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Logitech Gives Gloomy Guidance, But CEO Sees Light

9/22/2011 10:53:17 AM Eastern
Fremont, Calif. - Logitech International today revised its outlook downward for fiscal 2012 in advance of the release of its second-quarter results next month.

The company said in a statement it expects an operating income of $90 million, for the year ending March 31, 2012, down from its original target of $143 million. Sales were expected to come in $100 million below the company's $2.5 billion target.

Logitech blamed the dimmer outlook on the current economic environment in mature western markets, which has caused its gross margins to climb from 26.1 percent in Q1 to 33 percent, with margins in both Q3 and Q4 expected to be well above the full-year average, though shrinking.

Much of the margin squeeze is a lingering result of the company's $200 retail price reduction last year of its flagship Revue with Google TV device, which has underperformed expectations.

Logitech's previous outlook did not include gross margin. The company had previously cut estimates in July, and again back in March. The company's stock price took an 11 percent hit today and is down more than 61 percent year over year.

Chairman and acting CEO Guerrino De Luca told analysts that he believes the company has turned the corner in light of the company's $45 million loss in the first quarter, which prompted previous CEO Gerard Quindlen to step down.

"The situation will improve going forward," DeLuca said. "I am disappointed that our revised fiscal 2012 outlook is not higher, but we now have a thorough understanding of what needs to be fixed. Our strategy remains unchanged. I expect the initiatives we have put in place to result in reinvigorated product offerings and improved execution in our sales and marketing organization as we progress through 2012 and into 2013. The $90 million guidance for the year is impacted by a $45 million operating loss in the last quarter, so we are talking about more than $130 million in Q2, Q3."

The company is currently undergoing a reorganization of its European sales unit, where sales have sagged. "Strengthening our product portfolio is our No. 1 priority and solution of the European channel issue is No. 2," De Luca said. "A combination of these will help us to face a difficult economy in a better situation."

Logitech's core business of keyboards and input devices has taken a hit as the tablet category has grown. Logitech has responded, marketing its first iPad accessories this summer, and adding a Harmony remote device and app for Apple and Android devices this week.

The company has also invested heavily in the video conferencing category with it LifeSize operation, aimed at the enterprise channel. Operated as a separate division, De Luca cited the growth of the business as another positive development. "LifeSize is one of the good things the company is doing," he told analysts. "We expect to see sequential growth in each of the next two quarters."

In addition, De Luca referenced the company's strong balance sheet, pointing out the company's significant cash reserves and lack of debt. "From a cash and balance sheet perspective, we have the cash and the flexibility to address every area that needs addressing," he said.
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