Logitech International SA F1Q11 (Qtr End 06/30/2010) Earnings Call Transcript

Jul.29.10 | About: Logitech International (LOGI)

Logitech International SA (NASDAQ:LOGI)

F1Q11 (Qtr End 06/30/2010) Earnings Call

July 29, 2010 8:30 am ET

Executives

Joe Greenhalgh - VP or IR and Corporate Treasurer

Jerry Quindlen - President and CEO

Erik Bardman - SVP, Finance, and CFO

Analysts

Jonathan Tseng - Merrill Lynch

Simon Schafer - Goldman Sachs

Yair Reiner - Oppenheimer and Company

Ashish Sinha - Morgan Stanley

Andy Hargreaves - Pacific Crest

Nicolas von Stackelberg - Macquarie

Tom Kucera - Avondale Partners

Beat Keiser - Cheuvreux

Tim Shaw - Citi

Operator

Good day and welcome to the Logitech's first quarter financial results conference call. (Operator Instructions) 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 now like to introduce your host for today's call, Mr. Joe Greenhalgh, Vice President of Investor Relations and Corporate Treasurer at Logitech.

Joe Greenhalgh

Welcome to the Logitech conference call to discuss the company's results for the first quarter ended June 30, 2010. A press release, a live webcast of this call and accompanying presentation slides are available online at logitech.com.

This conference call will include 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 27, 2010 and subsequent filings which are available online on the SEC EDGAR database and in the final paragraph of the press release reporting first quarter results issued by Logitech and available at logitech.com. The press release also contains accompanying financial information for this call.

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.

I would like to remind you this call is being recorded, including the question-and-answer portion, and will be available for replay on the Logitech website. For those of you just joining us, let me repeat that presentation slides accompanying this call are also available on our website.

Joining us today are Jerry Quindlen, President and Chief Executive Officer; and Erik Bardman, Senior Vice President of Finance and Chief Financial Officer.

I'd now like to turn the call over to Jerry.

Jerry Quindlen

Thanks, Joe, and thanks all of you for joining us today. I'll cover the highlights for the quarter now, and I will be followed by a more detailed review of the financial results by Erik. Then I'll return to talk about our outlook for the year before we both take your questions.

I am extremely pleased with our strong start to our fiscal 2011. Building on the momentum we established in the March quarter, we delivered sales, gross margin and operating profit in Q1 that were higher than the outlook we shared at the beginning of the quarter.

Our sales grew by 47% year-over-year, with strong double-digit growth in all retail regions, led by the Americas as well as in OEM. We also experienced continued improvement in sell-through across EMEA, the Americas and Asia-Pacific, with the strongest growth in EMEA and sell-through of our product exceeding our expectations in both the Americas and Asia-Pacific.

Remotes was our fastest growing retail product category, delivering an eightfold improvement in sales year-over-year. And pointing devices was our second fastest growing retail category, with growth of 46%, led by strong demand for our cordless mice.

I continue to be pleased with the sales momentum we're building with our LifeSize business. Sales were up sequentially and LifeSize products continue to receive an enthusiastic reception from companies who are looking for high-quality, affordable, scalable solutions for HD video communication.

We delivered our best ever Q1 gross margin at 35.3%, a significant improvement from the 23.9% we posted in Q1 of fiscal 2010. I was particularly pleased to see that the negative impact of the weaker euro on our business in EMEA was more than offset by our performance across our other regions as well as by our supply chain efficiency improvements.

Another highlight for the quarter was the May announcement of our central role in developing Google TV. I am very excited about the opportunity for Logitech provided by this innovative, open platform that integrates television and internet content seamlessly. I'll have much more to say on that subject later on the call.

Let me turn the call over now to Erik.

Erik Bardman

Thanks, Jerry. I'll start with an overview of our Q1 sales performance. I'm pleased to note that the growth percentages that follow are in comparison to Q1 fiscal 2010.

Our retail sales and units grew by 39%. Looking at our regional sales in local currency, EMEA was up by 31% and Asia by 22% compared to U.S. dollar growth of 21% in EMEA and 24% in Asia. Units were up by 33% in the Americas, by 42% in EMEA and by 45% in Asia-Pacific. Our overall retail average selling price in Q1 was essentially unchanged from the prior year.

Sales of our products priced above $100 represented 15% of our retail sales in Q1, up from 12% in the prior year and essentially unchanged compared to the prior quarter.

As Jerry mentioned, the remotes category was our best performing product family in the quarter, with sales over eight times higher than the prior year and units up by well over three times. We delivered very strong growth in all regions, led by the Americas. The growth was driven by multiple products, with the Harmony One leading the way, followed by our recently launched Harmony 300, our lowest-priced remote at just $49.

Pointing devices was our second fastest growing category, with sales up by 46% and units by 60%. The growth was achieved in all regions and was driven by our cordless mice, with sales up by 57%. We achieved tripe-digit sales and unit growth in both the high-end and the low-end of the major cordless mice price bands.

Sales in the high-end benefited from the continued strength of our high-performance offerings, featuring Darkfield laser tracking for use on virtually any surface. Our sales in the low-end were led by two of our attractively priced wireless mice for notebooks, the M215 and the M305.

