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Logitech International (NASDAQ:LOGI)

Logitech Analyst & Investor Day Conference Call

November 9, 2011 9:00 AM ET

Executives

Joe Greenhalgh – VP, IR and Corporate Treasurer

Guerrino De Luca – Chairman and Acting President and CEO

Erik Bardman – SVP, Finance and CFO

Ashish Arora – VP, Digital Entertainment

Rory Dooley – SVP, PC/Mobile

Quin Liu – Managing Director, China

Michael Helmbrecht – VP-Product Marketing, LifeSize

Eric Kintz – VP, Logitech for Business

Quin Liu – Managing Director, China

Michael Helmbrecht – VP Product Marketing, LifeSize

Analysts

Tavis McCourt – Morgan Keegan

Joe Greenhalgh

Good morning we are going to get started here. My name is Joe Greenhalgh; I’m Logitech’s Vice President and Investor Relations and Corporate Treasurer. I would like to thank you for joining us today. I just want to spend a brief moment here reviewing the agenda. We will start with a presentation from our Chairman of the Board and Acting President and CEO Guerrino De Luca. Guerrino will be followed by Erik Bardman, our CFO. We will then have Ashish Arora; Ashish will be talking about Harmony Remotes as well as Digital Music. And following Ashish we will have Rory Dooley; Rory will be talking about the opportunities in Mice and Keyboards.

Following Rory’s presentation we will take a break we will have the product showcase area open at that point, which is back here in the right corner of the room through the curtains there. Coming back from the break we will have a presentation by Quin Liu, Quin will be talking specifically about China. Quin will be followed by Michael Helmbrecht, who will be talking about LifeSize and then Eric Kintz, will be talking about Logitech for Business. And following Eric’s presentation we will have a Q&A for all of today’s presenters. And following that Q&A we will also have lunch available out in the product showcase area.

I’m not going to read this but as you would expect we are going to be making forward-looking statements today, so I wanted to call your attention to that. And with that it’s my pleasure to turn the meeting over to Guerrino.

Guerrino De Luca

Good morning or good afternoon or whatever time areas when you are listening to this webcast. Thank you for being here. I wasn’t planning to be here sometime ago but I’m glad to be here now. I get the thrill of having the company come back and be a successful company that I know I love. Over the last three months, I’ve had to begin every conversation with investors with (inaudible) a very bleak scorecard. As there is some mistakes we have made, we are becoming from what happening to Logitech. And I know that’s not because I’m a masochist but because I think there is some lesson behind these mistakes. And also some meaning that is not obvious in my opinion.

You’ve heard this before clearly we have created a lot of pain in our European operations by some well intended and yet misguided and poorly implemented change, major changes in our terms and conditions and our relationship with our distributors and customers. I can spend my entire slot to base that, I won’t. The fact that we suffered through that and we are continuing to have to fix the situation, which is complex and improving but not completely solved.

The second mistake we made is Logitech Revue and it’s not a mistake of intention, it’s not a mistake of strategy, it’s a mistake of implementation of a gigantic nature. You are all familiar with Logitech Revue with the set top box that enables Google TV and every HDMI television. Google TV is a great concept, Google TV has the potential to completely disrupt living room, except that was not the case when we launched Logitech Revue. Logitech Revue was launched with some, I wouldn’t call it beta properly but a software that was not complete and not tuned to what the consumers want at the living room let alone all the issues with content delivery that the threat of the proceeds threat that Google posed us to other content providers generated.

To make the long story short, we thought we had invented slice bread and we just made them. We’ve made commitment we just build a lot because we expected everybody to line up for Christmas and buy these boxes $300 that was a big mistake. I would do it again, I would definitely want to have Google establish Google TV, but with a significantly smaller and more prudent approach. It’s always the case people will tend to overestimate the short-term and underestimate the long-term.

Google TV or a child of Google TV or the grandchild of Google TV will happen. The integration of television in Internet is inevitable. But the idea that it would happen overnight in Christmas 2010 was very misguided and that also caused us dearly. As you know, we dramatically reduced the price of the box to what we thought the consumers valued it and actually doing fine.

Our third mistake is actually of a different nature and it’s probably more significant. We had paid much less attention to our product portfolio than we should have. Over the course of the last two or three years we just, we thought that quantity could replace quality and we just did not fully understand what the consumer behavior is at the point of sale, and how to create exciting proposition that made somebody take it and roll up and give us demand. So also because we weren’t focusing on certain things particularly in the living room and Google TV there was an underlying opportunity out there and which we did not focus in other things were happening and we are closer and more real and more existing to when I’ve always been a fan of going to something that already exists, I suppose to completely getting out into the stratosphere of what might happen.

Particularly in music and particularly in mobile music, we just had a few products and did decently well but it was never, we never realized how major and significant that opportunity was and so we under invested in that space, as we were investing in other spaces. So, just a direct cost of the two first issues we had, we estimate it to be well over $100 million with the operating income level, $100 million.

Now, and I’m not counting these opportunity costs associated with this and you will hear in the rest of my presentation and my colleagues what that means. By not doing certain other things because we were doing this by engaging a substantial part of our engineering team to actually deliver Revue, which was not an easy product to develop and we did a great job under the circumstances. We obviously underinvested elsewhere and that’s a cost that is not even factored in there. The way that I’m just putting a bright tag on this is not just to be sensational it’s to contrast this major impact, with what is the underlying perception of why Logitech is not doing well. The underlying perception why Logitech is not doing well is that the Tablet’s are replacing the PCs and you are dead. None of these mistakes anything to do with that. None of this $100 million plus of admitted operating income over the last 15 months has anything to do with that. It’s interesting there are truth in the dynamic of the PC market and I will talk that to the extreme. But it’s interesting to contrast the reality of what happens with the perception of what happened.

Since, I came back just a little bit more in three years ago, I did a few things and just this is a journey and I’m not sort of, this is one of my scorecards, this is the scorecard of the company. The first thing I did and it took me sometime is to really get deeper, I had the sense that our product portfolio is getting weaker, weaker than needed lead to a substantial review of the entire portfolio.

And not only I figured that Logitech is known to have 10, 15 products that are really superstars and today we may have four or five that’s a big difference. And that makes a substantial difference in the performance not only of these products but of the entire product line. More specifically our obsession valid to get aggressive at the entry level and to get consumer at lower price point, had made us forget what has been the key driver of Logitech’s essence of retaining is, which is people buying more expensive products.

Getting on the shelf, looking at the entry level so you know that’s interesting but let me see what I can get for $20 more. We did not pay enough attention to that process, which is it doesn’t require, that process does not require to conquer new consumers it doesn’t it’s that same person. That same person that for some mysterious reason wants to buy a mouse okay, which obviously nobody want to buy these days because as you know everybody has a tablet, for that unique person, that single individual in some place in Belgium. If he gives us $40 at 720 it’s an enormous development for Logitech. We have not paid attention to the up-sell proposition across a big portion of the product line. And by the way the clients have proven this as when we have our product line is healthy crafted, in case of keyboard it’s typical. We have very strong mid range keyboard (inaudible) and things like that and people abundantly and people give us the extra $20 or the extra $30 and don’t buy the basic keyboards they buy the best keyboards.

So we are, we focused dramatically on product development team centers you understand forcing the product development is not in my sensation, we went through the entire roadmaps and things that were in the roadmaps were dropped, things that was not on the growth side of the roadmap was brought in. This is a process that will take time but we will see some of that pretty early but the bulk of this will be sort of a early fiscal ’13 and late fiscal ’13 Christmas next year, probably we will have a product line, that is the product line we should have had two years ago, now of course updated to the most recent developments.

We also created a lot of complexity in the product line and complexity means bringing more choices that the consumers can bear. The choice is largely an overvalued quality, people that have less choices usually are happier with the choices they make and they make their choices more simply. We just forget that basic principles.

