LOGI

Logitech International S.A. (LOGI)

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Logitech International, S.A. (LOGI)

F3Q 2013 Earnings Call

January 24, 2013 8:30 am ET

Executives

Joe Greenhalgh - VP - IR & Corporate Treasurer

Bracken Darrell - CEO

Erik Bardman - SVP of Finance & CFO

Analysts

John Bright - Avondale Partners

Michael Studer - Bellevue

Paul Coster - JPMorgan

Andrew Humphrey - Morgan Stanley

Corey Barrett - Pacific Crest Securities

Alexander Peterc - Exane

Presentation

Operator

Good day, and welcome to the Logitech Third 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’d like to introduce your host for today’s call, Mr. Joe Greenhalgh, Vice President of Investor Relations and Corporate Treasurer at Logitech.

Joe Greenhalgh

Welcome to the Logitech conference call to discuss the company’s results for the third quarter ended December 31, 2012. The press release, our prepared remarks and slides and the live webcast of this call are available online at logitech.com.

As noted in our press release, we have published our prepared remarks on our website in advance of this call. Those remarks are intended to serve in place of extended formal comments, and we will not repeat them 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, 2012 and subsequent filings, which are available online on the SEC EDGAR database, and in the final paragraphs of the press release and prepared remarks reporting third quarter results available at logitech.com.

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 today are Bracken Darrell, Chief Executive Officer; and Erik Bardman, Senior Vice President of Finance and Chief Financial Officer.

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

Bracken Darrell

Thanks Joe and thanks to all of you for joining us. Our Q3 results were unacceptable. As we discussed in our Q2 earnings call the main factor in our weak performance was a significant weakness in the global market for new PCs. This weakness which had a negative impact on sales in all our PC related categories reflects the combination of the slow transition to Windows 8 and the growing popularity of tablets and smartphones as mobile computing devices.

Sales in our Americas and Asia-Pacific regions were largely in line with our dampened expectations, but our results in EMEA fell well short of plan. The vast majority of our sales in EMEA go through distribution. During the quarter the majority of our distribution partners adopted a more cautious decision on the amount of PC related inventory they carry. This directly impacted our sales into the channel of EMEA.

The PC market has changed dramatically in the last two years and in my assessment we haven’t evolved as quickly as we need to. With that in mind I am now focused on transitioning Logitech to become a faster and more profitable company. Let me share with you an overview of what we need to accomplish going forward.

We need to be faster in bringing new products to market, faster reacting to market trends, faster changing direction in quickly moving markets and faster aligning the company’s resources with our highest potential opportunities.

We need to significantly improve our profitability as quickly as possible and we are willing to sacrifice size to do so. We will reduce our cost base to fit the smaller Logitech and we will quickly exit categories that don’t meet our profit expectations or objectives.

To create the faster more profitable Logitech, we are looking at our business in four separate strategic groupings. These are the PC platform, Mobility, Non-strategic and LifeSize. Here is our thinking about each of them.

Products for the PC platform including pointing devices, keyboards, webcams, PC speakers, PC headsets and PC gaming. These categories represent the majority of our sales and profit today. Our PC platform sales have been negatively impacted particularly in the last two quarters by the weakness in the global market for new PCs. The growing popularity in smartphones and tablets which is clearly playing a part in the weak global PC market is also hurting our sales of PC peripherals. Despite these headwinds, we continue to see attractive opportunities for our PC peripherals in emerging markets in PC gaming and in unified communications.

We also believe that our PC related products stand a benefit when there is an acceleration of the adoption of Windows 8 PCs. Our top priority in managing our PC platform products is to maximize profit. We will free resources to make selective investments to drive growth but we will do so within the overall framework of profit maximization for our PC portfolio.

We’re keenly aware of the trends impacting our PC platform performance should we fail to see an improvement in business conditions and particularly in the state of the market for new PCs in the next one or two quarters we’ll decisively scale back our spending around this platform to support our stated profit maximization goal.

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