We were very pleased with our results of the keyboard and desktop category, with sales up by 31% and double digit growth in all regions. The growth was driven entirely by our cordless offerings. Cordless desktop sales were up by 50% with growth in both the high end and especially the low end of the cordless desktop category. And sales of our cordless keyboards nearly tripled compared to the prior year.

Our sales in the video category were up by 10%, but units were up by 41%. The significantly stronger unit growth primarily reflects the phase out of several older products, as we made room in the channel for our new, high definition webcams that are just now beginning to hit the shelves. We achieved sales and unit growth in video across all three of our regions.

Shifting now to OEM, we delivered double-digit growth for the first time in seven quarters, with sales up by 38% and units by 35%. The growth was led primarily by our OEM mice, with sales up by 22% and units by 27%, as well as our microphones for console singing games.

Let me now shift to gross margin. Our Q1 gross margin improved by 1,140 basis points compared to the prior year, and declined by 50 basis points sequentially. The year-over-year increase in our gross margin was achieved despite a substantially stronger U.S. dollar, and was driven by a number of factors, including favorable product mix shifts, operational efficiencies in our supply chain, and the contribution from LifeSize.

We achieved year-over-year gross margin gains in all retail product categories, with the biggest improvements in remotes, which was also our fastest growing category.

Turning now to operating expenses, our operating expenses were up by 39%. The prior year's expenses do not include LifeSize, which is the single largest driver of the year-over-year increase in Q1. Excluding LifeSize, our operating expenses grew at a double digit rate, but still slower than our growth in both sales and gross profit, as we focused on steadily rebuilding operating leverage over time.

The increased spend reflects both the significant improvements in the operating environment over the last 12 months and our renewed emphasis on driving top-line growth. We are investing in a number of areas and activities, including but not limited to Google TV that ensure we are positioned to drive profitable double digit growth in the quarters to come.

Let me now comment on other income and income taxes. Our other income was up by $1 million due primarily to the gain on the sale of one of our buildings. Our income tax benefit for the quarter was $5.4 million, giving us an effective tax rate of negative 38%. This reflects the favorable impact of a discrete event related to audit settlements, which resulted in a tax reserve release.

While discrete events occur nearly every quarter, we don't expect anything of a similar magnitude during the remainder of the fiscal year, and have lowered our tax rate outlook accordingly.

Let's move to the balance sheet now, starting with cash. Our quarter-ending cash position was $317 million. Our cash was essentially unchanged from the December quarter, down by $3 million, and down by $250 million compared to the prior year. When looking at the decline in our cash compared to the prior year, it's important to note that we used $382 million for the acquisition of LifeSize in December 2009, and another $126 million for share repurchases during the last 12 months.

Our cash flow from operating for Q1 was $6 million, a decrease of $69 million compared to the same quarter last year. The primary driver of the year-over-year decline was the sequential investment in inventory and receivables this Q1, which reflects a significantly improved operating environment, compared to sequential reductions that we saw in Q1 of the prior year.

Our cash conversion cycle in Q1 was 29 days, a record low for Q1, which represents a 29-day reduction compared to the same quarter last year and a 6-day sequential increase. The improvement compared to the prior year was due to higher days payable, lower DSO and faster inventory turns than in the prior year.

Our inventory increased by $44 million or 19% compared to the prior year, and it was up by $60 million compared to the March quarter. The year-over-year and sequential increase reflected the improved demand environment, as we build inventory in support of our targeted double digit sales growth in the remainder of the fiscal year.

Inventory turns were $4.4, up from $4.2 in the prior year. Our DSO was 40 days, down by 7 days compared to the prior year. The year-over-year improvement was driven by several factors, including excellent execution by our cash collections team and increased order and shipment linearity due to improved visibility in the channel.

We did not repurchase any shares during Q1. We earned approximately 8.6% of our shares outstanding. We do have a $250 million Board approved program that we have not yet utilized.

Before concluding my comments, I want to mention that our next analyst and investor day is scheduled for November 9 in New York. We hope you'll be able to join us.

That concludes my comments. Let me now turn the call back to Jerry.

Jerry Quindlen

Thanks, Erik. I want to comment now on our outlook going forward. With our strong Q1 results, we've built on the momentum we established in the March quarter. Our focus for the remainder of fiscal 2011 is to continue delivering strong top-line and profitability growth. And there are a variety of positive indicators that give us confidence we will succeed.

The first of these is the improved consumer demand environment for our products. Now, we recognize the consumer confidence is still relatively fragile in EMEA and the Americas, but the signs we see in our business are largely positive. Sell-through improved sequentially in all our key markets in Q1, and we expect it to remain stable at a minimum or to improve further as we progress through the year.

One of the most notable improvements we saw in Q1 was in our business in emerging markets across Europe, Asia and Latin America. As you may recall, during the downturn, our sales in emerging markets were hit particularly hard due to a weak demand environment and limited access to credit for our distributors. We are now seeing steady and broad-based rebounds in these markets, as consumer demand returns and access to credit has begun to ease. This is a key component of our improved sales outlook, and we're looking forward to strong contributions going forward.

