Remote Sales, Positive OEM Negate Q3 Logitech ‘Speed Bumps’
Strong retail sales of Logitech remotes, keyboards and mice, plus the peripheral maker’s healthy OEM business, helped it overcome continued weaknesses in retail gaming and webcam sales during Q3 ended Dec. 31, company executives told analysts in a Thursday conference call. Despite the mostly good news, Logitech shares were down 9.55 percent at $26.62 in late afternoon trading.
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Overall sales rose 13 percent to $744 million and profit jumped to $134 million (71 cents per share) from $94 million (49 cents) a year ago. Gross margin hit “an all-time high” for the company at 36.9 percent, up from 36.2 percent a year ago, it said.
Overall Logitech retail sales grew 9 percent, with sales in the Americas up 9 percent, the Europe, Middle East and Africa regions up 4 percent, and Asia Pacific up 44 percent. Retail sales in all regions rode “strong demand” for its Harmony-branded remote controls, keyboards and mice, said the company. Sales of Harmony remotes soared 72 percent, with strong growth in all regions, the company reported. The Harmony 1000 remote was the “primary growth driver” in the Americas and EMEA, Hawkins said. Keyboard/desktop revenue rose 32 percent, while pointing device/mouse revenue grew 22 percent. In units, keyboard sales were up 17 percent, while mouse sales rose 14 percent. Cordless mice fared especially well, with revenue up 24 percent and unit sales up 43 percent.
But growth in the Americas and EMEA was “significantly restrained” by continued weakness in the webcam category, Logitech Chief Financial Officer Mark Hawkins said. But for webcams, the company would have posted a 15 percent rise in retail sales for the Americas and a 13 percent increase in retail sales for EMEA, he said. Webcam revenue tumbled 31 percent, down 26 percent in units, said Hawkins, noting that results in the Americas and EMEA were weaker than expected. It was clearly “taking longer than we had anticipated to rebuild momentum in this category,” he said.
Audio was another weak category for Logitech overall at retail, with revenue falling 2 percent to $148 million and unit sales down 6 percent, Hawkins said. The blame largely went to weak sales of iPod/MP3 player speakers and PC headsets. Sales of iPod/MP3 player speakers tumbled 30 percent, but unit sales were merely flat, Hawkins said, noting the company had a difficult time measuring up to Q3 a year ago, when its mm50 iPod speakers saw especially strong sales. PC headset sales fell 26 percent. But overall speaker revenue rose 5 percent, jumping 15 percent in units, while the company had its “best quarter ever” in PC speakers, with revenue up 22 percent and unit sales up 17 percent, Hawkins said.
OEM revenue jumped 54 percent and unit sales jumped 21 percent, driven by demand for microphones used with singing games on Sony consoles and Nintendo’s Wii. That was the only area of gaming, however, in which Logitech saw strong results.
Overall gaming retail revenue fell 6 percent and unit sales fell 21 percent, the company said. Console gaming retail revenue fell 10 percent and tumbled 24 percent in units, driven by weaker demand for game pads and wheels, Hawkins said. PC gaming retail revenue fell 4 percent and tumbled 19 percent in units.
The company is “very pleased” with the results despite the weak areas, said new CEO Gerald Quindlen, adding that the company “delivered record sales and our best gross margin ever, despite a highly promotional retail environment.” In spite of game sector weaknesses, he said, combined OEM and retail game product sales for the first three quarters of this year are ahead of combined game sales for the company’s entire last fiscal year. The phenomenon of “robust sales” of Harmony remotes “underscores the promise of our increasing attention on the digital home,” he said. Early this month, Quindlen told reporters at a pre-CES event that Logitech sees a “huge opportunity” to be a larger player in categories beyond the PC (CED Jan 7 Special CES Supplement p5).
“As usual, we had our share of speed bumps” in Q3, said Quindlen. “We're clearly not pleased with the lack of progress in the webcam category.” The company didn’t expect to see growth in category in Q3, but did expect the category to build on improved results seen in Q2 this year, he said. Logitech lost market share in the category in EMEA, but its share in the Americas has “never been higher,” he told analysts. The company had predicted a return to double-digit growth in the category by Q4 this year. But Quindlen told analysts “it’s now clear to us that it’s going to take longer” to do that. Logitech expects a return to double- digit webcam growth at an unspecified time in fiscal 2009, which starts in April, he said.
Logitech still expects to report fiscal year sales growth of 15 percent. But the company raised its operating income growth target to more than 20 percent from 20 percent. Fiscal year 2008 gross margin also is expected to come in above the high end of its long-term target range of 32 to 34 percent, it said. The company provided preliminary financial targets of 15 percent growth in sales and operating income for fiscal 2009, ending March 31, 2009.