Logitech Earnings Fall $10 Million on Gaps in Remote and Webcam Lines
Weakness in webcam and remote control product portfolios, retail market conditions and devaluation of the Euro led Logitech to lower its outlook for fiscal 2012 for the fourth time, acting CEO Guerrino De Luca said in the company’s Q3 earnings call Thursday. For fiscal 2012, ending March 31, Logitech now expects sales of about $2.3 billion and operating income of about $60 million, compared with $90 million of operating income in its previous estimate.
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"I could not be more disappointed by the fact that four times we had to lower our outlook,” De Luca said. The company had its “best minds and best data on it but just misforecasted,” he said. Asked whether it would be the last time the outlook was dropped, De Luca wouldn’t commit, saying, “What kind of credibility do I have?” He said the company has considered the trends, the channels and the products and the customers in its latest forecast, “and that’s what we come up with.” There’s no additional reassurance I can give you that will take away your concern that we were wrong four times, and I have to live with that,” he said.
Sales declines were due mainly to “product gaps” across all categories but particularly at the high end where the company doesn’t have enough “compelling offerings to drive up-sell,” De Luca said. In Q3, products priced above $100 represented 16 percent of retail sales, compared with 24 percent a year ago, he said. Mid- and low-end products showed 8 percent growth in unit shipments year over year, he said.
Product gaps were most noticeable in remote controls, De Luca said. The company was too focused on the Logitech Revue set-top box for Google TV at a time when it should have been preparing a refresh of its 4-year-old Harmony One remote, he said. “We were late to bring a next-generation high-end remote control to market,” due to a “shifting of digital home resources away from Harmony,” he said, saying the company is making “good progress” on the next flagship Harmony remote and is on track to ship a new remote lineup in fiscal 2013.
Although Logitech refreshed its webcam line regularly over the past couple of years, changing consumer preferences have caused the company to “miss the mark” with several products, De Luca said. Consumers have been largely content with embedded webcams to date, so the company is working on new products that “cannot be easily achieved” with an embedded webcam, he said. An example is the 1080p webcam Logitech introduced at CES for use with Skype, the company said.
Regarding the “large and growing” category of digital music, De Luca said it’s being increasingly driven by the mobile lifestyle, a trend that Logitech didn’t take advantage of “for a long while” due to its focus on PC speakers and sound quality “at the expense of convenience, mobility and frankly, coolness.” The company launched its first digital mini boom box in Q3 as part of a re-targeting of its digital music line, and “there’s more to come” in fiscal 2013, he said.
Logitech saw an improvement in operations in the EMEA (Europe, Middle East and Africa) region where channel partners and inventories “are now aligned with the current demand environment in Europe,” De Luca said. The company has resolved channel pricing program-related issues that caused “sales and profitability problems” during the previous four quarters, De Luca said.
Among Logitech’s product assortment in Q3, revenue for mice was up 3 percent in dollars and 14 percent in units; keyboards advanced 20 percent in dollars and 11 percent in units as corded keyboards yielded sales to higher-end cordless types; video dropped 25 percent in revenue and 12 percent in units; and audio inched ahead 2 percent in revenue and 5 percent in units.
Gaming devices slipped 12 percent in revenue and 8 percent in units, Logitech said. PC gaming accessories grew 7 percent in revenue and 10 percent in units, but console gaming devices plummeted 45 percent in revenue and 57 percent in units, the company said. De Luca said more opportunities exist in PC gaming than in consoles and that the company is “not interested” in dedicated controllers for dedicated platforms. Xbox promises “substantial cross-platform opportunities” with Windows 8 “and we'll certainly take advantage of that,” he said.
Logitech’s Q3 sales dipped 5 percent overall, with a 4 percent drop in retail and 24 percent fall in OEM sales, which the company attributed mostly to lower sales of microphones for console gaming. Profit fell 15 percent to $55 million year over year, Logitech said. Sales in the Americas were impacted by the discontinued Logitech Revue for Google TV, and the company has sold out of all units, it said. The company saw growth of 45 percent across all categories in Asia, it said. Logitech shares ended the day down 11.98 percent losing 98 cents to close at $7.20.