Logitech International S.A. (NASDAQ: LOGI) is a manufacturer of devices for PC navigation, Internet communications, digital music, home-entertainment control, and gaming. The company sells its products through major electronics retailers, such as Best Buy (BBY), as well as through original equipment manufacturers (OEMs), such as Dell (DELL). Nineteen of the top 20 PC manufacturers sell self-branded Logitech hardware as upgrades available during the purchase of a computer. Logitech is pushing large U.S. retailers to create "Logitech" spaces in their stores, which would have all the company's products available in one place, as opposed to being spread out by product categories; the company hopes that this will create cross-selling opportunities and will further strengthen the Logitech brand.
The growing popularity of notebook computers have negatively impacted Logitech's sales of OEM mice and keyboards because laptops do not require these devices. Additionally, an increasing number of laptops are being made with built-in webcams. While Logitech makes some of the webcams embedded into new laptops, it is not a significant part of their revenue, and the margins are much lower than on retail webcams.
For the PC, Logitech's products include mice, trackballs, keyboards, interactive gaming controllers, multimedia speakers, headsets, webcams, 3D control devices and lapdesks. Internet communications products include webcams, headsets, video communications services, and digital video security systems for a home or small business. Digital music products include speakers, earphones, and custom in-ear monitors. For home entertainment systems, Logitech offers the Harmony line of advanced remote controls and the Squeezebox and Transporter wireless music solutions for the home. For gaming consoles, Logitech offers a range of gaming controllers, including racing wheels, wireless guitar and drum controllers, and microphones, as well as other accessories.
Most of Logitech's revenue comes from its original business of computer mice and keyboards. The company's computer speaker business makes up the next largest part of revenues. Approximately half of Logitech's revenue has come from Europe, while the North American and Asia/Pacific regions account for 35% and 15% of revenue, respectively. Logitech hopes to expand significantly into Latin America, Eastern Europe, and China, where consumer electronics markets are rapidly expanding. China's PC penetration is only 111 computers per 1,000 people. In comparison, the US has 850 PCs per 1,000 people.
Fourth Quarter Fiscal 2010 Results (quarter ended March 31, 2010)
Sales for the fourth quarter were $525 million, up 29 percent from $408 million in the same quarter last year. Operating income was $28 million, compared to an operating loss of $43 million in the same quarter a year ago. Net income for the fourth quarter was $24 million ($0.14 per share) compared to a net loss one year ago of $35 million ($0.20 per share). Gross margin for the fourth quarter was 35.8 percent, up from 25.0 percent in the year-ago period.
Logitech's retail sales for the fourth quarter of fiscal 2010 grew by 27 percent year over year, with sales up by 54 percent in the Americas, 15 percent in EMEA, and 10 percent in Asia. OEM sales grew by 1 percent.
Fiscal 2010 Summary
For the full fiscal year, sales were $2.0 billion, down from $2.2 billion in fiscal 2009. Operating income was $78 million, down from $110 million a year ago. Net income was $65 million ($0.36 per share), compared to $107 million ($0.59 per share) in the prior year. Gross margin for fiscal 2010 was 31.9 percent compared to 31.3 percent in fiscal 2009.
Logitech's Personal Periphals segment manufactures computer mice, keyboards and desktops, and notebook peripherals.
Mice products include an expanded line of gaming mice, including the customizable G9x, which gives PC gamers the ability to modify the mouse for the best personal fit, feel and performance. Other pointing devices include cordless optical trackballs, featuring a “cruise control” scrolling feature and several programmable buttons, 3D input devices such as SpaceNavigator, SpaceExplorer, SpaceNavigator for Notebooks, and SpacePilot, sold under the 3Dconnexion brand.
Keyboards and Desktops
Logitech offers a variety of corded and cordless keyboards and desktops (keyboard-and-mouse combinations).
Logitech manufactures webcams, speakers, headsets, presentation tools, numeric pads, lapdesks, cooling pads and notebook risers for notebook computers.
Logitech's Voice and Video Communications segment manufactures video conferencing products and provides services for the enterprise and small-to-medium business markets.
Logitech's webcams feature lenses designed in a collaboration with Carl Zeiss, a premium autofocus system, and a true 2-megapixel HD sensor. These webcams also leverage High Quality Video from Skype, a video calling functionality offered through Logitech's collaboration with Skype. Mid-range webcams feature glass lenses, auto focus technology, and RightSound and RightLight2 Technology. These webcams record video at up to 30 frames per second and support the 720p HD video format.
Logitech has also developed Vid video calling software. Vid can be downloaded from the Logitech website and is powered by the Logitech SightSpeed network. Logitech’s entire family of webcams works with most popular video messaging applications, including Skype, Windows Live Messenger, Yahoo! Messenger and AIM. Logitech also offers the SightSpeed video calling service, as a result of the acquisition of privately-held SightSpeed Inc. in November 2008.