We’ve done well in Europe, I told you that we are not there yet but the progress is substantial. We have changed our leadership there we have a great leader in place that is bringing the business together very nicely. With the amount of channel inventory that needs to be digested but also of bad will that exist between the customers, which has been our best customers for years and odds has to be cured. And we need to preserve a number of the good things in the new trends and conditions and eliminate or fix the bad ones. It’s not a black and white okay sorry nothing happened, let’s get back to three years ago that’s not working that combination of channel inventory and refining the terms and condition takes time. But I’m very, very optimistic that the leadership is up to the task.

We brought contracts to match their preview they mentioned about substantial price drop. The products are selling we believe that we will be out of their inventory by the end of fiscal ’12 and that’s kind of a cautious statement, we may be out of inventory even somewhat sooner than that date. We have no plan to build another box.

So, let me be very clear, it was never our strategy to make money out of set top boxes for Google TV. Our choice to build one was a choice driven by their willingness to accelerate the adoption of the platform and to be part of the first wave of people that could influence its development. We accomplished that, I’m sure we helped I’m sure there is a lot of review that they are ready to run Google TV 2.0 it’s all fine.

Our strategy has always been once the platform is there we will complement it as we have with many other platforms to the PC et cetera. So that must happen the drain out of Google TV with 2.0 and 3.0 to be successful, I’m optimistic but I’m not betting the company on it. We are willing to engage aggressively in making that platform richer once it’s there, but for now we have done what’s needed to do and we better seek for growth beyond that, we better seek for growth in the areas that we will discuss today.

We have increased stability and there were stabilities pretty ugly, this is never a stable world. What I think we should have said is we’ve increased excitement, we’ve increased motivation incentive purpose within the company, it’s something you do not see and it’s something that I see. And it’s the necessary conditions for us to deliver the strategy and the priorities that we’ve set for Logitech.

We are not done, we are definitely not done this is a transition invested they will not come into you, this is it. The tables for the mountains, we are building in some cases rebuilding some new or refurbished growth drivers and I select these three; the consumer PC and you may be shocked to hear that. The consumer PC, music and Logitech for Business these are some of them are very new, some of them are redefined and some of them are there because they should have been there from day one.

Consumer PC that’s what everybody believes is completely is a source of tremendous opportunity still and the fact that we missed that is probably the single biggest flow if you want in the way we’ve approached the market in the growth of Logitech in about three years.

Because that’s the case and because I don’t know, we don’t know how much and how fast now this whole thing will develop we are not ready to update our long-term business model that we have seeing a year ago. The long-term type growth of these new opportunities of the model and the profitability on the model depends on how successful and how fast we are with these we focus initially.

So what I’m going to do today. With a focus on our growth opportunities some of them had been there for a while and continue to be there and are being pursued very much along the lines that you have heard before, like China in general emerging markets, like LifeSize, like Harmony to some extent. Some of them as I mentioned are not new in the sense that we have been doing Consumer PC peripherals for quite a while, but the approach we are taking is significantly different for us the consumer products for the PC market, Music and for Logitech for Business.

In conjunction with this, we focus in the company mostly on products and product opportunities, we sort of been to bring you some new faces, you may be tired of me, but you won’t be tired of some of the faces you have seen, you have not seen before. We are bringing to the people that are closer to the opportunity, closer to the definition of each individual product line or business strategy and therefore I want to hear from them what we are actually doing. And behind the line scene of this is that product is everything.

Let me go over our strategy, you’ve heard about our strategy for a while there is nothing wrong with the strategy. There is nothing wrong, as for the level of which the strategy has been articulated there is nothing wrong with it targeting multiple screens, going for emerging markets, sliding the way of video, targeting ecosystems nothing wrong.

But if you double click on it, the way we’ve executed, the way we’ve focused and made the choices that go below the top level strategy needs to change. I mentioned about too much complexity in our product portfolio across product lines and within product lines. I mentioned about the substitution of quality, quantity for quality, which is it’s amazing we are trying to cover multiple price points because we cover multiple price points. We do not fully understand the drivers approach at the part of sale and we just forgot about that. We need a product that $20 or better we need a product at 40 and we need a product at 90. We need a product that is a compelling at $40 and more compelling than the delta between 40 and 20 that’s kind of tough to write I think I made my point.

Also what we intended to do, is to adopt the same approach for every product line. Not every product line is created equal, not every product line has the same growth potential, not every product line has the same underlying market dynamics I want to make this extension in the moment we are talking about the PC. Let’s start believe it or not we tried to do too much. Too many little ideas, too many little product lines, too many attempts to do something without the necessary resources to make them successful. Believe it or not we have dramatically simplified the number of things we do and simplified the number of areas we want to target to enable us under the envelop that we have to truly be successful in reaching our goals.

Also I believe that the economy is the economy, the market transition is the market transition all these inside sight events exist irrespective, the euro will be weaker or strong all these things we can’t do anything it’s just nothing. And you know what we are not worried about it, we just don’t. We believe that we have a grip on what we control and what we control is enough to make this more successful. Let’s get back to the economy for a second I’ve said many times in the (inaudible) past that the economic issues impact Logitech less that they would impact the company that sells products above the (inaudible) threshold. Many of you remember the (inaudible) threshold; this is the threshold where you have to discuss the purchases at home television is like that a car is like that. You go home and you look at your husband should we buy new car and then the husband say yeah I want to buy in fact, I’ve been just fired and so I’m not sure. Even though the family can afford a new car usually the purchase is postponed not a lot of products falls on to that.

And the bad economy or bad consumer confidence impact the higher price points products we can avoid that (inaudible) threshold much lower. We’re out there our products are affordable and do not require a bunch of assessment in the family to be bought and if the people that can’t afford to buy a mouse were never the people that we targeted. There is a lot of people for which other things are way more important than a mouse or a webcam or a Harmony remote those people have never been our target. But the people that have been our target and our target are not impacted directly by budgets so what we have to give them is the reason to take the wallet out, not the reason to make a great spreadsheet with a family budget.

And we haven’t given visible lots of that in fact the impact of the economies star impacts of the economy for example our channel partners getting nervous and therefore they tend to reduce inventories because they don’t know what’s happening. So they tend to reduce inventories of our products but also everybody’s products. So, that’s an economic interruption somewhat indirectly impacts us. Another impact that is actually somewhat more direct is that the weaker the consumer confidence the stronger your product line has to be, the stronger the reason for getting this (inaudible) and so that’s an impact and that sort of in a way emphasizes the average nature of our portfolio today.

We’ve talked about this strategy many ways and to manage estimate things more fun and exciting I will bring you a new one. What you see in this slide is a matrix of screens or platforms we are targeting the PC, the meeting room screen, the mobile screen with smartphones and tablets and the television screen. We have intended to look somewhat in that direction always wanted everyone to target everyone to identify three important macro segments and I will describe our strategy in terms of this macro segments.

The consumer developed markets are the markets for consumers and home buyers in developed countries, the markets for consumer products in emerging countries and the market for business products. So you will hear me discuss the strategy along these axis, but not before having talked about the PC. So this is an exception to the rule because I need to talk to you about how I feel the PC business, so called dead PC platforms and what is in there for us.

Now, this is the same as the quote from Mark Twain you probably have heard it, he did it when you’ve read it I think the Wallstreet Journal other day he was dead and he responded in a very, very classic way this way. If the PC is dead I want to dead. There is 1.4 billion PCs out there in use and projection, the latest projection from Gartner, which is as believable as anything is that there will be 2.2 billion PCs in 2015.

So it’s not blind growth the PC is alive and ticking and in certain spaces it’s growing very fast. Remember our business has to do with the amount of usage and what to do with your PC this is like a fuel business. This is not a car business, the car manufacturers of the world that people don’t buy new cars because they know once they buy one of their car that’s where they make money or they lose money where there is a different story. The last is how much you use your car, how much you use your PC, what you do with your PC and yes that has changed and I will get there especially in consumer markets in developed economies.

