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Logitech International SA (NASDAQ:LOGI)

F4Q2013 Results Earnings Call

April 25, 2013 8:30 AM ET

Executives

Teresa Thuruthiyil - Director, Investor Relations

Bracken Darrell - President and CEO

Joe Greenhalgh - Vice President, IR and Corporate Treasurer

Analysts

Andrew Gardiner - Barclays

Tavis McCourt - Raymond James

Paul Coster - J.P.Morgan

Joern Iffert - UBS

Alexander Peterc - Exane BNP

Andrew Humphrey - Morgan Stanley

Michael Foeth - Bank Vontobel

Felix Remmers - Credit Suisse

John Bright - Avondale Partners

Simon Schafer - Goldman Sachs

Corey Barrett - Pacific Crest Securities

Operator

Good day. And welcome to the Logitech’s Fourth Quarter Financial Results Conference Call. At this time, all participants are in listen-only mode. We will be conducting a question-and-answer session, and instructions will follow at that time. This call is being recorded for replay purposes and may not be reproduced in whole or in part without written authorization from Logitech.

I would like to introduce your host for today’s call, Ms. Teresa Thuruthiyil, Director of Investor Relations at Logitech. Please proceed.

Teresa Thuruthiyil

Good afternoon and good morning. Welcome to the Logitech conference call to discuss the company’s financial results for the fourth quarter and full year ended March 31, 2013. The press release, our prepared remarks and slides, as well as the live webcast of this call are all available online at logitech.com.

As noted in our press release, we published our prepared remarks on our website in advance of the call. Those remarks are intended to serve in place of extended formal comments today and they will not be read on the call.

During the course of this call, we may make forward-looking statements, including forward-looking statements with respect to future operating results that are being made under the Safe Harbor of the Securities Litigation Reform Act of 1995. The forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those anticipated in the statements.

Factors that could cause actual results to differ materially include those set forth in Logitech’s annual report on Form 10-K dated May 30, 2012, and subsequent filings, which are available online on the SEC EDGAR database and in the final paragraphs of the press release and prepared remarks reporting fourth quarter and full year fiscal 2013 results available at logitech.com.

The forward-looking statements made during this call represent management’s outlook only as of today, and the company undertakes no obligation to update or revise any forward-looking statements as a result of new developments or otherwise. This call is being recorded and will be available for replay on the Logitech website.

Joining us today from Zurich is Bracken Darrell, President and Chief Executive Officer; and here in New York is Joe Greenhalgh, Vice President of Investor Relations and Corporate Treasurer.

I’d now like to turn the call over to Bracken.

Bracken Darrell

Thank you, Teresa, and thanks to all of you for joining us. I’m not pleased with our financial performance for fiscal 2013. But I’m encouraged to see that our retail business has begun to stabilize in our Americas and Asia-Pacific sales regions. Our performance in our EMEA sales region was impacted in Q4 by the combination of the difficult macro environment and the very weak PC market.

In response to these factors, during the quarter our channel partners further scaled back the amount of PC related inventory they are going to hold, which had a major negative impact on our sales in the region. During the quarter, our channel partners in EMEA reduced their inventory by over 20% on both a sequential and year-over-year basis.

Especially given the weakness in the global market for new PCs, sales in our PC related categories in the Americas and Asia-Pacific were solid, with growth in both mice and keyboards, even in the consumer webcam category we saw growth in Asia-Pacific and a modest single-digit decline in America.

Across all three of our regions, I was very pleased with the continued strong growth of sales of our tablet accessories. The Logitech Ultrathin Keyboard Cover was our best selling product both in the quarter and for the full year of fiscal 2013.

In the last 30 days, we’ve announced four new products for our tablet peripherals line up and there are more additions coming in fiscal 2014. I want to briefly focus on two categories why our Q4 sales declined steeply, audio wearables and wireless, and PC gaming. There was -- there was a down quarter for these categories in Q4, we believe we have substantial growth opportunities in both of them.

I’ll start with wearables and wireless, a category that illustrates a principle you’ll see from me as CEO of Logitech. That principle is learn and adjust quickly and decisively to reality.

As you may recall, we launched a number of new products in this category in late summer 2012, including wireless speakers, earphones and headphones. We’ve taken then number of learnings since then, but the most significant being that we would have benefitted from narrowing our focus to fewer products and fewer markets.

