on that, but we certainly expect a significant improvement.

Good.

So on tariffs, we started very early actually, Alex.

We've been working at it since May and working on the first of this and the second one.

At this point in time, we know all of the SKUs that are being impacted in our portfolio.

We also know the tariff increase on September 24 is by about 10%, moving January 1 at 25%.

All of that is known.

For that, we have our forecast at the SKU level.

I can say we have a certain degree of variability there that could impact the number and then we have our mitigation plan that's pretty well known.

The 2 things that are less known is: a, the forecast; and secondly, whether or not we're going to act on increased price.

So we have a forecast that's based on what we know and that always try to leave room for the unknown.

We have a good track record of meeting our forecast, doesn't mean that it's 100% guaranteed, but we feel pretty good about the model and all of the moving parts in that.

The last point I would want to add, you may have heard at times that politicians say that maybe the whole imports from China into the U.S. would be under tariff.

Of course, that is not currently our working assumption.

We work on what we know from an overall scope perspective.

Your next question comes from line of Asiya Merchant from Citigroup.

Quick question.

As you think about seasonality into the back half of your fiscal year or into even the holiday season ahead, how do you think about that relative to seasonal norms that you've had?

And then secondly, EMEA still seems like it's stabilizing, but not really growing, which -- when should we expect that region to also post growth?

And then lastly, related to the seasonal question, macro within China, lots of demand indicators coming through.

Clearly, you had a very strong sell-through in Asia PAC.

But then as you look ahead into the quarter and into the back half of the second -- the fiscal 2019, how are you thinking about the demand indicators in China?

Asiya, let me first take the modeling linear IT kind of question out of the way and then Bracken will take the second 2 questions.

In term of sequential seasonality, which I'm assuming is what you're looking at right now, historically we've been growing about 20% up from Q2 going into our Q3, right, calendar Q4.

And when you look at our forecast for the rest of the year, we are somewhat in line with that seasonality.

The 2 things you need to keep in mind is, last year in Q2, we had bought ASTRO.

This time in Q2 again, we bought Blue Microphone.

Those two may skew your historical seasonality.

So historical seasonality plus the acquisition of Blue this time is what make our guidance going forward.

And the 2 regional questions.

As you mentioned, EMEA is stabilizing, and I feel really good about the moves we're making there.

It's -- we've made a lot of changes structurally and we're changing some process and we are also really moving to a lower promotion, higher marketing spending environment, which is -- which we're super excited about.

Very similar to what we've done in Asia Pacific.

So it will take -- it will probably take a year or 2 to really fully implement, but I feel very good about it.

I think, you'll see improvement there.

And I wouldn't -- we don't guide on the quarter, so I wouldn't want to say.

But I think you'll certainly see improvement there and we're excited about it.

China, everybody's talking about macro-environment in China, and we have a great China business, we had a great business this quarter.

We're very excited about the team we have there, the approach we're executing there.

The -- our indicators in China continue to be good, but I would say, it's true that the -- overall their currency is weakened in China and we all know that, and we read the same things you do.

But I guess, I'm just super excited about the team and the operating excellence that we have in China.

So I think, we're going to get the most out of China you can possibly get and so far so good.

We don't see any doom and gloom on the horizon.

And for those of you who are modeling here listening to Bracken, China sales is about 10% of our overall sales.

So that gives you also magnitude of...

I would just add one other thing, since you asked a regional question.

Just like we're a portfolio of categories with different categories performing at different levels, different times, same thing for the regions, and we're very aware of that.

So we actually like that because as we're resetting EMEA, we've got a really strong AP, AMR is doing fine and I think you'll see the mix does change from time to time.

I imagine we'll have a period where EMEA will come back stronger and Asia Pacific will be a little softer than it is, although it's probably still very strong.

Great.

And then one, if I may follow-up, like looking longer term into your fiscal 2020, I know you guys have a $2 EPS out there that you've put out at your Analyst Day earlier this year and things sounded really good.

How do you guys think about -- whether it's China, whether it's just tariffs, GDP growth forecasting lowered all that and yet you guys continue to execute really well, how do you think about all that as it relates to, kind of, like a guidance that you've provided for $2 in EPS for 2020?

Any changes there?

No.

I think there is no change, right?