But the question that the PC still represents a huge base of potential attached for us there is no, there is no argument about it. And yet this is fundamentally the number one concern for the future of Logitech, this was also our number one concern and that’s why we under focused on what we could do on the PC.

So let’s look at these three segments okay and we are talking PC specifically. In consumer markets in developed geographies what the PC has lost is ideological leadership. Five years ago, ten years ago, the PC was the only thing, the only real technology at home certainly the only information technology at home. Today it’s not the case, today we buy smartphones some people get begin to have tablets, it was just about this gaming consoles everything multiple platforms out there and therefore the attention of the consumers it’s kind of, it’s threats throughout these platforms and the time is threat for these platforms.

However, I don’t know of anybody that bought an iPad who threw away his PC maybe you do but I don’t. The PC is used increased in different certain things and less for other things. People use the iPad more for entertainment purpose et cetera and the PC is very resilient in that space too but it’s definitely less use. But when it comes to doing serious work, balancing the budget of a home, making taxes, writing et cetera it’s the PC. So the PC becomes increasingly a productivity device. And when it becomes a productivity device it is the product that enhance the productivity that matters and continue to matter.

Okay, now just another kind of secondary observation that we make, as iPad users use aggressively the right to mostly travel with it. But PC even the laptop PC is less mobile it’s less mobile stayed there because I travel with my iPad. When something is less mobile it tends to be attractive as a target for add on. And so we see a very healthy sale of keyboards and mice for notebooks that stay at home. And that’s kind of a not obviously consequence of the iPad arrival.

I said second point the Mac is King not because the market share of Apple is so dramatically high, I mean it’s phenomenon what Apple was able to do with a PC also thanks for the success of the (inaudible). But it’s because the ideological leadership in the PC space is with Apple today and we have failed to realize that. We have always made a decision based on the size of the market and the size of the PC market is way bigger than the size of the Mac market. We didn’t realize that the leadership, the design leadership, the usability leadership et cetera that Apple has today spread across. So we’ve made products for the Mac that were adaptations of PC products and of course the Mac is a very religious community. Particularly the converted Mac users are very religious. They know where they come from and they do not want to see any subjective of their old sin on their new Mac.

So if you want a Mac product, it looks like a PC product it is junk. So what to do? Well we better designed products for the Mac from the desktop and knowing that the opposite is not true the PC is not a religion but the market has seen some fringes that the business were for Windows for the entire life but the PC is not a religion but the PC is what you get. Because you don’t think that Mac is compatible because it’s too expensive because for any other reason and when you have a hint of Mac on your PC you love it. Because your closet Mac designer the other dozen know about it or knows about it but can’t do anything with it. So the idea of designing products especially at the high end for the Mac and bringing them to the PC platform is an idea that takes advantage of this dynamic that is out there in the consumer space.

Third, all our PCs are created equal I mentioned that productivity devices have a tremendous opportunity to grow across the entire world. Other devices like communication devices webcams for example or even music devices like PC speakers have a different dynamic. I will get back to those and I will get back to the dynamics that impact those, clearly the communication devices and webcams are dramatically impacted not by the arrival of the iPad but by the fact that the webcams that virtually every PC and laptop has today isn’t good enough for what they do.

And what we have done is to insist not understanding that. They too insist in the quality dimension to insist providing higher and higher quality webcams to the PC base and that’s a point in which that higher priority in the consumer market doesn’t matter, it just doesn’t matter. Because the consumer communication on webcams is very emotions, parents that look at children and stuff like that its days and whatever things it cannot be repeated in public. That’s the credit quality there is not as important and effective as you actually see somebody there on the other side, very different situation in the business market.

In the business market, video quality he is the number one driver of video communication. Because it’s already unpleasant to talk with somebody else with us on a video but you have to make it at least crisp you don’t want to have any kind of concerns as the very big decision. So, instead of making webcams that are higher quality than the one embedded, we should make webcams that make it possible something that it can’t do with the embedded webcam more about that later.

No question about the PC in emerging markets, but maybe the only question is well maybe people will skip the PC in emerging markets and will just go to smartphone. Well maybe the fact is they are not, the fact isn’t just the hottest PC markets in the world are the emerging markets they are going to buy PC, because price performance, price functionality they still beat any other platform out there.

If you don’t have it, if you have it and you bought the third generation PC maybe it’s time to buy an iPad and the whole thing becomes the consumer market of what’s and where. These emerging markets will flat and hold into a position where they will look very, very similar to the established geographies, but they are not there yet and it will take a lot before they get there. This is where we are going, this is where we are focusing and we are taking advantage of this dynamic.

The third and most intriguing if you want is the PC and business markets. The PC is holding its role there, it’s not being replaced as a lot, lots of tablets, lots of iPads getting into replacement but if you look around enterprises of all nature you will still see the good old PC out there. The PC in business markets is substantially more desktop than notebook and even that notebook PC is a different animal in business markets. Many notebook PCs in business are docked they are docked and then you dock with the laptop most of the time it’s a closed bar. A dock laptop doesn’t have a mouse, doesn’t have a keyboard so it’s a tremendous opportunity to actually add those kind of device even more than in the consumer market. And I believe we are focusing on it and you will hear more about that of course later today.

So with this perspective of PC, with this perspective about the PC is why I’m generally being said that tablet opportunity is an added opportunity it’s not a replacement opportunity. I can elaborate on this for as long as you want. The moment the tablet PC replaces the PC it will have to become a PC. And when you have to make an iPad a PC you need to add a number of things that the iPad doesn’t have. If you don’t believe that happens, then you don’t believe the iPad or the tablets in general will replace the PC, it’s one or the other. You can’t believe that a device that is single focused on entertainment and direct manipulation, load replace across the board of PC you can’t, it’s not possible. Okay, that’s another large opportunity it is a target that is still undefined to view this model, it’s very rapidly changing, do you see that one applications that has come on the iPad that focus the iPad by the way tablets today is the iPad okay. There will be a big thing happening in the coming 12 months or so, which is Windows 8. And Windows 8 has the potential to significantly disrupt this situation and it’s another great opportunity for the PC (inaudible) for us and we will refer to it later today.

So let me go back to what I told you would be the angle I would use here. So let’s start with the consumer developed space. So let’s look at our portfolio for the consumer developed markets in the mice and keyboard belong very large, core of the company the areas where we pay the least attention by improved up-sell proposition particularly in mice we are doing fine with keyboards today we are continuing to do better. Start with the Mac first and then move to professional PC engage the unengaged with colors and patterns an initiative that we have undertaken two or three years ago, it continues to amaze us how these impulse by mice and keyboard in part are additional and non-cannibalizing traditional mice sales. These are targeting different market segments you will hear more about colors and patterns particularly in the context of China.

Continue to figure out what works with a tablet and figure out which products work with a tablet and what usage models will prevail. And then last but not least that I want to convey particular attention for this embrace new user interface and navigation paradigm. Okay, you’ve heard about touch before. Okay.

So, I want to leave you with this slide for mice with this picture, which is enigmatic and you will hear definitely more about the enigma here in a moment when Arora talks about our mice and keyboard business. But there has been two stages in mice the first stage is the multi buttons mouse on the left here they all show chord less just because chord less is now kind of a metaphor for mice. Then something happened in navigation, which dramatically accelerated the growth of mice it’s call the scrolling wheel that little thingy. Okay. Something else is coming that has the potential to be for the mouse business was the scrolling wheel was over the multi button mice. And when you look at the size of our mouse business you would understand the opportunity underlie in this potential. And that’s it for now.

We had been experimenting with keyboard we have for tablets, we had applied some products just to get there sooner and then we have begun sort of shipping products into development house, you will see more and more of those. You see the various formats that we are pursuing markets respond to steady growth, we like it, we like what we see and yet there is something missing. I don’t know many of you have used a keyboard with an iPad. The combination of type and touch that’s what you had to do something’s you can type something’s you have to use this screen that is not what the consumers like. And you will hear more about this later.