We spread ourselves too thin by launching on a relatively large number of new products in highly competitive categories. One such product, our large mobile Boombox, was not as well differentiated as it needed to be.

In the case of our headphones, we learned that exceptional product quality and consistently positive reviews were not enough to generate momentum in a category that requires a sizeable marketing investment to drive lifestyle brand appeal.

We’ve already adjusted our strategy accordingly, I’ve narrowed our primary focus in the wearables and wireless category to the promising growth areas we see in small form -- small form-factor wireless speakers, such as the Logitech UE mobile Boombox and in ultra-high performance earphones, such as the Logitech UE 900s. You’ll see some interesting things here from -- you’ll see some interesting things here from us in the coming months.

This shifting strategy reflecting the weaker than expected demand for our headphones large form-factor Logitech UE Boombox resulted in a $5 million charge in Q4 to reduce the value of our owned inventory for these products, we’ll continue to sell these products during fiscal 2014 and we believe that this charge will minimize the risk of future negative P&L impacts.

Looking at PC gaming, our weak results reflect a timing issue, starting in Q4 and continue into Q1 of fiscal 2014, we’re phasing out many of our older gaming products to make room for the new products that we announced near the end of the quarter. These new products are just now beginning to reach the channel and we expect to see improved performance in the PC gaming category in the coming months.

Before moving on to fiscal year 2014, I want to address the departure of Erik Bardman, our CFO. As you know, Erik has resigned to take a CFO position at another company. We thank Erik for his many contributions over the past three and half years, and wish him the very best in his new role. We have a strong team that will continue to execute on our cost savings and our turnaround as we look for his successor.

Looking now at fiscal 2014, first, I want to update you on the results of my strategic assessment of our LifeSize enterprise video conferencing division. After reviewing the LifeSize business, I conclude that the long-term potential is significant.

To realize LifeSize’s potential, I believe it’s essential that we focus on recreating the startup mentality and the small company culture that enabled us to deliver industry leading growth for much of its history.

As part of our strategy to realize LifeSize’s long-term potential, we’ve restructured its operations to make it more focused, more agile and better equipped to deliver on its original promise.

This restructuring which resulted in a charge of roughly $4 million in Q4 is designed to help us to reach operating profitability by the end of the current fiscal year and ultimately, we might grow. I believe that overtime our approach will maximize LifeSize’s value for Logitech shareholders.

My top priority continues to be driving Logitech to become a faster and more profitable company. We’ll manage our PC platform products with the goal of maximizing profitability while freeing resources to make selective investments to drive growth in areas such as PC gaming and unified communications.

Mobility remains our most attractive growth opportunity. The tablet accessory is one example. It carries very strong momentum into the new fiscal year and is a top priority for future investment as we continue to expand the breadth of our portfolio. We’ve narrowed our mobile -- our mobile music focus in the wireless and wearable space, and we see potential for growth in both wireless speakers and earphones.

We continue to simplify our organization to enable us to move with the speed and focus to the smaller company. I’m very excited about our product roadmap for fiscal 2014, which will reflect our progress in developing fewer and better products. With significant restructuring efforts now behind us, we’re well-positioned to realize the associated cost savings during the new fiscal year.

While the PC market continues to way upon parts of our business and the ongoing economic uncertainty in much of Europe shows no signs of improvement, our product portfolio an indications of stabilization in the Americas and Asia, combined with the expected cost savings resulting from our fiscal year ‘13 restructuring initiatives, position us for improved profitability in fiscal year 2014.

For this fiscal year, ending March 31, 2014, we expect sales of approximately $2 billion, operating income of approximately $50 million and gross margin of approximately 34%. Looking back at fiscal 2013, I believe we’ve taken appropriate actions to make a turnaround.

We have narrowed our strategic focus, restructured the company and prioritized our resources to create great new products for mobility platforms. We’re moving forward with urgency and clear priorities. Any turnaround takes time but given our expectation for normal seasonality in the new fiscal year, I expect that our progress will not become tangible to the second half of fiscal 2014.

Before opening the call to your questions, I want to remind you we scheduled our Analyst Day -- Analyst Investor Day for May 23rd here in Zurich, where we’ll share more details on our plans for fiscal 2014 and beyond. I hope to see many of you here.

Joe and I are available now to take your questions. Please follow the instructions of the Operator.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions)

Bracken Darrell

Is there a first question here? Hello. Is there, operator, is there first question here?

Operator

Okay. We have a question. It comes from the line of Andrew Gardiner from Barclays. Please go ahead.