Given our strategic emphasis in China, I want to note that we had a very good quarter for both sales and sell-through in China, driven by excellent results from several products that we designed specifically for the Chinese market. We're very pleased with the momentum we're building in China as we progress towards ultimately making China one of our three largest markets.

Another positive indicator is the accelerating momentum of our LifeSize business. We're encouraged by the growth of our sales and the growth we see in the overall market for video communications. We will expand our LifeSize portfolio of products and services in the coming months with additional disruptive price performance offerings designed to make video communication easy and accessible to anyone anywhere with the biggest opportunities being in the SMB and small entry space.

One additional positive indicator, which is true every year at this time, but is nonetheless very important to keep in mind is that we're entering the peak period for our new product launches. We're very excited about this year's roadmap and are very pleased with the feedback we've received from our channel partners thus far.

You can expect to see new offering on the shelves across all of our categories, and we expect these products to make a significant contribution to achieving our sales and profitability goals in fiscal '11.

That brings me to our financial outlook. Based on our strong Q1 performance and improving consumer demand for our products, we are increasingly optimistic about our full-year performance for fiscal 2011 and we have raised our outlook accordingly.

For fiscal year 2011, we've raised our sales outlook from the previous outlook of approximately $2.3 billion to the new range of $2.3 billion to $2.35 billion. We have increased the target for operating income from the prior outlook of approximately $156 million to a new range of $160 million to $170 million. And we now expect gross margins to fall in the range of 34% to 35% compared to our prior outlook of 34%. Finally, the tax rate formerly expected to be approximately 18% is now expected to be approximately 16%.

Let me shift now to the Google TV opportunity, which represents further potential upside to the increased sales outlook that I just shared with you. We are very excited about our role as a core enabler of Google TV and the opportunity to bring this open platform to market with the initial focus on the 60 million U.S. homes with HDTV.

Our initial product offering, Logitech Review, is a companion box that will incorporate our Harmony remote control technology and will include a controller that combines keyboard and the remote control capabilities. We also introduced an HDTV camera and video chat for Google TV, along with additional choices for navigation and control.

There will also be apps from Logitech, including one to turn a smartphone into an advanced controller for Google TV and home entertainment systems. We aren't ready to provide specifics on pricing our channel strategy just yet, but we plan to share more details very soon as we approach the expected fall 2010 launch.

I want to emphasize that we are taking a long-term view of this exciting new growth opportunity. We believe that Google TV platform has the potential to provide us with yet another sizable and growing installed base to generate incremental sales over an extended period of time. Therefore, we are very committed to driving a successful launch and a strong adoption rate for this new platform.

With that in mind, we plan to invest the gross profit we generate from sales of our Google TV product this fiscal year in consumer-focused marketing activities that we expect to create additional awareness and which should ultimately lead to future sales. As a result, we expect the sales of our products for Google TV will be additive to the top-line, but operating income neutral in fiscal '11, as we focus on building the foundation to make this a long-term source of profitable growth.

I want to wrap up by saying that I'm very pleased by our performance in Q1. We entered the second quarter with strong momentum focused on sustaining double-digit growth in our core business, while simultaneously developing the LifeSize and Google TV opportunities. I'm encouraged by the many positive signals we've seen in our business, and I'm confident that we are well positioned to achieve our improved financial outlook for fiscal 2011.

With that, Erik and I are now available to take your questions. Please follow the instructions of the operator.

Question-and-Answer Session

Operator

(Operator Instructions) And our first question will come from the line of Jonathan Tseng with Merrill Lynch.

Jonathan Tseng - Merrill Lynch

Three questions today. One, just on what you're seeing in terms of the retail channel, sell-through is exceeding growth, especially in Americas. What's your view on that?

Erik Bardman

So to talk a little bit about the retail channel, specifically in Americas, very similar to last quarter you're seeing in Q1 here where we had sell-in growth of about 66% to the Americas and our sell-through growth was about 17%. And as we talked about it, one of the biggest factors you need to look at is the year-ago period, and when you look at the year-ago period when we had a dramatic slowdown in sell-in due to the recession, much more so than the slowdown in sell-through is what you're seeing when you compare this year-over-year growth rate, you get a bit of an anomaly.

As we talked about last quarter, we fully anticipate that both for Q1 and for Q2, we could continue to see that to be the outline in terms of the year-over-year growth rate. But I think the important thing to look at is when you look at within the quarter, and that's how we're viewing it, we're very focused on the volume. So this is the number of units in the Americas, for example, that we're selling into the channel and then at what point to be sold at through the channel.

And right now, in all three of our regions, we feel very comfortable with the balance that we're seeing between sell-in and sell-through. So we haven't seen a fundamental restocking, particularly in Americas. It's more in terms of how you look at those growth rates in your prior period.

Jonathan Tseng - Merrill Lynch

Second question just on the FX and gross margin. Now, in the past, you said that when the FX rate moves suddenly, that's when your gross margin is going to be impacted, because the global pricing doesn't come through as quickly. And that clearly didn't happen in this quarter. (inaudible) Was there any delayed impact for hedging? Is there anything more to come through or they simply did so much better on the lag efficiencies to balance it out?

