Logitech Won’t Give Up On Google TV Despite ‘Very Weak’ Quarter

Following disappointing results in its fiscal Q1, Logitech used its earnings call Thursday to announce several initiatives designed to improve results in future quarters, including the ouster of CEO Gerald Quindlen and a second price cut on the struggling Revue set-top box to $99. Chairman Guerrino De Luca will be acting CEO and president until a replacement is named, De Luca said during the call, stressing that the company needs to “significantly improve performance” and attack challenges with “a greater sense of urgency."

Citing a “very weak quarter” for sales of the Google TV-based Revue, Logitech instituted its second price cut on the Revue, which launched last October at $299 and got a shave in May to $249. Logitech launched the Revue with the expectation it would generate “significant sales growth” despite a “relatively high price point,” the untested waters of the smart TV category and “the underlying [Google] platform,” De Luca said. In hindsight, there are “a number of things” the company should have done differently, he said, but engaging with Google “was the right thing to do” because it enabled Logitech to establish a relationship with a technology leader, he said. The relationship promises “to bear more fruit down the road,” he said.

When asked to expand on upcoming changes in the Google TV platform and possible design changes for the Revue, De Luca said the revamped Google TV will undergo “a major update” in September, bringing the platform to “what it always should have been,” which includes apps designed for TV viewing. All existing Revue products will be compatible with the update, he said.

The decision to drop the price of the Revue to $99 from $249 followed the realization that “there was a significant gap” between the price of the Revue and its value as perceived by consumers, De Luca said. The company “paid a significant price for the decision” but the latest price reduction should help spur sales and allow the company to move forward, he said. Regarding Logitech’s miscalculation on the retail value of the Revue box, De Luca said, “At the beginning we believed fully that the price point was justified and that consumers would see that value. We were wrong.” He added that Google TV “hasn’t fully delivered on promises,” including an app market, as well as “some evolutions needed in content and UI.” He maintained, though, that at $99, and at “under $150 for a Revue and webcam,” the product is a “compelling” value for consumers.

Despite a 53 percent sales drop for Q1 in the Digital Home category in the Americas, Logitech’s commitment to the category, including Revue and Harmony remote controls, is “unchanged,” De Luca said. Harmony remote controls, which saw a 48 percent sales drop for the quarter, will remain the centerpiece of the sales strategy for the segment, he said, which also includes audio and video solutions. De Luca called audio a “substantial, untapped” category that Logitech will target in coming months beyond its current PC speaker offerings.

In response to an analyst’s question about whether positioning Harmony as the centerpiece of the Digital Home line is an indication Logitech plans to discontinue Revue, De Luca disputed the latter suggestion and downgraded Harmony’s role in the category to “a key component, not the key component” for the Digital Home plan. He said Harmony is the “biggest differentiator” to Logitech’s value-add for Google TV category.

The price cut brings Revue to a “break-even” proposition, De Luca said, saying the company hopes to implement several strategies including changes in the channel mix and add-on accessory purchases to build margin into sales. “This is not going to be our more profitable line, but it’s absolutely essential” that the company has a strong penetration in the smart TV market, he said. From the beginning, he said, the main reason to enter the smart TV category was “to create a large base, not to sell a lot of boxes.” He wouldn’t discuss future products that might provide a more profitable margin.

Harmony remote sales for the quarter were down 48 percent, but the company remains sanguine about the line despite the dismal numbers. De Luca noted that one major retailer pulled a promotion designed for fiscal Q1 2012 into Q4 2011, which affected the Q1 bottom line. CFO Erik Bardman said new account set-ups for Harmony remotes in the Americas were up 13 percent for the quarter and that sales increased both in units and dollars. “That’s why we feel we'll see a return to growth in the Americas for Harmony sales in Q2,” he said.

Challenging some analysts’ assertions that declines in the PC category are the cause of Logitech’s recent struggles, De Luca said that view is “misconceived” and that the PC category is “far from dead.” He said mobility and lifestyle design are increasingly important and that growth opportunities vary significantly within the PC category. The company will continue to align resources with “the most promising opportunities,” such as tablet peripherals, he said. Pointing devices and keyboard sales continue to show growth, even amid weak economic conditions and the popularity of the iPad, he said. He also expects to see keyboard opportunities from tablets as consumers increasingly use laptops and tablets in “a stationary” way. He said Logitech’s portfolio for tablets will be “substantially larger” for Q4 but wouldn’t expand.

Logitech is in the early stages of developing a B2B business, including a dedicated sales force and products tailored to the business market, including webcams, headsets and video conferencing products. Logitech has dipped a toe in the water of B2B business in the past, but now it plans a more concerted effort due to changes in the enterprise environment where business market “is now eager to embrace consumer technology and design as preferences of employees increasingly drive company choices,” De Luca said. The road to the enterprise market “will be challenging,” but the goal is to “add large profitable and sustainable business” to the Logitech portfolio, he said.

Sales for fiscal Q1 2012 were $480 million, marginally up from $479 million in Q1 fiscal 2011, the company said, but excluding the favorable impact of exchange rate changes, sales declined by four percent year over year. The company posted an operating loss of $45 million, compared to operating income of $12 million in the same quarter a year ago. Included in the Q1 operating loss is a $34 million charge to cost of goods sold due to the planned price reduction on the Revue, it said. Net loss for the quarter was $30 million compared to net income of $20 million a year earlier. Logitech shares closed down 7 percent Thursday to $9.58.