Andrew Gardiner - Barclays

Good afternoon. Thank you for taking the question. I just had a question around two of the product lines. First, on the wearable and wireless audio piece that you were talking about, clearly, as you say, it’s a very competitive market and a lot of lifestyle type brands doing very well there. Can you give us any more sense as to how you are going to compete against those areas?

You mentioned focusing on higher-end headphones. And just any more detail around that and whether it’s going to require a lot more marketing or, how you expect marketing to trend for that particular product segment? Also, audio PC, in the prepared statements, you highlight a fairly stale product lineup. Is that an area where we can expect a refresh and you’re expecting to return to growth in that particular segment? Thanks very much.

Bracken Darrell

Yeah, Andrew. Thank you. Yeah, I think your question is about audio earphones, not headphones. In audio earphones, we’ve actually got a very strong performer there in our UE 900s. You probably remember that Ultimate Ears, the brand that we bought -- the business that we bought four years ago, is essentially a very, very high-end, very, very custom product that’s used by performance artists.

And we brought that product over into the consumer market and it’s doing very well. We believe that with the technology we have and with the grassroots understanding of UE, that’s going to continue to do very well for us. So, in the premium earphone market, we expect to do well.

Audio PC is a totally different animal. Of course, audio PC is the speakers you use with a PC. And in that market, we haven’t refreshed our product lineup in years. And I think it’s been at least four years since we touched anything. We will have a refreshed portfolio. It’s underway right now and you’ll see it in the fiscal year.

Andrew Gardiner - Barclays

Okay. Thanks very much for the explanation.

Bracken Darrell

Thank you, Andrew.

Operator

Thank you. Our next question is from the line of Tavis McCourt from Raymond James. Please go ahead.

Tavis McCourt - Raymond James

Thanks for taking my question. Bracken, the first one is, if I look back at fiscal ‘13, you guys had executed on, I think, what was an $80 million restructuring effort. But if I look at the OpEx in 2013 versus 2012, it was basically flat. And so, I guess, where is the savings? Is it all coming out of gross margins? Have we not seen it yet? And give us some comfort that this cost structure is being addressed.

And then secondly, in terms of the product lines that you intend to be in at the end of fiscal ‘14 versus today, run us through kind of what the guidance includes, if you were due to exit, either wind down or sale some product lines? Does guidance include that or does it exclude that? Thanks.

Bracken Darrell

Sure. On your first question, yeah, the cost -- in Q4, we were even versus a year ago. This was a direct decision I made to invest in marketing and sales expenses at the end of the quarter -- during the fourth quarter to make sure we got off to a good start here in 2014 with some of the new products we’re launching.

So, we absolutely -- you will absolutely see significant cost savings in OpEx going into 2014, exactly in line with what we quoted to you earlier. So you’re going to see that in its full spectrum during the fiscal year. On your second question, which was…

Tavis McCourt - Raymond James

Which was, what is included or excluded in that roughly $2 billion revenue guidance? I think previously you had said there was product lines that you may exit or wind down or sale. What does the $2 billion include?

Bracken Darrell

Essentially, the two product lines we announced that we’re going to exit or sell were going to be the remote controls business and the security business. We’ve assumed for purposes of this they’re in for the full year.

Tavis McCourt - Raymond James

Got you. And then final, on the LifeSize restructuring, I understand, kind of, downsizing, getting it more focused. From a product perspective or geography perspective, is there any paring down of what the company sells or where it’s selling?

Bracken Darrell

Yeah. We don’t have -- there’s no big restructuring of the geographies we’re selling in. We continue to sell in all the geographies we were in. What we are doing is we’re very focused on the small and medium-sized business market where we feel like we really have a strong position.

We’re going to continue to sell at times to larger customers but our focus will be on the small and medium-sized business. And our product line, we’re really focused on the smart video solution which is about really making video conferencing easy, almost consumer easy, for a business customer.

So, as one of our LifeSize employees said the other day, it should be so easy that the CEO doesn’t have to hand the remote to the IT guy next to him.

Tavis McCourt - Raymond James

And is there a management change there or same leadership?

Bracken Darrell

There’s no management change there.

Tavis McCourt - Raymond James

Great. Thanks a lot.

Bracken Darrell

Thank you.

Operator

Thank you. The next question is from the line of Paul Coster, J.P.Morgan. Please go ahead.