Every time we deliver a good quarter, and Q2 is another one, I'm having many of you asking, can we deliver $2 EPS a little bit earlier.

And as you know, we're very conservative, we have an operating plan, we march towards that and we feel, after all the good quarters we've had, very strong in term of delivering the long-term value.

There may be in and out that may change and some assumption will change, but that's part of the portfolio with so many levers that we have in that.

Yes, I would also add.

We're -- as we've talked about many times and we talked about in the opening today, we're a portfolio of businesses, portfolio of countries around the world, of course, and we have a lot of tools to play.

And so I don't believe we are really hypersensitive to modest changes in the economic environments around the world.

We're much more in control of our destiny especially with our growth plan where we can serially enter new categories, and we have opportunities -- and we do have opportunities to do that.

So I don't think we're going to be -- I mean, of course, if there's a massive slowdown around the world, that will affect everybody.

But generally speaking, we control our own destiny.

Your next question comes from the line of Thomas Forte from D.A. Davidson.

So wanted to ask 2 questions, 1 on tariffs and 1 on eSports M&A.

So on the tariffs front, given your leadership position in the categories that you operate in, we would imagine you'd have the ability to adjust price, if necessary, use that as one of the levers to offset potential pressure.

And then on eSports, definitely seems like it's becoming more mainstream, you can see ninja on Samsung ads on Sunday Night Football.

And you've made few what we think are excellent acquisitions with ASTRO and Blue Microphones.

How should we think about your M&A strategy going forward for Gaming?

Okay.

I'll answer, and answer both of those.

I think from -- yes, you're right.

I mean, when I opened with category leadership and if you're a category leader, you should have the opportunity to have some pricing leverage, and we think we do.

Now we're not going to be irresponsible with that either.

We're about creating value for consumers.

So we're going to -- we'll do that in the right way.

And we have experience driving pricing around the world.

We've priced many times, repriced, raised price in both Asia Pacific and EMEA, not as often in the U.S. But yes, we should have pricing leverage where we need to.

From an eSports standpoint, thank you for the comments on the 2 acquisitions, we're obviously super excited about both of those.

And we completely believe in the rise of eSports and feel it's really at the very beginning.

Our M&A plans, we, of course, don't share anything, but we're looking -- we're always looking at many things, and we're looking at many things right now.

Your next question comes from the line of Michael Foeth from Vontobel.

Just 2 questions.

On -- Smart Home is, obviously, a small category, but you've been talking about category leadership, and I was wondering that the sharp decline there, what is the source of that possibly the Circle cameras and so how do you react to a situation where you, sort of, are losing out and maybe not the leader in the category?

That would be the first question.

And the second question is regarding EMEA again, if you can be more specific, what is really behind the relative weakness or which categories are behind relative weakness?

That would be helpful.

And if you're seeing any changes in consumer behavior in the large European countries?

Okay.

On the smart home, there are 2 different things going on there.

You mentioned Circle camera, it's tiny for us.

We're -- and as I opened, I said we only want to be either the -- we want to be the leader in the category at large or we want to be a leader in a thing that we think of as the category at small, which is a subset of the category that we feel like we can really lead.

And we're working on that.

And I can't disclose more than that except to say that we'll see, it's really small.

So I wouldn't get too excited about what -- whatever Circle is.

From a Harmony standpoint, which is the remote control business, we're -- that is a good example of what you do in a category leadership context when the category itself continues to go down.

So what are we doing there?

We're consolidating.

So we're really reducing the number of SKUs that we have, we're reducing our overall OpEx spend there so we can reallocate it to where we think there's growth, and we'll have a good profitable business there for whatever it is.

And it will be resized by the time we get to the other end.

You may remember when Vincent and I first started working together, we did this a couple of different times and this is part of the deal here and it's part of our strategy.

In EMEA, I wouldn't point to a single category.

I think it's -- this is really across the board.

We are really changing our approach to Europe, looking ahead, looking ahead 2 or 3 years.

And we're really taking a lot of the playbook that we took from Asia Pacific, which moved very strongly online and is a good combination of great online marketing and good off-line marketing.

And we're applying the same model into EMEA.

And I think it's going to take a few years to really see the benefits of that, but I think the growth will come back faster than that, but the real benefits of that will come later.