Erik Bardman

I think it's really a couple of things. First and foremost is that we were hurt by FX within the quarter in terms of gross margin with the weakening of the euro versus the dollar. And that is consistent with what we talked about in the past. What I would say, though, is we had a very strong performance in the quarter in terms of our product mix shift.

So we did better in terms of our product mix both within and between product category. That plus the contribution from LifeSize as well achieving efficiencies in our supply chain all helped it overcome. But the most important thing was we're very pleased with the product mix within the quarter.

Jerry Quindlen

I would say it was product mix and the contribution of LifeSize. So as Erik said, we definitely experienced headwinds from the weakening euro, but we were able to overcome them, because particularly the product mix was strong, sold a lot of mice and LifeSize is gaining traction, and that definitely helped us.

Jonathan Tseng - Merrill Lynch

You still ballpark in the 2007 revenue run rate. But we're getting in the 2007 EBIT run rates. And Jerry, last quarter, you talked about how the current leverage has taken long to build through. You've kind of put in the muscle back on the business after last year. With the high guidance and the higher EBIT outlook, has anything changed in terms of how soon you can see that leverage coming through in the business, or it's still the same, or we got to wait and see probably another year or so?

Jerry Quindlen

I have to go back to a couple of things we talked about last quarter. I'm very pleased with Q1, but we're coming off of just the second quarter in the last seven where we saw sales growth. I definitely feel like we're heading in the right direction.

Our OpEx growth was slower than both revenue and gross profit. So we're starting to rebuild operating leverage, as we said. And if you look at the higher end of the new revised guidance, we're now saying that our operating margin will improve by more than 300 basis points for the year; big improvement, but still a long way to go.

We're moving in the right direction. I have to balance that with the fact that we have these fantastic, very exciting growth opportunities that we're committed to, and we're going to invest in those to build the future revenue streams of the company, the things that will take us to $3 billion and $5 billion. So we're going to continue to balance the investments with continuous steady improvement in operating margins.

So we're not going to give a timeframe at this point, Jonny, but I like the direction we're moving in, and I definitely see us marching back towards double-digit operating margins.

Operator

And your next question will come from the line of Simon Schafer with Goldman Sachs.

Simon Schafer - Goldman Sachs

Firstly on Google TV, very good news, but I was interested as to what you thought of the second part of category, and that's iPad or tablet or similar devices. We've heard very little on that in the last few months. I was wondering if what you thought that trend meant for you in terms of adoption of peripherals?

Jerry Quindlen

Well, our view of iPad and tablets in general is that we believe it's additive to the category. It's definitely a different consumer experience. And initially, we're studying how consumers are using them. And I think it's primarily immediate consumption device, but we see it as additive to the category. And therefore, it represents a net new opportunity.

Now, the attach and the peripherals is probably going to be a different set of peripherals than what we typically do with notebooks and even netbooks, but still we see it as a net incremental opportunity for the category.

And also, if you look at things like OEM sales, our OEM sales are more closely aligned to the general demand for more traditional PCs, desktops and notebooks. And our OEM sales are very strong this quarter. So our view of tablets in general is that they are going to represent a new opportunity for us, and we have it factored into our future roadmaps.

Simon Schafer - Goldman Sachs

What happens if this product category turns out to be significantly cannibalistic rather than just additive to existing?

Jerry Quindlen

Well, it's impossible to say. I have to remind everyone that if you look at the installed base of PCs on a global basis, and I'm quoting the Gartners and the IDCs of the world who are the experts in these things, installed base is more than a billion units, and their forecast including tablet is that there will be more than 350 million PCs of all form factors sold this year, desktops, notebooks, netbooks and tablets. And tablets represent a very, very small piece of that.

So the installed base is enormous, and it continues to grow at a very healthy clip. And I still believe that all the evidence we see says that the tablets will be a very small piece of it initially, and even if it grows over time, the installed base for more traditional form factor PCs is still gigantic. And that's our core opportunity.

Simon Schafer - Goldman Sachs

You talked a little bit about in your remarks about incremental growth in emerging markets, specifically China. Of course, there are sort of two big pillars I think that you talked about at your Investors Day last year of incremental growth from here. One is China, as you said, and then the other one is merchandise.

Both of those opportunities, now that they're growing somewhat larger as a percentage of your mix, what's your observation and experience in terms of margin? Is that similar to the sort of margin that you were capable of getting under a very high level of conspicuous consumption type spend that we were seeing last cycle? Is that similar?

Jerry Quindlen

Yes, China has always been a good market for us. By good market, I mean healthy growth rates, attractive margin structure and obviously a huge potential just because of the number of users there. And so as we talk about investing in China, we don't look at that as something highly dilutive to the company from a profitability standpoint.

And from a mass merchant standpoint, we've been selling the mass merchants, particularly in the U.S., for a long, long time, and we're very pleased with the business we have there, meaning again growth rate, profit structure, et cetera. So I think we see opportunities for mass merchants as they move to other parts of the world. Our mass merchant format is growing. Or what's typically called large format retail is growing in other parts of the world like China.

