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After Dismal Quarter, Logitech Continues Turnaround

5/05/2013 08:00:00 PM Eastern

NEWARK, CALIF. — Logitech International reported yet another down quarter, with declining worldwide sales, but the company said restructuring efforts and stabilizing sales in the Americas have put it on a path for righting itself. Unfortunately, improvement may not be seen for some time, according to analysts and the company itself.

Sales for its fiscal fourth quarter were $469 million, down 12 percent from $532 million in the prior-year period. The company posted an operating loss of $37 million for the period vs. operating income of $24 million in prioryear period, which included $16 million in restructuring charges and $6 million related to the impairment of goodwill and other assets, Logitech said.

Net loss for the quarter was $36 million, compared with net income of $28 million in the prior year. Gross margin was 33.5 percent vs. 36.4 percent.

Plummeting PC sales remain a thorn in Logitech’s side. IDC reported that worldwide PC shipments fell 13.9 percent in the first quarter of 2013 — the largest the research firm had tracked since 2004. In a somewhat remarkable feat, Logitech was still able to record a sales growth of 4 percent in its keyboard category, but pointing devices dropped 3 percent and PC audio fell 20 percent.

To accommodate for the changing marketplace, Logitech is placing emphasis on its tablet accessories category, which skyrocketed more than 332 percent in quarterly sales. A spokeswoman for the company told TWICE that it sees its mobility category as a growth opportunity.

The company also announced in the beginning of the year it was selling off its remote control and video surveillance divisions.

Stephen Baker, industry analysis VP for The NPD Group, agreed that remote controls are “a tough business” but the decision to exit video surveillance may be more questionable.

“They were a little ahead of the market there,” Baker told TWICE. “There are a lot of things going on in home automation and in network cameras. In tough times you make some decisions that maybe in another world you would have a different level of patience in.”

The Logitech spokeswoman said the decision to exit the categories was done in order to focus on PC peripherals and mobility products. “Both [remote controls and video surveillance] are very good businesses, but Logitech needed to focus on these two areas that are our core capability, in addition to our LifeSize video conferencing.”

Earlier this year, Logitech president/CEO Bracken P. Darrell had said he didn’t believe these categories — along with speaker docks for smartphones and tablets, streaming-media systems, and console gaming — could make a “meaningful contribution” to improving the company’s profitability.

“These categories are not critical to our plans for improved future performance. In some cases, they are no longer even relevant in today’s markets,” he said.

Despite the plans to sell off remote controls, Logitech debuted two new high-end devices last month (see April 22 issue of TWICE). Slides during an investors conference call indicated the company intends to transition out of the category by the end of fiscal year 2014.

The Logitech spokeswoman said the company was in talks but had nothing to update regarding the sale.

Sales for remote controls were down 33 percent for the fiscal fourth quarter and 21 percent for the year.

Its wearable audio and wireless speakers category was also down, by 39 percent, Darrell noted in an earnings call that the company attempted to launch too many products in too many markets. “We spread ourselves too thin by launching a relatively large number of new products in highly competitive categories.”

Darrell said the company would narrow its focus to concentrate on small-form-factor wireless speakers, such as the UE Mobile boomboox, and its UE 900 earphones.

Despite being a notoriously crowded and competitive market, NPD’s Baker said Logitech still had the ability to remain competitive going forward because of its strong products and distribution relationships.

As part of the company’s efforts to turn itself around, it eliminated 5 percent of its workforce in March. Because of these restructuring efforts, the CE accessories company had its Neutral rating held by Zacks Investment Research at the end of April.

“Although the company reported weak results in the last reported quarter ending March 31, Logitech is doing well in the tablet and gaming accessories market,” according to a Zacks research note. “Further, the company is expected to report improvements in next quarter and through fiscal 2013, as Logitech expects to reap the benefits from its restructuring and turnaround plans.”

Still, acknowledging its relationship with falling PC sales, Zacks said, “The continued decline in the global PC market may hurt the company’s sales for at least a few upcoming quarters.”

While the uncertainty of the PC market will not be kind to Logitech in the near term, Baker remained confident the company would rebound.

“The PC market isn’t going anywhere,” Baker said. “They’re far and away the leader in mice and keyboards, and those aren’t going to disappear — they just have to readjust to new reality of that market.”

It will just take some time for the company to regain solid footing, he added. “Frankly, most of the markets we’re talking about are still in significant states of flux … We need to see what happens with touchscreens on notebooks, what the demand for small-screen tablets and tablet keyboards will be, and see what kind of opportunities these are going to offer to them.”

In the conference call, Darrell said he was encouraged that the company’s retail business had started stabilizing.

“I believe we have taken appropriate action to effect a turnaround,” said Darrell. “We have narrowed our strategic focus, restructured the company, and prioritized our resources to create great new products for mobility platforms. We’re moving forward with urgency and clear priorities. Any turnaround takes time, but given our expectation for normal seasonality of the new fiscal year, I expect our progress will not become tangible until the second half of 2014.”

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