But I'm excited about it.

So I wouldn't point to a single category, and I'm not concerned about Europe.

I feel like we're really doing the right things, and I feel very good about the steps we're taking and I think the results will come relatively soon.

Your next question comes from the line of Paul Chung from JPMorgan.

So first up on Keyboards, you've been driving pretty impressive growth over the past 3 quarters.

Can you just expand on what's driving strength there?

Is it in the MX lines or a listing overall ASP somewhat, but could you just talk about unit shipment trends, market share dynamics, channel strategy, that would be helpful.

Sure.

The Keyboard & Combos business for us has been a strength for years and it continues to be and we keep innovating there and we launched the new living room keyboard this quarter, as you probably know, and that's a great product.

The MX products continue to do well.

And then we've got the signature product at very high end, which is Craft.

I would just say, generally across the board, our innovation is doing well there.

We continue to, generally speaking, hold or gain share in the major markets and we still have opportunities to gain share in all of those PC categories, believe it or not.

When I look at some of our share trends in some place, especially at low end here and there, we should be doing better.

So yes, I mean I think our Keyboard & Combos business will continue to be good.

Okay.

And then, second question is on Blue Microphone.

What triggered you to, kind of, take action in this market?

And any details on margins, channel overlap?

That would be helpful as well.

One of things that we've talked about before is when we -- and we're always working on categories and usually secretly, so we've got several categories in development all the time.

One of those -- I was pretty overt about that, I think, in the last call.

One of those was a microphone.

We were very interested in this category.

And when we start to work in the category, we have teams working on products and understanding the category and the category dynamics.

At the same time, we take a hard look from an M&A standpoint where we think we can either accelerate something we're doing or differentiate it or even replace it entirely.

Blue Microphone was a wonderful example of being able to really completely replace what we were doing and take a big leap into the category, a category that we already felt like we've started to understand well enough to play.

So that's the story there, and as I said, we're really excited about it.

And I would say the same levers that applied to ASTRO will be at play here from launching new product, expanding into internationally new regions, expanding into new distribution channels and building up the portfolio overall.

From a gross margin perspective, we don't talk about gross margin by category, but it's accretive to our overall corporate gross margin.

We would have gone into this -- I guess, the point I was trying to make is, we would have gone into this category regardless.

Just like we went into Video Conferencing or we went into Bluetooth speakers, we would have gone into this category regardless.

This acquisition enabled us to go faster, a lot faster.

Okay.

Great.

And then my last question is, just want to hear your take on Google project stream.

I assume Logi may benefit if this service does takeoff, if console gamers may migrate to PCs.

So curious to hear your take.

And then, what was ASTRO's contribution in the quarter?

Well, first of all, on Google's -- you could expand that to Google, Amazon, really all the big players.

Anybody who's out there providing a platform for streaming or a platform for gaming, or even just streaming in general, it's good for us because that's our business.

We really view ourselves as enabling these large platforms and the users who love them and want to try them.

And so it's great for us and we're super excited about it.

And Twitch has been fantastic for us.

And YouTube is actually fantastic for us too.

So I'd say, it's just another good one.

On ASTRO's side, we don't split Gaming.

Astro is fully -- this is the fifth quarter fully in our overall baseline, the only quantifying number, I said, is we tripled the size of the business.

It's a good contributor of the overall Gaming growth that we've reported.

Your next question comes from the line of Jürgen Wagner from MainFirst Bank.

You mentioned that we can see peripherals is broad-based strength and you also mentioned or explained as why keyboard is doing so well, but do you see any impact from the current processor shortage?

And in previous calls, you indicated PC peripherals segment as a whole to be flattish, plus or minus, now you're well above.

Should we then see somewhat leveling off until year-end?

I'll respond to the first part and I'll let Vincent respond the second since it's kind of a modeling question.

The processor shortage has been talked about a lot and I'm just continually amazed by how well our team and operation has done to manage our business in the context of that.

I do hear about other companies with big cost problems, and it is costing us more by the way, but with big cost problems coming out of these various shortages of these very small components that never seemed particularly impactful before and suddenly are.

We just have a great operations teams that's managed that really well and hasn't been a big impact for us and I don't think it will be.