Paul Coster - J.P.Morgan

Yeah. Thanks for taking my question. So I know you’re planning on exiting the remote control business but you also came out with a product refresh. And can you just explain why that is and was that residual R&D activity that has since been sort of -- kind of ratcheted back?

Bracken Darrell

Yeah. You gave the answer in your question. We absolutely already had that product underway. It’s a very big product. It’s already one of our top 20. And we certainly aren’t going to start that business as we sell it. And so it was underway as we announced that and we’re executing it.

Paul Coster - J.P.Morgan

That makes sense. And then you came out with a range of headsets for unified communications. Can you just talk about the enterprise and how you’ll go after that enterprise customer with that product?

Bracken Darrell

Yeah. We’re really excited about this business. It’s early days in the onset of UC into the big enterprise players but it’s going to be an incredibly exciting market. And we’re going at it in a couple of different ways.

First, we’re partnering directly with Cisco and with Microsoft for both Lync -- Jabber and Lync to sell into these enterprise customers. And our first sales are coming in right now. The nice thing is, you probably realize about this whole UC business is that it pulls -- it generally pulls a webcam, a keyboard, a headset and often even a mouse.

So, it’s got very big potential for us. As I said, it’s very early days and I don’t know if it will take five years or 10 years to really take hold across all of the big enterprises. But we all know it is coming.

Paul Coster - J.P.Morgan

All right. Got it. And then my last question is on LifeSize. You sound confident that there’s growth here and of course, the most recent results really don’t underscore that at all. So what is it that you’re seeing that gives you confidence that that justifies retention inside the larger Logitech?

Bracken Darrell

Well, the first thing is the current growth is probably a little deceiving because of lack of growth. The decline of 19% is deceiving because, one, we all know the video conferencing market has been a little soft over the last year.

But even more important, when we announced or I announced our plans to evaluate whether the business belonged with us, I think we naturally had customers and our distribution partners who were concerned about whether to buy from us.

So I think we went through a quarter of some pretty hard times, really some soul searching among customers about whether they ought to buy our products that delayed some things. We probably lost a few deals. Now, we’re through that. I think that part of the uncertainty really goes away.

Second part is video conferencing in small and medium-sized businesses like us, continues to be a big opportunity. We really believe in it. And as a customer of our own -- as a customer in the kitchen of our own business, we really use this intensively here and we believe in it. We talk to small and medium-sized customers, we just have a great solution.

Paul Coster - J.P.Morgan

Okay. Got it. Thank you.

Bracken Darrell

Thank you.

Operator

Thank you. The next question is from the line of Joern Iffert from UBS. Please go ahead.

Joern Iffert - UBS

Thanks for taking my questions. I have three questions here, please. The first one is I’m not fully understand the materialization of the cost savings. So, is it correct that in your $50 million operating profit guidance for 2014, the savings of $95 million or $96 million are included? And if revenues would remain stable in the next two to three years, would you see further cost saving potential supporting EBIT growth?

The next question would be, can you confirm that tablet peripherals are above break-even on EBIT level? And the last question is on the cash uses. I think by end of fiscal year 2014, you could run close to $400 million net cash. Is a share buyback, for example, likely in the next 12 to 18 months? Thank you.

Bracken Darrell

Let’s take those in reverse order. I will take the last one first. I think you said, is it true that at the end of fiscal year ‘14 you could end up with $400 million in cash if I understood that correctly. We are not giving guidance on cash. We are sitting on about $335 million of cash, $334 million this year.

And we haven’t determined yet, how we will, what we will do with that cash. We obviously have all the options available. And at Analyst and Investor Day, we may have more of an answer for you there. So, yeah, I mean we certainly do expect to generate cash next year. I didn’t understand whether you asked out, PC peripherals or tablet peripherals in your second question.

Joern Iffert - UBS

The tablet peripherals. Sorry.

Bracken Darrell

Tablet peripherals

Joern Iffert - UBS

Yeah.

Bracken Darrell

The tablet peripherals, we are not giving a specific gross margin or profit level there. What I can’t tell you is that when we look at for the full year on tablet peripherals, we expect our tablet peripherals to get more and more profitable and eventually they should be about the same level of profitability as our keyboards. It’s essentially a very similar product with similar price points and cost savings.

Joe Greenhalgh

Yeah. And Joern, could you repeat that first question. I wasn’t clear what cost savings you were referring to in the $50 million.