When I talked about the other big categories I mentioned a little bit I don’t want to repeat myself too much. In PC speakers and webcams different growth dynamics, we believe that both PC speakers and PC webcams are not growth drivers today as they were. For different reasons and at a different pace mobility is obviously playing a much, much bigger role in music than it used to, the source of music is no longer fundamentally the PC, if there is a music that is mostly likely, most frequently the smartphone and the internet.

Obviously, that has changed the construction patterns for music and you know what because neither one of those cases of overestimating the short-term and underestimating the long-term. The fact is that PC speakers are still growing the fact is that music and audio is more resilient on the PC that even we will talk, we think and I do not want to make the mistake here as we made with mice and keyboard when we said there is nothing else to do. There is a lot to do and there is probably a lot to do in PC speakers as well.

I talked about webcams and I talked about what is the intent here, the intent is to acknowledge the current best in webcam business is going to suffer. And that we will have to compensate with finding usage models on the PC to take advantage of the fact that the add-on webcam is not embedded. And therefore you could do things in wireless and other dimensions that you cannot do or not convenient to do with the embedded.

In this particular portfolio management and I’m sure that Erik will talk more about portfolio management in general for us. Margin considerations will prevail this is not a market growth gain, margin consideration will prevail we want to maintain or enhance our value share and we want to make sure that, if the category is not growing, we at least make good money out of it.

Let’s move on consumer developed Harmony. Harmony is kind of a weird animal it is the disappointed in the say in the last couple of quarters. The fundamental reason why it has been disappointing is that we have introduced an incredibly attractive, super sexy highly functional very affordable Harmony and you know what people have bought it in groups. Both that I suppose to buy mid range Harmony’s that were not substantially differentiated is in the classic case of completely bossed seller proposition and which is just probably the most visual of those.

But the truth is that the market dynamics underline our sales in are substantially better than our sales in. The number of connections as you may know every time you buy a Harmony you have to go home and log on to websites and register yourself so that you can configure your remote. So we know exactly the connection base, we know exactly how many people connect per week per month those numbers are amazing. Our unit growth is substantial and now the connection rate is substantial. But there are some ultra confusing issues between our selling and our sellout is the category that is been subject to dramatic channel overstocking in certain cases.

So the underlying dynamics are strong, people want Harmony, people buy and connect Harmony. But we have is a abysmal approach like that we’ve given away our jewels at incredibly affordable price point thinking that we would just change the world. And we forgot that we have reached certainly a larger base because that’s the unit growth driver but we have just completely depressed the profitability of the category by not providing enough reason for you to buy a better Harmony, we will change that.

The other dynamic that is in this market as well as its happening is that Harmony is fundamentally a device control object; it controls almost every device in your living room. It is a bigger complexity in your living room than the number of devices you have, the complexity comes from content. It’s increasingly complicated to figure out what you want to watch tonight and our Harmony and future products are addressing that, which we believe is going to become maybe not the prevailing but an important other dimension of Harmony in the living room, which is the companion that will help you navigate the complexity of content.

Music, this is the single biggest, the single fastest growing and the single natural target for us. As I said we have technology, we have presence, we have module and acoustics, we have wireless speakers, we have wonderful products, we’ve acquired Slim Devices which is an Ethernet and local network screening platform. We have a brand, we have distribution we have everything we just don’t have a product approach there.

What a content, music is large it’s fragmented it’s growing and it’s evolved and exchanging every day, yet music will always be there. Music is a platform that will never go away has been here for the last couple of millennia and will continue to be here and for some people will continue to be an indispensable part of their life. It’s the way it’s consumed and the changing platforms and sources of music that a) make it attractive and make it an opportunity for us.

It’s a mobile, it’s a fundamentally mobile driven category, it’s $4 billion market today and I’m talking about the market of wearables and speakers and docking station just not the music is probably a trim in our marketing. I’m talking about just the devices we are targeting. More than $4 billion market today and its projected to grow very fast 20% expand over the last five years. In terms of size and growth probably nothing else is as big as this unless you go back to what they said about consumer PC and our opportunity to give the market that everybody gives for that. We are pursuing that and you will hear more about music today.

So, let’s move to the emerging markets, 13% compound expected growth on PCs while the PCs exactly is not bad here. China is emerging as by far, it’s like another animal we talked about the emerging markets as far as we are concerned as everything was created equal, it isn’t. China is a tremendous an enormous and long-term opportunity for us obviously around the PC and beyond the PC. We are targeting four countries actually five one did not make this choice five have been marketed the one that didn’t is Turkey, which is relatively speaking large production and has a tremendous potential too but let me talk about these.

So China is just on this slide you will see the position within the portion of the large decline as well as the market potential. China is up to the right, there is no question the largest market potential and best position for us. The second country in which we are strong even though we do not believe that market potential is as big is Russia. Russia in the medium term opportunity for us we have presence, we have momentum and we’re going to take advantage of that.

India is somewhere in between it has higher potential than Russia I would say that we probably are under estimating here the potential, but it’s a longer term opportunity. The GDP per head and the ability to buy products is more restricted in India than it is in China, the middle class is growing more strong in China than in India we realized and what we do not want to do in India is to make products for people that can’t afford them. We cannot reach the price points that the vast majority of the Indians can afford and we won’t. We actually wait for India to come to us and we are going to concentrate in large cities and make sure that we have the premium brand that we have in China.

Today we have a premium brand in China and we are broadening it. Today, we have a premium brand in a very, very narrow side of distribution outlets we are going to grow that but maintain that focus on high value and premium brands. Brazil is just a completely different animal, enormous potential we are way behind in Brazil. So all Brazil gets is upside Brazil is suitable for us, it’s a great sort of consumer demographics and also kind of mentality for the products, we know that a number of our products are actually bought in Brazil with enormous difficulties and imported by customers and actually buy them in Europe, it’s just amazing how badly we have served Latin America in general and Brazil in particular.

If you look at this chart you will see that each of these has a tremendous potential some more than others. Each of these have something in common and but the differences outnumber the commonalities. There is some things as common consumer demographics the use, in these countries because the demography of the country is young or because of the awareness and interest in technology is young; China is not a young demographic country by any criteria. But when it comes to people buying technology products their parents never seen it, their parents never had an opportunity to buy a PC or a smartphone, so it’s that demographic that buys. And for the others it’s a combination of the same dynamic in China plus an obvious stronger youth demographics in Brazil, in India particularly Russia is at the opposite side of the (inaudible) much closer to China, much closer to Western Europe so the youth drive in Russia is probably the least significant across those four markets.

So we have to go deep meaning establish a stronger presence in the main metropolitan areas and be strong at the point of sales in all of these markets and we have to go young in virtually all of these markets. Beyond that approach you will hear much more about China today.

This is the China approach, go deep and go young but of course but also go wide and target more cities beyond T1 and T2 and go broad. This is the time for us not only to focus on PC products but to begin focusing on non-PC and the primary next step here is music again. If you look at what China did we’ve been there watch their plant, we obviously will not disclose the details of their revenue except but you can figure that out. China was number 10 in the ranking of the countries for Logitech two years ago. Since we put together this approach and the team and made this as a real priority for Logitech it went to number four and probably going to get to number three and I would not be surprised in the next year it will challenge the number two countries. And that’s to be expected and one day we will be number one and we will absolutely be there.

Business markets, from the single thing that you, I want you to take away from this is that today 10% of our revenue in certain categories are done with the business market and 90% are done with home market. For a certain sections of carriers that you would see in this that you will see in this slide where the market is 50-50. So what’s wrong is the businesses doesn’t like our products, as a business different dynamics no but just didn’t pay attention to it and have decided in the past and I’m primarily responsible for that decision. That the approach we needed in terms of the brand and product development for the business market was very different than what we bid to meet for the consumer market, we were focusing on the user, when business market maybe you have to talk about the IT infrastructure et cetera.

