‘Unlikely’ That Market Can Support Growing Number of Tablets—Logitech

Logitech continues to believe tablet devices offer “an additive opportunity” for the accessory company’s business, but “it’s unlikely that the market can support the huge number of tablets on display at CES” early this month, CEO Gerald Quindlen said in a Thursday earnings call. The company has aggressive plans for tablet accessories next fiscal year, he said as Logitech reported strong results for fiscal 2011 Q3 ended Dec. 31.

The “increased variety and functionality in the tablet category” that was on display at CES “will provide more attach opportunities for Logitech,” Quindlen said. The company “incorporated a tablet focus into our fiscal 2012 product pipeline and expect that roughly 25 percent of our retail products in the coming fiscal year will be tablet-friendly, including many products designed specifically for use with tablets,” he said.

But Quindlen said his company was “confident that the opportunity for PC peripherals remains substantial.” Logitech in Q3 achieved “double-digit” sales growth for its PC-related product categories in the Americas from the prior year, despite it being “a holiday season when the iPad took a notable share of the U.S. consumers’ technology spending,” he said. The company also doubled its sales in China, “driven entirely by PC peripherals, and we expect the opportunity will grow as we expand our footprint to additional cities and distribution channels,” he said. Logitech saw strong Q3 results in its other “developing markets, with that growth driven almost entirely by our PC-related offerings,” he said.

Q3 profit grew to $65 million, 36 cents a share, from $57 million, 32 cents, in Q3 last year. Revenue grew 22 percent to $754 million. Quindlen said Logitech saw sales growth in all retail product categories, with Harmony remotes “leading the way,” with revenue growth of 34 percent. Remote unit sales grew 62 percent from Q3 last year, Logitech said.

The Logitech Revue with Google TV products that the accessory maker shipped in Q3 “were a major contributor to the growth in our sales,” Quindlen said. “While consumer demand ramped slowly, it picked up in the latter part of the quarter and we now expect sales of our Google TV offerings to be around $40 million for the current fiscal year,” he said. Logitech recently expanded availability of its Google TV products in the Americas, adding Costco and several distributors, he said. Amazon, Best Buy and the Dish Network were already selling the devices, along with Logitech via its website, he said. Logitech believes that Google TV products are “appropriately priced,” Quindlen said, responding to an analyst who suggested that the pricing may be too high. But the CEO said, “As time goes on and we build scale, our focus is on bringing the costs down and improving our margins, and we're going to pay very, very close attention to what’s happening in the marketplace in terms of competing products.” The company still expects “there will be other entrants into the market and we'll price appropriately, but right now our focus really is on building the installed base and growing that and growing our peripheral sales,” he said.

Logitech boosted its sales forecast for this fiscal year “in spite of a slower than expected start for Logitech Revue … based on our expectation for continued broad-based growth in our PC peripheral sales,” Quindlen said. The company now expects to report sales of $2.4 billion-$2.42 billion for the year ending March 31, up from its prior estimate of $2.35 billion-$2.4 billion.

Sales of retail products priced above $100 accounted for 24 percent of Logitech’s Q3 sales, up from 17 percent a year ago, said Chief Financial Officer Erik Bardman. The shift to more products priced over $100 “primarily reflects the impact of the launch of Logitech Revue,” he said. The digital home category was Logitech’s “best performing product category” in Q3, he said. That’s a new category that combines Harmony remotes, the Logitech Revue box and the associated Google TV peripherals it makes, he said.

Video revenue grew 15 percent and units were up 7 percent vs. Q3 last year, Logitech said. Audio revenue grew 5 percent, but units dipped 2 percent. The company was “pleased to return to strong growth in the gaming category, with sales up by 28 percent,” Bardman said. It achieved “double-digit growth in both the PC and the console gaming segments with the strongest growth coming in console,” he said. Console gaming revenue jumped 56 percent, but units tumbled 33 percent. PC game revenue grew 15 percent, but units fell 21 percent. Most of the console revenue growth was driven by “the success of our Driving Force GT wheel” for Sony’s PS3 game Gran Turismo 5, Bardman said. OEM revenue grew 18 percent, “driven by microphones for console singing games and keyboards,” he said.