And to us, that's a good thing, because we do very, very well there. And if large format retail becomes the main way that products are sold in China as opposed to the way they're sold today through these more open air bazaars, then I think that's a good thing for us.

Operator

And your next question will come from the line of Yair Reiner with Oppenheimer and Company.

Yair Reiner - Oppenheimer and Company

Just a quick follow-up on the sell-through question. Can I understand from your comments that it'll be around fiscal third quarter when you expect sell-in to be more line with sell-through?

Erik Bardman

Our estimate right now is it would be more in the second half of the fiscal year starting in Q3. And you'll see that will be more in line in terms of the year-over-year growth rate.

Jerry Quindlen

In terms of the percentages. Let's be crystal clear. They're aligned now in terms of volume. What we're trying to say is that we've had the comps, the stores, the percentages. We're not seeing restocking.

So what Erik is trying to say is in the third quarter the percentages are more likely to move together. They're more likely to be similar. But I do not want people to think that there is restocking going on, because there's not. We do not see it. Our retailers are not pushing forward and neither are we.

Yair Reiner - Oppenheimer and Company

On Google, the strategy of reinvesting gross profit in marketing, is that your discretion or is that part of the agreement that you have with the other parties involved? And the other question on Google is what is the strategy for monetizing future app that we're drawing on smartphones?

Jerry Quindlen

So relative to your first question, no, that's not our discretion. What it reflects frankly is our optimism and our confidence that this is a great opportunity, and it reflects very long-term thinking. We're trying to establish a new installed base that we will innovate off of much as we've done around the PC for 20-plus years. And we're just getting started. So it's in our interest to get that platform proliferated as quickly and as broadly as possible. And so we want to build awareness. There is a lot of buzz about the product and we want to build on that. So it reflects a long-term philosophy.

I'm not going to share our specific strategy on how to monetize the apps. But as we shared, we will have apps at launch and we have several other really, really creative exciting things in the works. And you'll be hearing more about them over time. So I'll leave it at that.

Yair Reiner - Oppenheimer and Company

Gaming, on the OEM side, are there any programs that you think could kick in, in the second half of this year? That's obviously been one of the headwinds for you for a while now.

Jerry Quindlen

Well, we still have a little bit of microphone sales we have from this quarter. I would say they are more vestiges of the things we've done in the past. We're not actively out there pursuing that. The real strength in our OEM business and this is what pleased me so much is what really came from the cordless mice, and it reflects a pick up in underlying PC demand.

I think the real opportunity for gaming for us going forward is going to be continuing to be around PC for sure and frankly I think the emerging gaming opportunity with Google TV. We think there'll be a lot of interest to Flash-based games. There'll be a lot of opportunity for us with peripherals around that.

Just to be clear, that's not FY '11. That's really more long term. But that's part of the reason we're so excited about the platform.

Operator

And our next question comes from the line of Ashish Sinha with Morgan Stanley.

Ashish Sinha - Morgan Stanley

Just a couple of questions, if I may; first on marketing expenses. Traditionally, Q1 over Q4 seasonality on marketing expenses going down 7%, but this time around they were up 2% sequentially. You did mention that you are investing in terms of your future growth in marketing here. But just wanted to get a sense of what should the run rate be.

Erik Bardman

Well, I think to give you a little bit of a sense in terms of how we are looking at and where we're investing, I think philosophy-wise what you're going to see from us, and Jerry has talked about it before and you'll hear a lot more about it from us going forward as well, is we're very focused on investing on the variable side and driving demand generation and things that are going to drive the top-line of the business.

I think we're very pleased with the results we saw in Q1. And as you see in the numbers as well, we are investing appropriately. We're being very judicious, though, in terms of how we think about it. It is focused on the variable side. We're trying to be very cautious about anything we add to the fixed spending base for the business. And you'll see it as it develops over the course of the year, but to give you a little bit of sense of where we are today and how we think about it.

Ashish Sinha - Morgan Stanley

Moving quickly on to the companion box, you talked about it integrating remote technology, controller and HDTV camera. And you talked about it as an additive opportunity for your top-line. But I am trying to think here, wouldn't that in any way try to cannibalize some of your individual product segments.

Jerry Quindlen

I don't think so. We see it as mostly additive. There is a possibility for some amount of cannibalization sure, but I don't know. This is a whole new opportunity, a whole new ecosystem in our mind. And frankly, the experience on the larger screen in your home is going to be very different and very exciting and very rich for people. And so we think it's going to be very, very different. I'm not going to say 100% incremental.

The thing that excites the most, Ashish, is this has the opportunity to become another installed base that we didn't innovate off of like we've done around the PC for decades. And so we think it's mostly additive.

Ashish Sinha - Morgan Stanley

And my last question is the peripheral touch opportunity around Apple products. And if you look at some of the products and their focus areas, their focus has been on touch with the launch of the Magic Trackpad, the Magic Mouse, et cetera, et cetera. We haven't seen anything similar in terms of touch technology for you guys.