Joern Iffert - UBS

Sure. I think you stated total cost savings of $96 million to $98 million and I quickly want to understand if these $96 million to $98 million cost savings are fully materialized, or captured in our $50 EBIT guidance for 2014? Or, are there some delays into 2015 fiscal year?

Joe Greenhalgh

No. They are all captured there. Just as a reminder, the $80 million out of that $96 million to $98 million in total wasn’t entirely operating expenses. There was a piece of that that’s COGS. But yeah, the $50 million outlook for operating income in FY ‘14 includes the $80 million plus the savings from the restructuring that we announced in February.

Joern Iffert - UBS

All right. Thank you.

Operator

Thank you. The next question is from the line of Alexander Peterc, Exane BNP. Please go ahead.

Alexander Peterc - Exane BNP

Yeah. Hi. Thanks for the question. I actually have three questions. One is LifeSize. The other one is PC market and the third one is on wearables.

Bracken Darrell

Okay.

Alexander Peterc - Exane BNP

So, on LifeSize, if you could help me understand if you decided to keep the business because you wouldn’t find a suitable acquirer at a suitable price. Or did you really find faith in this business, having looked into it thoroughly because, it was up for sale. I understand why, because you don’t have exactly the same channels, sales channels for the rest of your retail business and LifeSize. So, I was just wondering if you could clarify what was the main motivation behind the decision to keep it.

And the second question on the PC market is I understand you have some stability in certain markets and geographies and that’s to an extent macro dependent, but do you beyond that also see the PC market overall stabilizing in the near future? Do you have that confidence? Or do you think that we could see further deteriorations here and that would then obviously impact your business? And finally, on wearables, are you exiting the over-ear headsets or headphones audio or just keep the inner ones or just help me understand that. Thanks.

Bracken Darrell

Okay. Thank you. Yeah. Alexander, to answer your first question, the only favorable option when it came to LifeSize obviously, we looked carefully at all of them. At the end of the day, we determined that the best way to create value here was to keep the asset and we feel good about the decision or the announcement of the restrucutirng plan for LifeSize that we did today is also part of that. So at the end of the day, we feel very good about decision. We think it’s the right one. And I think over the next several years it will prove that it was right.

The second one is in terms of stability in the overall PC market. The stability in some markets was actually in -- if you could exclude EMEA, it was all of the rest of the world. So we had pretty good stability for us. The PC market was down. So, the PC market continued to be off, even as our business stabilized and even in our keyboards, desktops and mice, we actually had growth of 6% in a down market.

So, I think we’re confident that we are seeing some stability. And if the PC market becomes even more stable, it will be great. We are not planning on any growth in the PC market for next year. We do plan for declines. And I hope there won’t be the kind of declines we saw in the fourth quarter, down 15%. We are planning a continued soft PC market. The answer to your last question, the over-ear headphones, we’re not exiting the market. We will continue to sell those through. But we’re not planning a big marketing investment behind them either.

Alexander Peterc - Exane BNP

Okay. Thanks a lot.

Operator

Thank you. Our next question is from the line of Andrew Humphrey, Morgan Stanley. Please go ahead.

Andrew Humphrey - Morgan Stanley

Hi. Just one question from me if I may. And that’s on the inventory reductions that you’ve seen among your channel partners, particularly in Europe. Could you give a bit more insight into what level you think inventory is at those partners in terms of days or weeks of sales? And also any indication of whether that inventory reduction has carried on into your first quarter?

Joe Greenhalgh

Yeah, Andrew. So we certainly don’t give the number of weeks. I think that the reductions that we saw in the quarter were really a continuation of what we had seen in Q3. You may recall in Q3 we thought that that was more of a one-time effect. But I think given the weakness in the overall PC market, combined with some of the continued economic issues in some of the countries in Europe, they chose to scale back a little further.

So channel inventory is always the kind of thing. At one point, at the start of the quarter you look at it and say it looks reasonable. You get to the end of the quarter, you look back you may say -- gee, maybe it was a little high or maybe it was a little low. Right now, based on everything we see in the market, we think it’s at a reasonable level.

Andrew Humphrey - Morgan Stanley

Okay. Thank you.

Operator

Thank you for your question. We have a next question from the line of Michael Foeth, Bank Vontobel. Please go ahead.

Michael Foeth - Bank Vontobel

Yeah. Hello. I have three questions.

Bracken Darrell

Hello.