In fact it’s a proof of great consumer product that has never been designed for the enterprise market and been very successful there. So, things that changed in the business market and that’s what’s brought us this opportunity. In addition, to what we are doing to LifeSize. So the results are from discussing really in the business market is particularly the PC base in the business market, which is the increased role of the PC in communication. And that is the just continually that is driven by the so called unified UC phenomenon, which no matter who you ask it’s a different animal but what it means is fundamental with the integration of voice and data and communication on the IT infrastructure, I suppose to the telecom infrastructure. And that dynamic leads to the need of different and hence certain what comes that is exactly what we offer.

So, got the approach as we probably take that approach there is video conferencing, which is the main driver of what we do with the acquisition of LifeSize. And when you see this continuity as well as do not underestimate and probably the largest in absolute term productivity, improving increasing our transmission of devices like mice and keyboard within the base of the business market.

So very briefly you are looking a lot about LifeSize later today so I won’t, our approach with LifeSize is maintained. Our approach that is disrupted we are the number three player we can’t afford to play the same game that the other guys. So, the approach to the infrastructure, approach to sort of the pricing, which has been the hallmark of our success over the last several years and we will continue to be focused on that.

This is also an area worth interchanging surprisingly enough, the non-traditional video conferencing platforms like MS Lync and even Google Plus are penetrating the enterprise and they want to be the communication infrastructure for the enterprise Lync is way ahead of Google; Google can have a lot of limitation but do not underestimate the potential of their cash. So, we are very cautious of that and we are making sure that both in the LifeSize front and on the Logitech front we understand what scene is for us through the success of these alternative platforms.

But the problem with the single one thing that we are doing in LifeSize is expand the channel because wherever we play we win. When we compete head-to-head our people against anybody else we win. So we have to put ourselves in way more position to compete and that’s what the channel expansion is all about.

On the Logitech for Business, I talked about leveraging Unified Communication to bring more peripherals. It’s a very highly leveraged growth market strategy, I want to just feel the thunder what we can do is talk about it but it’s fundamentally using a lot of partners and distribution partners that we already have and for those that we don’t it has shown us been much easier than what we’ve seen to get them. Every time I used to repeat this anecdotal when we discuss with Erik I’m sorry if you were planning to say that you won’t I would say that. So we will visit the number of hours in IPs that are system integrators that we, that by the way we use to carry marginally lost the cloud as we invite them for distribution without any incentive. So we went to see them and say hey we are Logitech for Business we are planning to establish new marketing programs and in terms. And but response have been where have you been. The response is not why do you want to have the business with that it was where have you been? Our customers know you, we know you there is nothing more excited about Logitech in the IT department believe it or not. Yet you’ve never been around I had to struggle to buy my products from Ingram at the worst possible terms than anybody else even Mom & Pop shop, if you are on Broadway by the better terms so why not, it’s fascinating.

So this maybe highly leveraged, which means we have the potential of being significantly accretive to our bottom line. We need and are creating specific SKUs for the business and you will hear more about that. This is also where we put our classic OEM business this is the traditional PC, mice and keyboard OEM that you’ve known and loved or hated for centuries. It’s bigger, it’s definitely not a growth engine, this is the impact of dramatically by sales on new PCs as well as to the installed base and particularly it’s impacted by this migration to laptops from desktops. And in fact if you look at our performance here it’s amazing how we have been able to hold on in spite of these total collapses on sale of desktop.

We know that this is going to decline and we are, we know the question is how do we manage this decline in a way that makes sense and continues to be profitable, for Logitech because it is today. And in this space we are going to be very selectively targeting we will be not this end but in the near term we will be targeting emerging markets particularly in China. So that’s in a nutshell our priorities that’s the slide I showed in the beginning content slogan and it’s at your leisure to just recap it. This is what we are trying to do this is substantially simpler, substantially less risky and in some cases if you did not believe the dream of the Digital Home and Google TV then this is, there is much more certainty in the market potential here, than there has ever been in the way we articulated that strategy in the last couple of years.

But with a single most important take away (inaudible) it’s not music, it’s not Harmony, it’s not Logitech for Business it is a renewed attention to the consumer PC do not discount the consumer PC. We can do great things there and that’s continues to grow. Now, strategy is for the armatures what professionals do things make things happen and I mentioned about a renewed passion for the product and the years that which the point to be embarrassed, it’s been kind of muted for a while and much more alignment in Logitech. And of course tax (inaudible), learning from our mistakes, cost correction what I’m telling you today is not the truth as the (inaudible) or the tablet is not. It’s what we see today and we are ready to change that sales act is suppose to sale catastrophically as we have chosen to do in the past. We have got some ability to fail fast. In the past, you have no idea how many times we failed and you never heard about it, just we failed because we have a very broad portfolio we can afford to fail fast. But we can’t afford to fail big by putting all our eggs in one basket and we won’t.

So this is kind of a summary of what I said and what, if we do these things well the company will get to a growth rate and a profitability that is substantial and it’s even I would say similar to what you’re seeing, I would say in the past ignore what we said in the past. This is all work in progress today. If we manage our portfolio in the PC markets and align approach and the opportunities and deliver it in our sales proposition that is compelling, we exploit the emerging markets as we are doing of course around the PC first and beyond it we invent and figure out what are the usage models that the iPad users are going after and the tablet user.

If we are able to triple the penetration here remember 10% of our business is in business markets against 90% in home markets. If we are able to triple the penetration of our products and not into PC base and business market and if we gain significant share in this new digital movie phenomenon, then we can continue to feel the momentum of LifeSize and expand Harmony as the living room companion, both by simplifying choices from the classic Harmony and understanding how we take advantage of content management. I’m totally convinced that there is a great future for us.

And with that, I leave it to Eric Kintz to bring you over some financial elements of the company. Thank you.

Erik Bardman

Good morning everyone and Guerrino its Erik Bardman, not Eric Kintz.

Guerrino De Luca

Well (inaudible)

Erik Bardman

No, it is all right. I am one of the other old faces that Guerrino talked about, very happy to spend a few minutes with you today. A couple of key things I want to talk to you about and I think it will be pretty consistent in terms of some of the things that we’ve talked about in the past and how we’re looking at things moving forward.

So the thing that I want to cover today, I want to talk a little bit about some of the key financial traits or aspects of Logitech that not only have been hallmarks of our business model in the past but are things that you are going to see from us moving forward and I think are tremendous assets for us and I will touch on a couple of things there. I also want to spend a few minutes and talk about our approach to balance sheet management not only in terms of how we’re looking at it today but how we’re looking at it moving forward, how we think about our capital structure and I also have a couple of tactical updates and some things I want to provide you as well. Then third topic I want to cover as well and Guerrino touched on it briefly was how we are taking of course the product portfolio management, what is the discipline we are bringing to it and how does it fit within the strategic framework of the business to help us make the right decisions and make sure we are aligning investments with opportunity in a right way.

Let me talk a little bit more about these key financial traits or aspects. So a couple of things when you think about our business and depending on how well you know us, one of the first one I would highlight is diversity; and its diversity of geographies, its diversity of products and its diversity of customers and I will touch on each one of these in a little more detail but we have a broad base to our business. It’s one of the advantages for us. You have heard Guerrino talk about it. One of the key lessons for us is we can learn and fail quickly as long as we do it in the appropriate way and you are going to see us continue to focus on that going forward.

The other hallmark would be flexibility and this is flexibility of development, how do we develop our product with the approach that we take and also manufacturing. I am going to touch on each one of those in a little more detail. And then the other phrase I would use is durability. Our business model has the proven capabilities to produce reliable free cash flow. I am going to talk a little about what that means for us and then also I will link it back in to when we think about our balance sheet management and our capacity to fund the business, how the two work together.