And given the fact that Apple's installed base is growing quite fast, is this going to be a focus area for you? Should we expect any kind of an update from you from this side, or do you think Apple is not going to be such an attractive opportunity for you in terms of peripherals?

Jerry Quindlen

Well, a couple of things. First of all, it's important to remember that we have a lot of peripherals that we sell at Apple stores, and we have a lot of products that are Mac-specific.

Let me talk about the Magic Mouse, which has been in the market for a little while now. The Magic Mouse and the so called touch technology that it incorporates, we introduced the touch mouse two years before the Magic Mouse, and we still have some mice out there with touch technology, but we deemphasized it, because what we found was the consumer did not like that approach as much as what we've been doing in the past with what we call the precision scroll wheel.

So the touch technology, the Magic Mouse, is not a new technology. We actually brought it to the market before Apple and anybody else. And so we don't see it as a threat to our mouse franchise.

And then there is new products out all the time like the Magic Trackpad, which just came about in the past week. The first reviews I saw, for example, in the PC World talked about the fact that here is why it's not going to kill the mouse. In the review, I remember he said the very first thing that's something like, "After using the Trackpad for a while, my fingers started to get tired and I yearned for a mouse."

So the mouse is a very comfortable ergonomic experience for consumers. They are used to it. And if you look at our sales over the last three quarters, they have been very, very strong, and we don't see there is any particular threat to that.

Operator

And our next question comes from the line of Andy Hargreaves with Pacific Crest.

Andy Hargreaves - Pacific Crest

First, just another follow-on on the Google TV. I'm a little curious, because it seems like there's going to be quite a bit of marketing just in general around that product line. So what drove the decision to reinvest profit dollars in marketing rather than just price aggressively during the window of kind of exclusivity that you'll have here?

Jerry Quindlen

Well, we haven't said anything about what the pricing is going to be, and we won't until we get closer to the launch. But what I said to an earlier question is we are taking a very long-term view of this. We're trying to build a new very large installed base that we'll innovative off of for many, many years to come. And we think the key to doing that is to build awareness, and that takes some investment. And so that's our approach.

Andy Hargreaves - Pacific Crest

It looks like sell-through, although very good and certainly exceptionally good, but it looks like the sell-through was tracking a little bit below PC growth rates. Do you think that attach rates are falling or is that just some kind of anomaly?

Jerry Quindlen

We are very happy with the sell-through growth rate, and we had strong double-digit sell-through growth rate in all three regions. And then, of course, as we've mentioned several times, very, very strong quarter for OEM. Even if you take out the gaming impact in OEM, the mice sales for example, which tracks very, very closely to PC sales, grew very, very nicely. So we look at across the board at those numbers, and we feel very, very good about, and we are not seeing anything that concerns us in terms of attach rates dropping off.

Andy Hargreaves - Pacific Crest

And then just the last question on the tax rate. That 16% guide, that's for the full year, correct or not, for the forward quarters?

Jerry Quindlen

Correct, that's for the full year.

Andy Hargreaves - Pacific Crest

Okay. And that implies a higher tax rate going forward. Is that what we should expect for fiscal 2011 or will we be around that 16% kind of on a go-forward basis?

Jerry Quindlen

I think the best way to think about it is, and you've seen even with this given quarter where we have discrete events every quarter, we've been very specific to say, though, that we don't anticipate any discrete event of the same size or magnitude that we saw in Q1 over the rest of the year. So hence, we lowered the full-year guidance.

Individual quarters will be up and down. I think the best way to think about it is just the full year rate at 16. And then as we get towards the end of this year and we start to think about next years, we'll give you guidance in terms of how that would look.

Operator

And our next question will come from the line of Nicolas von Stackelberg with Macquarie.

Nicolas von Stackelberg - Macquarie

Congratulations on the quarter. I was wondering whether you could give us a little more granularity on what's happening in Europe. Maybe you could talk about trends by country and also by products. How did you do in Europe?

Jerry Quindlen

Well, Nicolas, I think I would point to several things. We had the highest growth rates in sell-through in Europe of the three regions. I think because of the weaker euro, it's important to look at the underlying growth rate in Europe currency terms is about 31% in terms of sell-in. So we are pleased with it.

And one of the other things that I mentioned in my remarks is that emerging markets, Eastern Europe, which has been very muted for the past several quarters because of the double whammy that I referred to earlier, both weak demand and tight credit, we are starting to see signs of a rebound in the emerging markets, not only in Europe, but also Latin America and Asia.

So we are starting to see the emerging markets come back to life, which is a great sign. And but also balance that, repeat something that was in my remarks, which is we are very mindful of the fact that, as I would characterize it, consumer confidence in some of the larger markets. I would say consumer confidence in general, it's still pretty fragile.

There is a lot of mixed signals out there. And while I am pleased with it, I see very positive signs in our business, not only in Europe, but elsewhere. And we are confident that we can deliver this revised outlook even if consumer confidence and consumer sentiment stays where it is. We are not banking on a material improvement in consumer sentiment.