Video Security Systems
Logitech’s WiLife video security systems use a PC and special video cameras to provide remote security monitoring of a home or small business. The WiLife solution includes monitoring cameras that use the HomePlug Powerline technology to transfer video over standard electrical wiring. The cameras can record video on a scheduled basis, at all times, or when they detect motion. The video is stored locally on a computer and can be played back locally on the PC. For an additional fee, the solution offers Platinum Digital Video Security which is an internet-based security system with the ability to monitor video feeds remotely on a PC, Windows-based PDAs, or cell phones.
Speakers and Earphones
Logitech designs and manufactures a wide variety of multimedia speakers. Logitech also manufactures the Ultimate Ears product line, which offers a range of custom stage earphones for professional musicians and sound engineers, as well as in-ear consumer or universal fit earphones for portable music enthusiasts.
Logitech offers a portfolio of affordable network music systems that make it easier to enjoy and control digital music anywhere in the home. In fiscal year 2010, Logitech expanded its line of streaming music products with the introduction of the Logitech Squeezebox Radio and Logitech Squeezebox Touch.
Logitech offers headsets and microphones designed for applications such as PC voice communications, VoIP applications and online gaming.
Logitech offers a full range of dedicated game controllers for PC gamers including joysticks, steering wheels, gamepads, mice and keyboards, and headsets. The company offers gaming products for console platforms such as PlayStation2, PlayStation3, PSP (PlayStation Portable), Xbox, Xbox 360 and Nintendo Wii. Products include the Wireless Guitar Controller, Wireless Drum Controller, Driving Force GT Wheel and Vantage USB headset for PlayStation 3, and the USB Microphone for all platforms.
Logitech's offers advanced remote controls for home entertainment systems.
With its acquisition of LifeSize Communications, Inc. in December 2009, Logitech entered the market for enterprise video conferencing products and services.
Laptops have built-in keyboards and trackpads (which are mouse alternatives built into laptops), so end users of laptops do not have the same need for Logitech's mice and keyboards as do customers buying desktop computers. As laptops grow even more in popularity, Logitech expects that its sales of OEM-branded mice and keyboards will decline. Logitech has already observed a slowing of OEM-branded mouse sales, which historically made up the bulk of total OEM sales.
In 2008, laptops outsold desktops for the first time in the U.S. and analysts at IDC expect this trend to broaden to the global market.
WinterGreen Research expects the webcam market to grow to $6.2B by 2013 , it is uncertain whether this demand will be satisfied by OEM-embedded webcams or aftermarket USB webcams. The growing market for webcams has led competitors to enter the market, such as Microsoft (MSFT), which started producing webcams in 2006.
Even low-end laptops such as Intel's Netbooks, which will cost between $250-$350, sport built-in webcams. Although Logitech produces some of these OEM embedded webcams, it is not a significant part of their revenue, and the margins are substantially lower than on the previously-popular external, retail webcams that made up a large part of Logitech's business. As more laptop models become available with built-in webcams, and as users migrate from desktop to laptop purchases, Logitech will lose important businesses in the external webcam market.
Consumer media servers have been quickly growing in popularity, and Logitech has been investing in products targeted at users of these servers. A media server is an electronic device (usually a personal computer loaded with special software) that serves digital media such as digital music or videos to televisions, computers, and speakers located around a consumer's house, usually in the living room. ABI Research predicts the number of PC media servers to grow worldwide to 25 million by 2013..
For example, Logitech purchased Slim Devices for $20M in 2006. Slim Devices' products stream digital media around the house, but this is only useful if consumers own digital media content. Within Logitech's core business, wireless keyboards and mice face strong future demand from media center setups. For instance, the MX Air, which works very well with media servers because it can be used without a surface like a desktop. Even Logitech's high-end speaker line has a high dependency on consumers' ability to play high-quality content on these products.
Fortunately for Logitech, there is a clear trend, for Digital Media Distribution with decreasing costs and increasing availability and quality. Apple (AAPL)'s iTunes Music Store has sold over 5 billion songs and has expanded its offerings into television shows and movie rentals. DVD-by-mail service Netflix (NFLX) has started offering instant viewing of a limited part of its library via internet. Sales of physical media are in sharp decline.
As the computer becomes the central hub for digital media content, consumers will seek solutions for streaming this media around the house, controlling the equipment with universal remote controls, accessing the server by means of wireless keyboards and mice, and playing back digital content on speakers that connect to computers. Logitech services all of these areas and more (such as the security video camera market), so it stands to benefit from this trend.