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Bear of the Day: Logitech International (LOGI)

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Founded in 1981, Logitech International is a Swiss public company listed on the SIX Swiss Exchange and on the Nasdaq Global Select Market.

The company is a global leader in peripherals for personal computers and other digital platforms.  Some of the company’s popular products are computer mice (world’s largest producer), keyboards and speakers. Other products include trackballs, interactive gaming controllers, multimedia speakers, headsets, web cameras and lap desks.

The company operates through two major business segments: peripherals (86% of 2012 total revenue) and video conferencing.

Disappointing Fiscal 2013 Third Quarter Results

LOGI released its results for the third quarter of its fiscal 2013 on January 24, 2013. Sales for the quarter were down 14% year-over-year.  Net loss for quarter was $195 million ($1.24 per share) compared with net income of $55 million ($0.32 per share) in prior-year quarter.

Gross margin for the quarter was 34.2%, down from 36.2% in the same quarter one year ago.

Sales declined in all regions-20% in EMEA, 8% in the Americas and 11% in APAC. The company wrote down $211 million at its video conferencing unit—Lifesize.

Dismal results for the third quarter, which includes holiday season sales, indicate difficult climate for PC and PC peripherals makers due to customers’ growing preference for tablets.

The company is planning to shift its business towards products for tablet computers and mobile phones.

Strong headwinds ahead

The prospects for the company don’t look bright at all in view of rising demand for tablets and reduced consumer spending. While the company is trying to change its business strategy and planning to expand its presence in the growing tablet accessories market, the transition so far has been less than satisfactory.

Going forward, the company intends to continue to take advantage of its global leadership in the PC platform-related products but at the same time, it plans to discontinue some of the product categories that no longer fit with the company’s strategic direction. Further, the company is planning another round of cost cuts in addition to the $80 million annual savings target announced last year.

The company is current trading at trailing 12-month earnings multiple of 23.3x, compared with the 28.8x average for the peer group.

However as the PC market has continued to change swiftly in the last couple of years while the company has not been quick in evolving its business strategy and bringing new products to market; the near-to-medium term outlook for the company remains gloomy.

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