If consumer sentiment improves in Europe and elsewhere, that's additional upside. This is not predicated on that happening. This is based on the current conditions we see in Europe and elsewhere.

Nicolas von Stackelberg - Macquarie

One more on LifeSize, if I may. You have two important distribution agreements. Maybe you can tell us when you see those kicking in or whether they've already had some impact, and maybe also whether this ash cloud in Europe had any impact in terms of your marketing activities?

Jerry Quindlen

Well, on the volcano, I will tell you that there was an awful lot of interest in video communication in the wake of that. We are even pleasantly surprised by it, and we've heard other players in the industry say similar things. What it does is I think it just reinforces a great awareness of the difficulties of travel and the benefits of video communication. The first part I didn't quite get. You were asking about distribution agreements?

Nicolas von Stackelberg - Macquarie

Well, if I recall well, you announced a partnership with Avaya. And there was a second one which came to my attention just now.

Jerry Quindlen

So we are not saying anything more about those at this point beyond what we've said that you're referring to, but those agreements represent additional opportunity. You may be referring to, we have a partnership that we announced with LG Electronics to sell a new product called the All-in-One Executive. And basically this is a format where simply put the screen and the codec are integrated in one. And it's a segment that LifeSize really hasn't participated in up till now, and represents about 10% of all endpoints.

So it's one of the many reasons we believe we'll continue to see nice momentum build in LifeSize, because we have new products that are moving us into segments we didn't participate in before. So I think you may be referring to that. And that product is really just getting out there.

Operator

And your next question will come from the line of Tom Kucera with Avondale Partners.

Tom Kucera - Avondale Partners

Thank you, this is Tom Kucera for John Bright. First thing I actually just wanted to touch on, tablets were mentioned before and I know you guys talked a little about smartphones back on your investor day in terms of sort of investigating a strategy there. Just wondering if you could give any update on how you guys view smartphones.

Jerry Quindlen

What we shared in investor day, just to remind everyone is that one of the core tenants, the first tenant of the four tenants we shared with everyone in New York last November is what we call managing the transition of the rich content of the web from a single screen, the PC, in all its form factors, including tablet to three additional screens, the smartphone screen being one of them. It can connect to TV, and now you understand more about our strategy there with Google TV. And then the meeting room screen, of course LifeSize is the centerpiece of that.

As a reminder, we already have plays around the smartphone screen with our iPod docks and our Ultimate Ears line of earphones. And those are growing very nicely. And we are investigating a lot of new opportunities around smartphone screen. We are not ready to share anything here today, but I think you can expect that at investor day in November we will be updating you on our strategy, not only the four screens but progress in China and riding the video wave and everything.

So I'll leave it till then.

Tom Kucera - Avondale Partners

And then going to the OEM category, and really wanted to highlight this somewhat. It looks it's an unusually strong quarter and kind of contradicted the usual seasonal pattern, that is, it was up sequentially. You mentioned kind of underlying PC demand helping drive mice. But I'm wondering, is there anything going on there in terms of, was there any sort of one-time events that helped drive that or was there any kind of change in strategy that helped propel that category?

Jerry Quindlen

Now more than anything else is what I would say, and two, just to reiterate what I said to an earlier question there, there was some benefit in the OEM sales from some additional microphone sales. I would call them vestiges of the earlier agreements we had that were mostly in 2009 and 2010 numbers. But primarily, the driver of our OEM sales was mice sales, and mice is highly correlated to the sales of new PCs, and that's a very positive indicator.

I think that there's been a lot of pent-up demand with the downturn, and we're starting to see the impact of the new refresh cycle in enterprise and we're starting to see the impact of Windows 7. The impact has been cumulatively building, and so I think that's been pent up and we're starting to see it grow and I think that was the main driver.

Tom Kucera - Avondale Partners

Lastly, I wanted to touch on, was it Google TV, looking forward what is your sense of how the competition is going to evolve on that? Obviously I guess you have sort of this exclusivity near team. And also, what's the potential for differentiation of dedicated boxes there, given you're going to have Google software on it?

Jerry Quindlen

Well, the most important thing I'd say about the box, let me just make sure that everyone understands. The way we plan to monetize this opportunity is much like we've done around the PC, and that is to sell peripherals. And we expect those peripherals to be as profitable as our core peripherals around the PC over time.

However, it's strategically critical that we get a platform out there, the new platform, and it's a standard platform which is so critical to us. That's why we talk about the importance of open ecosystems.

And so we may not be in the box business in the future. We haven't made that strategic decision at this point. What we're trying to do is, we want to see the box out there, the companion box is what I'm referring to, so that a standard consumer experience is established in the marketplace. And so we have a vested interest to see that happen.

And over time I expect other people to come in and make boxes. And that's fine with us. So the key is to get the platform out there to have consumers have a great experience, so they are excited, they want Google TV, and then they'll want the peripherals; they'll want to do video calling, they'll need to be able to do inputting and navigation. And that's where we come in.

And then gaming represents a big opportunity on top of that. And there's a whole bunch of new things that we don't do around the PC that we see opportunities to do around the connected TV. So from a box standpoint, I expect other box makers to be there after time, and we want that. We want to see that because that's how we'll get the platform proliferated.

