PC Market ‘Uncertainty’ Has Logitech Reassessing All Categories

A “significant slowdown” in the global PC market took its toll on fiscal Q2 2013 sales results at Logitech, CEO Guerrino De Luca said on an earnings call Thursday. Sales in all of Logitech’s PC-related categories came in below forecast, De Luca said, slammed by the “deteriorating conditions” in the global PC market in the last 90 days.

As of Thursday, the day of Microsoft’s official Windows 8 launch, it wasn’t clear how much of the weakness was due to customers delaying PC purchases in advance of the new operating system. (See separate report in this issue.) The slowdown in PC sales caused Logitech to lower its outlook for the second half, Logitech President Bracken Darrell said, adding that what will happen over the next two quarters “is anybody’s guess.” The company will manage spending “in line with the current environment,” Darrell said, and that includes reassessing product strategies across the board. The company is examining every category and the products within categories to assess product portfolio, level of innovation, distribution and future viability to find “categories we shouldn’t be in,” Darrell said. “We're going to look at everything."

Given the “uncertainty of the PC market,” Logitech is now planning for “continued strong headwinds in all of our PC-related categories for the remainder of the fiscal year,” Darrell said. The weakness in the PC segment is expected to “more than offset” progress from new product launches, he said. Although Windows 8-related sales could turn out to be “a positive,” Darrell said, “it’s not prudent to plan on a quick rebound of the PC platform.” The company expects sales and operating income for the second half of fiscal 2013 to fall from fiscal 2012, he said.

Sales in the mouse category were hardest hit, De Luca said, down 8 percent year over year. There was a falloff in high- and mid-level offerings and single-digit growth at the low end, Darrell said. Logitech earlier this month introduced touch and navigation products in anticipation of Windows 8 hardware, and those are expected to launch “shortly,” he said. Logitech reported success with a Bluetooth-equipped keyboard/stand for the iPad that was the best-selling product in the portfolio “by far” in Q2, and is in high demand for the holiday selling season, De Luca said

Sales in Logitech’s audio category fell 14 percent as a result of double-digit drops in “legacy” PC-related audio products that still make up the majority of the audio lineup, despite the introduction last month of Logitech’s UE music line. Sales of PC speakers, PC headsets, and speaker docks reflected the decline the company saw in its other PC categories, executives said. The market outlook for audio docks is “poor,” as a result of the proliferation of wireless speakers for smartphones and tablets and Apple’s shift away from the 30-pin connector to the 9-pin Lightning connector that is making the dock category “condemned to extinction,” De Luca said.

In video, sales fell 17 percent as standalone webcam sales are being eroded by embedded webcams in mobile devices and the overall weakness of the PC market, De Luca said. Sales declines were felt most in the low- to mid-range of the line in the Americas, although there was “strong growth” in the high-end of the category with the HD Pro Webcam C920 and a conference webcam for the business market, he said.

Logitech’s Digital Home category saw sales plummet 31 percent from fiscal Q2 2012, due largely to the absence of Google TV products, which the company has discontinued. In prepared remarks, the company said it is pleased with the initial reception to its HD Skype cam for TVs.

While sales were up 5 percent in Europe, the Mideast and Africa, they fell 7 percent in Asia and 6 percent in the Americas, Logitech said. The overall average selling price slipped 3 percent year over year but was up 7 percent sequentially, it said. Logitech still sees growth potential in emerging markets, especially China, where the PC penetration rate is “relatively low,” Darrell said. Distribution models in China are transitioning, he said, from “big IT malls” to “more modern retailing” including big box retail stores and e-commerce, he said. “We expect to return to growth there this fiscal year."

De Luca remained positive about the future, citing peripherals opportunities for tablets and smartphones and standalone audio products. The company is keeping close watch on changing dynamics in the PC market to determine whether downward trends will continue, De Luca said. Flat PC sales in calendar Q2 were followed by a double-digit percentage drop in sales in calendar Q3. He called a “collapse of that nature … unusual” and “totally unexpected.” The next 18-24 months will offer a better picture of the future of the PC market, he said, as a “flurry of exceptionally good PCs that the industry hasn’t seen” comes to market. Historically, “the only place to find an exceptional PC was the Apple Store,” but PC makers are making “enormous progress,” De Luca said, with “very sexy” Windows 8 products. “Will that make a difference,” he asked. “That’s the biggest question our industry is facing."

For the quarter, revenue was $548 million, down 7 percent from $589 million in fiscal Q2 2012, Logitech said. Net income in fiscal Q2 was $55 million, compared with $17 million in fiscal Q2 2012, the company said. Logitech shares closed 18.5 percent lower Thursday at $7.14