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Logitech International SA (LOGI - Analyst Report) reported a loss of $1.24 per share in the first quarter of 2013, considerably below the Zacks Consensus Estimate of 34 cents earnings of 32 cents in prior-year quarter. Continued weakness in the global PC market is the primary factor behind the loss in the reported quarter.

 Revenues

Net sales in the third quarter of 2013 stood at $615 million, down 14% year over year. The decline in revenues was primarily due to greater-than-expected weakening of the PC market. The general slowdown in the emerging markets also had a negative impact on the company’s top line.

Sales by Channel

During the quarter, Retail sales declined 14% year over year to $542.4 million. The reduction was due to lower sales from the EMEA region (down 20%), Americas (8%), Asia (11%), Lifesize (3.6%) and OEM (22.5%).

Sales by Product Division

Tablet Accessories was the best-performing retail product category in the reported quarter with sales increasing a robust 119.2% year over year to $39.4 million. However, this increase was fully offset by a 10.5% decline in pointing devices to $153.9 million, 5.8% decrease in Keyboards & Desktops revenue to $110.6 million and 18.7% drop in audio PC revenue to $47.4 million. Moreover, gaming revenues and other revenues were down by 19.7% and 77.8%, respectively.

 Income and Expenses

Gross margin for the quarter was 33.7% compared with 32.7% in the year-ago quarter. This increase in gross margin was driven by tight management of channel-pricing programs and a variety of efficiency improvements in the global supply chain.

Operating loss for the quarter was $215 million, compared with an operating profit of $48.2 million in the same quarter last year. Operating expenses for the third quarter of 2013 were $765 million, up 43.2% year over year.

 Balance Sheet & Cash Flow

As of Dec 31, 2012, cash and cash equivalents were $321.9 million and shareholder’s equity was $756.5 billion.

Net cash provided by operating activities was $95.1 million at the end of the quarter versus $152.3 million in the prior-year period. Capital expenditures incurred during the quarter were $9.2 million.

Looking Ahead

Given the current trend toward smart phones and tablets, Logitech intends to tap this high potential market, which is still under penetrated in terms of accessories. The company has also taken certain strategic decisions to improve its profitability going forward. Logitech intends to sustain its leadership in the PC platform-related products where it has engineering, distribution and scale advantages.

Further, management has identified a number of product categories that no longer fit with the company’s strategic direction. As a result, Logitech has initiated the process to divest its remote controls and digital video security categories and also plans to discontinue other non-strategic products, such as speaker docks and console gaming peripherals, by the end of 2013.

Logitech believes that by doing so, the company will not become a more focused company but will also reduce costs significantly. The company expects to generate savings of approximately $80 million annually through 2014.    

Logitech has a Zacks Rank #4 (Strong Sell) while its competitors Stratasys Ltd. (SSYS - Analyst Report) has a Zacks Rank #1 (Stong Buy) and Immersion Corporation (IMMR - Snapshot Report) and LG Display Co. (LPL - Snapshot Report) carry Zacks Rank # 2 (Buy).

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