Operator

(Operator Instructions) And our next question will come from the line of Beat Keiser with Cheuvreux.

Beat Keiser - Cheuvreux

I'm a bit puzzled with regard to the guidance, because you clearly had better-than-expected sell-through in all regions in the first quarter and also a better end in Q4. And I only see a very limited incremental upgrade on the top-line. And you also mentioned before that you expect sell-through to remain at least stable in the remaining three quarters. If you maybe could provide some more clarity on that please.

Jerry Quindlen

What I would say is we think that in a world with a lot of mixed signals, we've shown a very bullish view, because we see very positive signs in our business. Let me reiterate again building off a question from the earlier question here, we are not basing the revised guidance on material improvements in consumer sentiment and macroeconomic conditions. If that happens, there is additional upside, but we don't know. There's too many mixed signals out there. We're not going to bake it in at this point. It's too early to tell on that.

We're very confident in our ability to deliver this revised outlook, even if conditions do not improve from mixed state that they are in right now. And then Google TV represents additional sales upside to the revised guidance we just shared.

Operator

And our next question will come from the line of Tim Shaw with Citi.

Tim Shaw - Citi

A follow-up on LifeSize if I may. You previously guided when you acquired LifeSize that calendar year 2010 revenues will grow at sort of 40% to 60% year-on-year of a $90 million base.

So the first half of 2010 is sort of running at $48 million worth kind of implies big uptick in the second half. The customer base, I'm really struck, as having that sort of seasonality. So is there any sort of uptick on the guidance there?

Jerry Quindlen

Well, we are still very comfortable with delivering 40% to 60% growth. After first couple of quarters, this is the second full quarter of LifeSize being part of Logitech. And the traction that we're seeing is terrific. There is a number of things that I see that give me confidence that they are going to continue to build momentum.

One is they're continuing to broaden their the products portfolio. To an earlier questioner's comment, we're moving it to new segments that we weren't in before like the segment for the all-in-one with the LG partnership.

We're also seeing that the video communications market is growing even a little better than our expectation, which is a very positive sign. And we're seeing enterprise spending start to improve. Things like that are helping. We see that they are gaining endpoint market share. And most importantly, they're building strong momentum. So bottom-line, I'm still very, very comfortable in the 40% to 60% growth.

Tim Shaw - Citi

Are you seeing any sort of initial benefits now coming from your additional channels, maybe enterprise markets, through your sort of peripherals business?

Jerry Quindlen

We see that, Tim, more as a long-term opportunity. It's not our first priority. Our first priority is really about growing LifeSize in the video communications base. But to your question, I do see that that is a long-term benefit to us. A long-term opportunity, I should say, to us is to leverage their footprint for perhaps to sell more of our traditional products. It's not our main focus. Our main focus is just growing LifeSize in the video communications business. But yes, I do think that's a long-term upside.

Tim Shaw - Citi

Just one quick housekeeping question. I can't remember if this is addressed before. Google TV, any sort of some revenues from that, where would they be recognized? Is that something that goes into the remotes category, or is it going to be stepped out separately?

Erik Bardman

That's actually, Tim, that we'll be determining down the line. And so as we get closer to launch, we'll be dimensionalizing that and talking to you about it.

Operator

And the last question will come from the line of Tavis McCourt with Morgan Keegan.

Unidentified Analyst

This is (Matt McKee) on behalf of Tavis. I apologize if you've already gone over this, because I disconnected briefly. Can you speak a little bit about your plans for further share repurchases going forward?

Jerry Quindlen

A couple of things. As you know we have a Board-approved program for $250 million. So we have that in place. But to give you a sense in terms of how we approach this from an investment standpoint is we've got three main things we're always thinking about. Investing in the business to drive growth, and you saw that in Q1, you saw that in terms of the things we're talking about, what we want to grow to towards for the long-term.

And then also, we're always going to continue to invest in share buybacks and in acquisitions. And we will be opportunistic as the environment presents itself. And we look at all of our opportunities. So no change in terms of philosophy, in terms of how we approach it.

What you saw in Q1 is our first priority with investing in the business given the great growth that we're seeing and the momentum that we're building for the rest of the year.

Unidentified Analyst

I'm not sure if you mentioned it, but the sell-through versus sell-in by region?

Jerry Quindlen

We did talk about it. I think there was one or two callers that asked the question. Specifically in the Americas, we saw sell-in rate of about 66% and our sell-through was 17%. Consistent with what we talked about last quarter is what you really seeing is when you look at those year-over-year growth rates, you're seeing a bit of an anomaly because of the year prior period when we saw a much more dramatic slowdown in our sell-in versus our sell-through.

But one of the key things that we try to make clear for everybody is we have not see any fundamental restocking in the business. We're not seeing it. Our channel partners aren't looking to do it. And we're both very comfortable that we've got a very healthy level of inventory in the channel and we're where we want to be. But that's a little bit of what we shared previously on the call.

Operator

That concludes our conference call for today. You may all now disconnect. Thank you. Have a wonderful day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!