Michael Foeth - Bank Vontobel

I was wondering if you could give us any update on the progress of the divestment of the two businesses you’re looking into divesting remotes and digital video security. The second question would be if you could give us an update on any M&A strategy that you would have? And finally, I wondered if you’re expecting any further restructuring costs in fiscal ‘14, or if you have booked everything already in fiscal ‘13?

Bracken Darrell

Okay. I’ll take those in reverse order. We don’t expect any further restructuring right now in fiscal 2014. So, there are no further plans. It should be all in. I’ll jump to the first. In terms of the divestiture updates, we’re in the middle of those discussions now. We should be -- we plan to be divested or out by the end of the fiscal year, hopefully sooner than that. And as I mentioned, we are in discussions with potential buyers right now.

In terms of M&A, I think I said this last time, we continue to move forward internally on thinking through these things. I don’t think you can expect us to do some big acquisition in a new category, but inside our strategy we’re looking carefully at potential bolt-on acquisitions that make sense.

Michael Foeth - Bank Vontobel

Okay. Excellent. Thank you.

Bracken Darrell

Thank you.

Operator

(Operator Instructions) We have another question. It’s from the line of Felix Remmers from Credit Suisse. Pleas go ahead.

Felix Remmers - Credit Suisse

Yeah. Hello everyone. Thank you for taking my question. I wanted to ask a question regarding Rapoo. I noticed that Rapoo gained significant shelf space, here at least in Switzerland and also in other countries in Europe and I wanted to know how you evaluate that competition. And do you see Rapoo also moving into the U.S. market? Thank you.

Bracken Darrell

Well, I’ll react more to our own position than to Rapoo’s. We continued to gain market share in our core categories. And in all of our categories, with the exception of PC gaming, the core categories, we saw market share gains. So we feel good about our position. We expect that to continue. We’ve been -- we’re very aggressive on making sure that we’re winning where we’re playing. In terms of Rapoo, I think they’re a good company and I wish them the very best luck. But it’s a war out there and we’re going to continue to fight it.

Felix Remmers -- Credit Suisse

Okay. Thank you.

Bracken Darrell

I should mention one other thing. I can’t resist. We are the leader in China and that gives us some confidence that we have the kind of cost position and innovation program that we can win anywhere.

Felix Remmers -- Credit Suisse

Okay. But is Rapoo -- do you see Rapoo also in the U.S.?

Bracken Darrell

In a very limited way, they’re not a big player in the U.S.

Felix Remmers - Credit Suisse

Okay. Thank you.

Operator

Thank you. Our next question is from the line of John Bright, Avondale Partners. Please go ahead.

John Bright - Avondale Partners

Thank you. Bracken, you mentioned aftermarket mice, keyboards grew in the U.S., I think in Asia. What explains the demand given the PC platform declines?

Bracken Darrell

I think there are a few things. I think one is -- I’d give three or four different answers. The first one I’d say, is there’s only a certain amount of time you can built spare parts of a PC before you decide you’ve got to refresh something. So, I think there’s some of that going on here, both in mice and keyboards.

The second thing is there is -- our keyboards, especially the multi-switch were used for multiple different platforms. So, some are used for PCs and some are used for tablets and some are even used for phones. So, I think we have a lot of things going on there.

The third one is one of our best selling products is actually a keyboard that’s often used in the living room with the TV, which is these smart TVs are opening up an opportunity here. So, I think we’ve got a lot of drivers there that are making the keyboard business look pretty interesting. And of course, I can’t resist saying we are gaining share.

John Bright - Avondale Partners

I think you also mentioned that tablet keyboards, a product that’s going well for you. The gross margins are expected to be similar to the desktop keyboards, historic margins. I think that’s what you said.

Bracken Darrell

That’s right.

John Bright - Avondale Partners

Is not the competitive environment different for the two products, maybe less competitive for the traditional desktop keyboards and more competitive for the new tablet keyboards?

Bracken Darrell

Yeah. It’s a different competitive set. I wouldn’t say that it’s any less competitive in the regular keyboards, or more competitive in the keyboard covers. Yeah, I think at the end of the day we really expect that in the keyboard cover business that we’re going to see our margins continue to improve there, especially as we get to the back half of the year to the point where they’re going to look a lot more comparable to our traditional keyboards.

Remember one thing. We come at this as a keyboard maker. So, we have economies of scale and understanding for how to get efficient keyboards and we’re incorporating those into covers. So that probably gives us some kind of an opportunity to create more margin there.

