Mark Hawkins gave a punchy presentation on the company. Much more energy and confidence than MSFT; quite a contrast.
Key points included very diverse set of products with none representing more than 3% of sales. The company has proven during the last few years they can deliver reliable results even as the individual end-markets ebb and flow. Investors have appreciated this and given the company a better multiple.
Growth drivers cited:
Wireless Connectivitiy – Devices and controls are all going wireless. From mice to peripherals to broadband. This drives demand for new and upgraded devices across the board.
IP Communications: Video is growing rapidly. Helps drive their #1 position in webcams. VoIP is also driving demand for headsets and more integrated functions in keyboards.
Digital Music: The purchase of Slim Devices demonstrates their ability to deliver end-to-end solutions from the PC to the home to mobile applications.
Digital Home: Next generation users understand digital hardware, software and the internet. As they build out the entertainment areas of their homes they demand sophisticated electronics and control. As digital products migrate deeper into lifestyle increasing choices of peripheral devices help personalize the platforms for individual users.
Notebook Growth: More portable computers get sold every year as a portion of the total. These devices have many tradeoffs in terms of I/O that generate purchases of peripherals that are available when the machine is docked; including mice, speakers, keyboards, stands and so forth.
Distribution remains a major competitive weapon and the company focuses on success in their channel partners. The company has managed flat to up operating and gross margins every year for the last 8 years. After investing in their channel for 20 years it is felt that it represents a real barrier to entry.
Quarterly gross margins have been more volatile but in the last reported quarter they saw a huge improvement to 34.5% which is above their long-term targets. Claim is that this is due to improved margins in low-end products and more innovation in audio. The company remains comfortable with 12% long-term operating margin target.
R&D spending at Logitech was $88M and larger than the retail sales of any Chinese competitor. Microsoft is the largest competitor with revenues of about $450M versus $1.7B for LOGI.
Cash flow has been consistent on a quarterly basis since FY02. Will use it for acquisitions, investments and tactics to increase per-share earnings.
Made the point that past acquisitions (Connectix/Webcam, Labtec/Audio, Intrigue/Remote) have turned into big businesses with small purchase and integration costs. Expects Slim Devices to be another one of these acquisitions.
Guidance remains unchanged with GM of 32-34%, OM of 12% and NM of 10%. Gross margin will actually be sustained above the mid-point of the range for the rest of FY07. Note that operating and net margin guidance does not include equity-based compensation. For FY07 this is expected to be int eh range of $16-19M.