So I will talk a little bit more about geographic diversity. What you will see here is just a simple graphic to give you a sense of what is of our geographic breakdowns across our three regions today. This is our retail and our OEM business combined. And a couple of things I would point out, we’ve always had good balance but it had actually improved over the last couple of years as we have had growth relative in our Americas region as well as Asia. It has given us a better global balance overall. We sell in well over 130 or 140 countries to date. That is going to continue to expand and I will talk about that. And our growth in Asia and you will hear more from (Quin Lu) later this morning has really been fueled by our growth in China. So the key takeaway here is that we are a word global diversified presence and it gives an advantage and I will touch on that a little bit in a second as well.

Let us talk a little bit about product category diversity. This simple chart here, you have two pie charts; one for FY11, one for the first half of FY12. It lays out our basic product category and the mix that we have so it is a broad offering to consumers. It has been relatively consistent over the last 18 months. There has been a lot of change when you go down into the level below that so if you go into for example phoning devices and you were to look at cordless mice in one market versus another or different offerings that we have you will see mixed changes and you will see us continue to work to optimize that. The key takeaway here is that we have a broad offering to consumers that allows us to play across multiple different platforms. You add that to the geographic presence and it put you in a lot of different places where you want to be and where the consumer is.

So when you take a step back, so I have talked about this diversity of products, I talked about this diversity of our global presence in geography. So what are the real benefits? How can tangible are they? From a product portfolio standpoint, our bestselling product today is less than three percent of our sales. Our top 20 products combined are less than a third of our sales so our sales growth is independent of the success of just one or two products. So it becomes very important in terms of us making sure that we got the right broad offering and we continue to refresh that on a regular basis.

When you look at our customer base a couple of things I have highlight. We only have one customer today that is more than ten percent of our sales and that customer base that I talked about in geography it continues to grow and expand. You heard Guerrino touch on that. As we grow in emerging markets in places like China, Eastern Europe, Latin America we are going to continue to make that customer base wider and more diverse. And then when you look at the types of customer that we do business with and for example you take our top 10 customers today you have a real mixture there, you have large worldwide distributors, you have traditional large format retailers, as well as some of largest internet sellers in the world.

So when you combine all of this, this diversified customer presence with our geography presence you are in a situation where you can really increase your sales opportunity making sure you had your product and in front as many consumers as possible and at the same time making sure that we are mitigating risk. We are not over exposed to any one product or any one customer.

So I have talked a little bit about diversity. Let me talk a little bit now about flexibility and I want to first start talking about how we develop products at Logitech and how it is an advantage for us. We really do use our global footprint of engineering and product development talent around the world. We have various centers of excellence whether they would be in Switzerland, North America, India, other parts of Asia. It really allows us to make sure that we are present where the talent is present and let us leverage that talent so if there is great software talent in India we are able to take advantage. If there is a mechanical engineering in Europe or in the US we are able to take advantage.

One of the things – especially as you look forward and you are going to hear a little bit more from (Quin) later today. We have started and developed some success in terms of developing products uniquely for individual markets. We have done it initially in China. We are going to do it in additional places moving forward. Leveraging that global talent footprint when it comes to developing our products is going to become increasingly important. As you have more and more folks who understand the local markets, consumer preferences, consumer pace. They work really worked well together and in that flexible model in terms of how you move engineering around and develop products works for you every time as well.

Another aspect of flexibility for our business model is when you look at how we manufacture our products today. For those of you that know our business well we have always talked about having roughly a 50/50 split between in-house and contract manufacturing but one of the interesting things is that the key aspect to this is that we are able to flex that model up and down. In any given quarter, in any given year time period is we will move up our ability to either manufacture in-house or with contract partners to be able to move more quickly, to respond to opportunities in the market, things that we can do with our customers, as well as to react to broader macro-economic trends that we see. That flexibility is important because we can also take it not just to the total level for our business but in individual product category. So for example if I have a new product that I am launching, I may have the ability to work with a contract manufacturer to get it to market faster. I learn from it. Maybe version two or three I may be able to perfect, bring in to my factory and do more effectively. So having that joint capability is very important for us. It is something that has been a hallmark of us in terms of how we produce our products. It is something where we continue to take forward.

So earlier on I used the word durability. And what I am really trying to focus on here is when you look at our business model overall and its proven ability to generate free cash flow. What you will see on this chart here is our free cash flow by year compared to our operating income. And we have had a consistent capability to be able to produce free cash flow in excess of our operating income. It is something that I will talk about in a second when I talk about balance sheet management and capacity of funding the business. This is a key attribute because it gives us the capacity to be able to fund our business and to respond quickly to opportunities that we see.

So let me talk a little bit about balance sheet management and then also I have a couple of tactical updates I want to provide you as well. So when you take a step back and to give you a sense of what our priorities there is a couple of things I want to highlight here. First and foremost, when we are looking at deploying working capital our number one priority is funding business growth. I will talk a little bit more in terms of how we think about that and how we approach it and how we are also trying to make sure that we have got flexibility when it comes to that capability.

The other point I want to talk a little bit about today is our capital structure and specifically how it means to be flexible and how it means to have capacity. One thing I always I want to make sure at Logitech is that we are in a position that if the business finds an opportunity we are able to respond to it. There are things in the business world you can and cannot control but you got to be prepared and have a point of view of how you are going to move or react when an opportunity presents itself. And from my perspective when you are looking at your capital structure both for the medium and short term as well as the long term you need to be thinking about how can you be flexible, how can you have capacity when opportunities come up.

And then I also want to touch a little a bit on how work focused on delivering shareholder value through share repurchases and specifically with our future intent to cancel shares. And I will talk to you both about the process we do that as with the company and how we are approaching it. So when we talk a little bit about cash and how we are managing cash in the company. We took these years as a simple chart that lays out with the bars represent our cash balances over the last several years and then over the last two recently completed quarters. And then the line actually shows you the percent of our cash as it represents of our trailing 12 month sales.

And so what we are targeting as a company is we got a range of 15 percent to 20 percent of our trailing 12 months sales that we are targeting as cash that we keep on hand. Now let me be really clear. It is not a precise calculation, it is not to this quarter it is 15.2 percent, the next quarter is going to be 17.8 percent. It is a range for a reason and the reason for that is we know that gives us the right amount of operational flexibility to respond to opportunities that comes up in given points in time. As I said I want to make sure the business is positioned and we are able to respond quickly. Beyond that 15 percent to 20 percent when we have excess cash available, which you are going see, is a very consistent approach from us and that is to focus both on share repurchases as well as acquisition.

And I think this most recently completed quarter for us is a great example. So we repurchased about $73 million worth of our shares during the quarter. We also did an acquisition that was the Mirial acquisition which is part of our LifeSize business and Michael will be touching on a little bit better today but that is very emblematic of how we are going to approach when the right opportunities arrive and we got cash that allows this flexibility beyond what we need to operate then we are going to after that.

So let me try a little bit of an update on where we are in share repurchases and then specifically I will talk about our intent to cancel shares moving forward. So we repurchased 7.6 million shares during our most recently completed quarter. We also, back in September, received approval from our shareholders at our annual general meeting to exceed 10 percent ownership. We currently own just under 10 percent today. And we have a current existing board-approved program for $250 million. We have about a $177 million from (inaudible) program. And as we have talked about at our recent earnings release and in our press release we have applied with the Swiss authorities to amend that existing program to give up the ability to be able to cancel shares in the future. And I will talk next about the process in Switzerland that is a little bit unique.

So to be able to repurchase share for cancellations in Switzerland it is a unique and a specialized market. You actually open something called the second trading line which it creates tax concession vehicle for you to repurchase shares for the eventual cancelation that you want to do. And our intent is for shares that we repurchase moving forward that we are going repurchase on that second trading line once we received approval and then in the future we will ask for shareholder approval to cancel to those shares. So to be very specific, so from today forward our intent is for any shares we repurchase we repurchase on that second line and then when we get to our next shareholder meeting which would be September of 2012, then we would be asking shareholders for approval to cancel shares that have been purchased over that point in time.