And in fact, in companies, if you're reading about Intel shortages or other big shortages in terms of impacting the PC units being shipped into the market, I want to just remind you that we look at the installed base as really the addressable market for us, and I don't think those shortages in the short term will impact the installed base to impact the peripheral indirectly.

So that's the main one.

I don't remember what was the question?

It was PC…

And an overall guidance.

Absolutely, it's an important one.

As you know, right, we've provided an outlook for our PC peripheral overall to be low single digit, I wouldn't change that.

Obviously, every quarter, we'll try to drive better, we'll introduce new products, we'll optimize our sales performance and we've delivered the results that you've seen.

We'll continue with the prudent and conservative approach of planning this at what we see, which is a low single digit, and hopefully we'll continue do better in that environment.

Your next question comes from the line of Ananda Baruah from Loop Capital.

A couple for me, if I could.

Just going back to tariffs, Bracken, it sounded like you were saying -- communicating that you don't expect it to be, sort of, material based on, sort of, current news.

Any further detail you can give on -- and Vincent you mentioned, sort of, the plan you guys were looking at.

Any detail you can give with regards to how much of that is related to just, sort of, utilizing current supply chain as it is versus introducing new things in the supply chain that may not exist today or previously existed?

Just to get some sense of the structural nature of the impact.

And then I have a follow-up on that too.

Ananda, so the quantified amount we said is manageable within our current outlook and then in the long term, I know you follow this at the time, right?

It's like currency movement and other things.

In the long term, the structural move will be built into the business model and we'll be able to absorb it.

It does include moving some production location.

We don't want to give too much detail.

We're still working the plan.

We started in May and we'll continue all the way into the next calendar year.

We have multiple activities that would change structurally the supply chain and build actually a more diversified supply chain and therefore, making the company more robust.

It does not call, at this point in time, any material change in CapEx in terms of investment.

And that's the extent of the plan, I guess, we would like to…

Yes.

And I would just add, Ananda.

One of the core capabilities of Logitech from a supply chain perspective has always been the ability to move our manufacturing in and out of our own factory.

And that includes in and out of other people's factories if we happen to be contract manufacturing with other people in China.

And that's exactly what this is about.

If -- when and if we need to move a product line out, in this case out of China entirely, we're more than capable of doing that.

We've got the teams to do it, the staffing to do it and the -- and we have lots of experience doing it.

We do it, in fact, all the time.

Bracken, this is what I was, sort of, indirectly teasing at.

Is this the advantage of having -- I think when you had referred to in the past is a modularized manufacturing, kind of, structure, an interplant.

Is that, sort of, at play here as well as a part of it?

Yes, I do think it's an advantage to have both your own manufacturing and external manufacturing in your path so that you have a lot of experience moving.

And so we do have a lot of experience moving.

It even surprises me, and it surprised me the first couple of years I was here, how easily and how quickly we could move a manufacturing line out of our factory or out of somebody's factory and into another one without any glitch at all.

So I think that is an advantage.

Okay, that's great.

And then just quick follow-up.

I may have missed this earlier.

But the Gaming revenue, it seems like Gaming might be getting stronger.

It's tough because the comparisons are big and they do move a bit.

But I think you put up mid-40s growth or mid-40s compare or something like that, which is significantly higher than, kind of, run rate.

So do you -- just context around that.

Are you -- do feel like you're continuing to see the category strengthen?

And if not the category strengthen, you think that you're continuing to see your fore-positioning within the category strengthen so that your, sort of, normalized growth is accelerating there?

Well, I think the category continues to be super strong.

I think, we're doing well in those categories.

But the nice thing about our story is, boy, we could be doing better.

There are areas in our business and they're not small, 2 or 3, that I think, gosh, we should be really outperforming where we are.

And so we're really doubling down the innovation there to see if we can put ourselves in a place to do that.

So I don't know whether I would say it's accelerating or not, it's certainly not decelerating, but I do think our opportunity there looks big and sustainable.

And there are no further questions at this time.

I will now turn the call over to Bracken Darrell, CEO, for closing remarks.

Okay.

Well, I want to thank all of you for joining us.

Thanks for the call.

Make sure to go out.

The holidays are approaching.

Buy lots of our stuff.

And we'll see you -- or we'll talk to you in January.

Thank you.

This concludes today's conference call.

You may now disconnect.