John Bright - Avondale Partners

Two final questions. One, you decided to give FY ‘14 topline guidance. Maybe talk about your level of confidence and visibility in that? One. And then, two, appetite for share repurchase?

Bracken Darrell

I’d say in terms of confidence in the top line guidance, we’re pretty confident. There were a lot of moving parts in 2013 that made it so that I and we simply didn’t feel comfortable giving guidance. But believe me, we wouldn’t be giving guidance if we weren’t pretty confident.

In terms of share repurchase, we obviously have all the options available to us. We’re sitting on a significant amount of cash. We expect to generate a significant amount of cash in 2014. And so, we’re talking through that now among ourselves and with the Board exactly what to do with that.

John Bright - Avondale Partners

Thank you.

Bracken Darrell

Thanks, John.

Operator

Thank you for your question. The next question is from the line of Simon Schafer, Goldman Sachs. Please go ahead.

Simon Schafer - Goldman Sachs

Thanks so much. I just wanted to go back on the restructuring plan, I understand that that’s incorporated in your guidance. But I just -- I guess I wonder at which point in terms of timing would you have to decide to pursue a larger one, just in light of obviously another year of revenue decline?

I wondered -- I understand the conclusion of the strategic review and so on resulted in what you have announced already and you’re executing against that. But I wondered whether you had any thoughts as to whether you may have to revisit that at some point? And more specifically, when you may decide to do so, in case, you don’t manage to see a reacceleration in growth? Thank you.

Bracken Darrell

We certainly -- as I just mentioned to John, we’re confident with our top line guidance for next year, right now. So we have no plans to do additional restructuring. Now, if something happened and the bottom really fell out of our business, we’ll do what we need to do. We’re not going to sit here and wait but we certainly don’t have any plans or any indications that we’ll need to.

Simon Schafer - Goldman Sachs

Great. Thanks so much.

Bracken Darrell

Thank you. Thanks, Simon.

Operator

Thank you. The next question is from the line of Corey Barrett with Pacific Crest Securities. Please go ahead.

Corey Barrett - Pacific Crest Securities

Hi. Thank you for taking my questions. First, is your revenue guidance based internally on an underlying PC unit growth rate for this year? And if so, can you tell us what that assumption is?

Bracken Darrell

We’re assuming in our -- in our revenue guidance, we’re assuming that the PC market is soft, somewhere between flat to down -- down mid-single digits.

Corey Barrett - Pacific Crest Securities

Perfect. Thank you. And then, secondly, on tablet peripherals, can you -- or at this point, do you know how the attach rate to regular iPad or larger form-factor tablets is different than to the iPad mini or the smart form-factor tablets?

Bracken Darrell

Yeah. The attach rate for the mini is significantly lower than to the large iPad. But it’s surprising us that it’s higher than we predicted originally and it’s going up. So, it’s a little hard for us to say right now how high it will ultimately be.

I wouldn’t give you specific numbers right now, but let me just say that neither one of those attach rates is nearly as high as it probably will be when we’re done. They’re both climbing.

Corey Barrett - Pacific Crest Securities

Okay. That’s very helpful. That’s all I have. Thanks.

Operator

Thank you. (Operator Instructions) Our next question is from the line of Tavis McCourt, Raymond James. Please go ahead.

Tavis McCourt - Raymond James

Hey, Bracken. Just a follow-up on the couple of product lines that you’re looking to exit, in terms of their incremental profitability to the business or should we view those as, kind of, rounding errors or are they meaningfully profitable or unprofitable?

And then, secondarily, it looked like on the unit pricing, if I look at the revenues and the unit growth, kind of, come to an assumed unit pricing on some of your more mature products. It seems like it was decently positive in the quarter. Are you taking kind of pricing actions, in terms of less discounting than historical on some of these mature product lines? Thanks.

Bracken Darrell

Okay. Yeah. To answer your first question, the product lines we’re exiting are unprofitable. So that’s pretty -- as definitive as I can be. And then, in terms of our pricing, we’re continuing to look at where we can work around the edges of our pricing, especially the place between gross and net to try to trim that back and improve our overall net pricing and, you saw some success in Q4.

Tavis McCourt - Raymond James

Great. Thanks a lot.

Operator

Thank you. We have no further questions. That concludes our conference call for today. You may all now disconnect. Thank you for joining.

Bracken Darrell

Thank you very much.

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