I have talked a lot about flexibility and I have talked a little bit about capacity. I have talked about it in term of our business model. Let me talk about it in terms of how we want to make sure that we have got the capacity and the working capital structure to do things the business needs. So historically we have had a $148 million of uncommitted lines of credit. And for those of you who that know our business well we barely have long term debt on the balance sheet. We do not have long term debt on the balance sheet today. But those uncommitted lines have served us in good economic times but as we know today we are in a much different world and moving forward there is no reason to believe that the volatility is going to become any less. So from that perspective we are in the process today of securing a committed line of credit, it would be a Swiss market offering. It would give us significantly larger capacity than the existing uncommitted lines we have today.

And let me be very clear, the intent here is to use this line for general corporate purposes, working capital and M&A but we also have no existing plan to draw up on the line. This is something to make sure that we have that flexibility; we have that capacity when the right business opportunity arises. You will not see any change in terms of historically we have only used debt when we most needed it to go after big opportunity. That philosophy will not change but fundamentally we feel the committed line is much more reliable and it puts us in a better position to make sure that we are there when the business needs to go after opportunities.

So the last topic I want to spend a couple of minutes on today was product portfolio management. You heard Guerrino touch on it briefly. So fundamentally for us as a business there are a couple of pieces here in terms of how we think about it and how we approach it. The first part of it is the discipline in terms of how you look at your product portfolio and how you think about it from a strategic standpoint. And for us, what we are doing on a regular basis is we are looking into our product portfolio to make sure that we are aligning in a right way the potential on a particular product category for sales growth, profit, market share but then balancing that out with what is the right level of investment. And one of the key backdrops or considerations to all of this is what the stage of market development.

It may not only be – Guerrino talked about the fact that music a very fragmented market, right. Those existing players it is a newer market to us versus there could be another market that is very established but the company where were underpenetrated like Logitech for business. So those are very big important aspects in terms of when you look at probably your product portfolio that is one of the strategic overlays that you take.

So then when we do this type of review then for us we make the decision that we want to change our investment level. Ramp it up, ramp it down, give it a different nature or structure. There are a couple of key levers or dials that are available for us. It could be for example, what is the number of (skews) that we have on offer on a particular product category? It could be R&D investment level. And it is not just R&D investment level in total, it could be things such as to fund developing brand new products with new capabilities with a long term view that is a certain type of investment, has a certain time frame to it. Or if I am really trying to add features and functionality to an existing product in the market because it creates an up sell proposition or positions me differently in the market. Very different levers in terms of how you pull that.

And then we are always looking at our sales and marketing investment level and this is as much the dollars you put to work as the focus. Where do have your team focus? Where are the working dollars you have locally with your partners? And then finally go-to market strategy. And it is extremely important as well when you start to think about products that may sell typically online versus offline retail. The way in which you go to market, the way in which you put dollars to work there can be very different.

So this is the same framework that Guerrino shared with you when you look at the company overall but I have talked about this discipline in terms of how we are looking at product portfolio and how we want to manage it. What we are also doing is we are applying it in a very differentiated way. And let me just use a couple examples to highlight that. So when we are looking at for example our PC webcam business for consumers and our PC speaker business in consumer developed markets, our approach there is going to be very different than other places. The number of (skews) I have on offer, the focus, the way in which I am working with my partners, where it is positioned, the way which I invest in R&D is going to be very different when you compare it for example to digital music. A new category for us is to establish for some other players but also a space with a lot of change is going to continue to evolve quickly. Our ability to learn and fail and adjust and course correct appropriately is going to be very important and the way in which you invest has to reflect that, right? So that is another key aspect.

And then a third example would be when you look at what we are doing in the business segment overall and this is both in LifeSize and Logitech for business where in some cases they are established markets but were very lowly penetrated. So the opportunity for us is different there, we need to be thinking about how we are building out or go-to market strategy, how we are building out or go-to market resources, sales and marketing investment levels. So the way in which we are going to take this disciplined approach to portfolio management is important but it is important that we apply differentiated. Thinking about where we are strategically in the business and where we are going.

So let me just wrap up on a couple of things. I have talked you today about diversity and flexibility. They are key hallmarks of our business, the things that we continue to see as we move forward. This is in products, this is geographies, this is in customer base and it is something that is very important in terms of how we operate and how we invest in the business. We are managing our balance sheet with a primary of making sure that we are funding business growth but we are going to continue to stay focused on how we deliver shareholder value whether it will be through repurchases with the intent to cancel those shares or acquisitions to continue to expand the footprint of the business and find new growth opportunities.

And then just a couple of priorities for us over the next 12 months were to improve our financial flexibility by putting a committed credit line in place. We are going to begin those repurchases on our second trading line with the intent to cancel those shares in the future and we are going to continue to accelerate our disciplined approach to portfolio management to really help us manage the business intelligently and learn from the things that we can carry forward with us.

Thank you and let me turn it over to Ashish.

Ashish Arora

Thank you, Erik. Some people hear me okay in the back? Okay. So I am actually one of the new faces, head of visual entertainment in Logitech, Ashish Arora. So I will talk about two things today. One is basically music in the home and on the go and then I will also talk about TV and what we are planning to do to enable interactions around the TV.

So let me start with music. So not very surprising slide, music is based or basted in people’s lives from the time people wake up in the morning to the time they go to bed. It is a huge part of their life. So whether they are at work, on their PC, commuting to work it just plays a dominant role in the day-to-day activities. And it not just about enthusiast, right, it is really about – it is a pervasive phenomena, it is all about all consumers that actually engage in music and experience music throughout the day.

But Logitech today – it has been touched a lot a few times earlier. So we have a portfolio of audio products. The PC is definitely – the music around PC is changing but it is definitely resilient. The other 25 percent market share in speakers. We also have the Squeezebox product line we have actually seen a significant growth in Europe especially to our partnership and service providers but it is also growing worldwide and then we also have the Ultimate Ears brand for earphones today, which is a leading brand among the professional musicians.

So how do we pick, how many of those from this audio portfolio? How do we shift from audio to music? So it may sound subtle but the connotation and the implications of how do we approach it are pretty significant. People love to – people are not listening for audio solution. People want to experience music in the home and on to go. And we believe that as we shift our focus from audio to music, as we shift our focus from just technology to providing experiences in the home and on to go, design an interface are going to be very key. People do not want to see this kind of connectivity. People do not want to connect things. They do not want wires. They do not want to pair devices. They do not want to stream things. They just want to listen to music and music is shared. People love to share music with their friend and family but also people love their music to follow them. So they just want to (zoom on out) and experience it without worrying about everything else that is going on around them. So doing this kind of vectors, design and interface, seamless connectivity and sharing that will fuel our innovation.

There has been a lot of focus on the growth of smartphones and tablets. And they are – to the global smartphones and tablets are going to fundamentally change how people experience music and even the consumption behaviors around music. Internet radio, cloud services I will talk about that in a second is also going to have a very significant impact. The chart is actually a very interesting chart. This is our Squeezebox users and the role that every device plays – what users use during the day and which devices are used at different points of the day. And the black kind of represents how people use the Squeezebox during the day and how they listen – how much time they are using the Squeezebox for at that point of the day. And one of the primary use cases – as you see it is pretty dominant and one of the primary use cases is listening to cloud music and it is growing, iTunes is clearly shifting to the cloud. You hear about Pandora (inaudible). These are big phenomena. In fact in October, (Mag) announced that they actually do 264 percent. And believe it or not it is not just the iOS, the iPhone people that are listening to music, the Android users listen to music as well so they are all streaming and (it is going).

So how are we going to harness that and what is our approach to music in the whole? We are actually going to take two approaches. One is where the Tablet and Smartphone becomes a conduit either becomes the source of music or become the conduit to the internet music and allow you to stream music from the smartphone/tablet to wireless speakers. It could be using Bluetooth. It could be using (AirPlay).

The second approach and maybe even slightly different consumer demographic is what we do in Squeezebox today which is this idea of value upgrade music. Streaming music is actually to the speaker either to through the cloud or this is really in PC, so two different approaches, two different use cases but also maybe two different demographics. That is in the home.

On the go. In fact we just announced a really nice looking product called the Logitech Mini Boombox. It is at $99 and (inaudible). There is in fact a demo outside. I encourage you to see it. Beautiful little product. It allows you to stream your music from your Smartphone to this mobile speaker in a very seamless way.

We are also going to expand our earphone/headphone business throughout many years. Give us kind of a brand that again a very well expected brand. So that is how we are going to play in the (variable) space and in the mobile space as people on the go.

So let me summarize what we are going to do in digital music. We are going to shift our focus from audio technology, audio product to music experiences. We are going to innovate and deliver solutions in the home and on the go and we going to use design interface, seamless connectivity and shared experiences of the vectors of innovation.

Let me talk about what we plan to do around the TV. People want – this is I would say the (a-ha) of my presentation. People want TV to be simple. Having gone through many people’s home listening and hearing and doing (inaudible) the statement comes up “I just want to watch TV.” That is it. So how do make sure that happens.

Well, the core idea of Harmony which is our primary product line here is about solving device complexity. The more the number of devices that people have in the entertainment deck the more complex TV watching is for them because more devices means more remote controls, more buttons then you are trying to figure out which remote to press, how and where. There is a significant majority of people that actually have three plus four devices in their entertainment deck and the number is pretty comparable in Europe as well. The chart on the left shows the proliferation of each device type in the entertainment deck and some of them –the huge penetration others are the lower numbers but are growing. That shift. The VCR is kind of in the closet. It is gone. It is at least unused any more. But at the same time there is something called VMA which looks like a (large sticker view) (inaudible) box that is not coming into mix. The proliferation of Blu-ray DVD players. Even in Europe where again VMA are happening. I was in (inaudible) just a few months ago and you see this sort of mass storage devices that also bring – from Western Digital, Seagate, et cetera. They also bring in internet connectivity. So yes the device types, CD players are gone but it does not mean that you (inaudible), people are actually connecting their PCs. So this feature gets device complexity continues to grow.

So this need – complexity to draw the growth as we now said in Harmony. It is primarily driven by the growth of our entry level products because those are – we deliver some great products at very affordable price points, the Harmony 200 and 300. So people came in and they bought those. Over the last 18 months we have been doing a couple of things. One is we build a cloud service platform to allow to scale. We were still leveraging several technologies we have acquired but we needed to better upgrade it to help us get into the future. We had a huge focus in Harmony, and Harmony was core ingredient of Logitech will be one of our major contributions to the Google TV platform. And so we have a huge focus on that and in the process we will now have a compelling or at least our mid range and high end (inaudible). So the need is there, the complexity is there and it actually is growing.

We talked about what other thing is adding to complexity. So yes, the number of devices makes it complex but actually if you think about it each device is also getting more complex so the basic use should be very single function. So the set-top box is just for your cable. So there you have the (inaudible) and it is bringing a whole lot of other substance. Every device is becoming multi-functional and one of the things that –in consolidated device but actually that is not happening. In fact all of these devices are becoming multi-functional and it is introducing a new kind of complexity. Many of these devices like actually people are connecting their PC, their X-box and these devices are brining a new set of applications and services that require new navigation paradigms. It requires text entry, it requires other forms of controls and that is an innovation opportunity, the number of people that are connecting their PCs and doing things in just weird ergonomic postures of innovation opportunity.

So you will see products from us that deliver to this new interaction paradigm in the home entertainment complex which is getting more complex. It does not stop. (inaudible) complex is also happening. I do not know people in this room have (paces) I have. How many times do you just go to a four channel or five channels or do not watch something either because you did not know it is coming or because it is just too complex. And we believe that we can solve that complexity problem. We can help – or idea of a remote control is to find or get to the point where you can actually start watching something but a core value to that is first figuring out what you want to watch and we believe we can play a role there.

Not only that. The behaviors are also getting fragmented. People are doing – attention spans that people have are getting fragmented. People are spending more and more time while they are watching TV I am sure many of us are doing this whether they are on laptop or on our second screen like smartphones and tablets sometimes doing emails but at other times maybe even getting more information on the show or if a game is going on you try to find information on another game that has been out at the same time.

So your behavior is – the divided attention between second screen and main screen and often the two activities are related. So again you may be watching something on the TV and you could be finding information on an actor or maybe not many in this room but a lot of people post things, messages on Facebook. So those are the things that are happening. What it creates is the opportunity bring what I call the istuff and Harmony together and yes Android as well but it is simply your iPhone and iPad. And the core idea is that these screens of the iPhone and the iPad and the Android smartphone are the devices that I use to discover content, look at your electronic guide, browse movies and then when you are ready to watch it you just press watch and the TV comes on, your channel changes and you start watching that show. So effectively you have taken the screen of Harmony the most and put it on the iPhone and iPod which are very elegant devices and the technology is in the (inaudible) the remote control technology in the (park) and this allows us to really push the value of innovation.

So let me summarize our priorities for Harmony. One is we need to strengthen our up sales propositions so we will be introducing products in the mid range and high end. We need to bring innovation to the convergence. I thought two core fundamental themes of innovation. One is as we – interaction paradigm happens as a need for text entry happens one of the innovations that – one of the things that we can do to make home entertainment simple again, to make TV watching simple. And the second one is this idea of second screen which allows us to deliver (small) part in complexity, make the experience much more social. So that is what the strategy for Harmony going forward.

So that is all. I will turn it over to Rory.

Rory Dooley

Thank you. Good morning everybody. So I will have to give you a couple of second to adjust your ears to Irish (spoke). So my name is Rory Dooley, I from Ireland. So I hope your ears can adjust appropriately after all the accents you have heard this morning. I just want to talk to you today about the growth opportunity we have in mice and keyboards. I am going to cover around two specific areas. So I cover the growth opportunity around tablets and also – which is a new platform and a great growth opportunity and also talk about the growth opportunity around the Mac and PC which is becoming a new platform again because of the evolution in the operating systems.

So let us start with tablets and talk about tablets. So the key thing I think about tablet, first one is it is a big opportunity. Also, when you look at the chart, the forecast, you have seen this already represented by Guerrino this morning. You are seeing it here in a slightly different way. What it is saying is that Tablet is a big platform. It will be a big platform. But I think the key thing we have to ask ourselves and this is the question we have looked a lot over the last 12 months is what are people doing with Tablets? It is not the fact that there are a lot of tablets out there. It is the fact that the activities peoples do determine the opportunity and the size of the opportunity we have.

So what a tablet is from our perspective is an always on always connected device and it is used for a number different activities and those activities that goes from what Ashish showed, media consumption, music, entertainments, all the way across to productivity applications. One of the biggest usages of tablets today in fact is email and email is the classic productivity application and that is what we see as something describing tablet usage.

On the other side when we look at tablets and this is a great chart as well because it is looking at the attach rate of different devices to tablets. And what you see is obviously devices were in like headphones or ear buds, very high attach rates. External keyboard 26 percent is double the rate of attach rate of external keyboards in notebook computers and that makes sense because there is no built-in keyboard with a tablet. If you want a keyboard with that mechanical feel with that usage model you are used to you need to take an external keyboard.

And the other thing below is just closing up the points. Speakers on tablets also have a higher attach rate than they do on notebooks. Again the built-in solution is less performing than the typical built-in solution you have in a notebook. So again, overall, what we see with tablet accessories is a tendency for people to attach core devices depending on the use case that they are pursuing.

So what are tablets owners looking for in terms of productivity solutions? So when we talk to people what they would like their tablets to be, what people like would their tablet to be is the message that comes back is once you provide a protection – so you do not want your tablets to break obviously, to make my Tablet as productive as my laptop. It is really a key phrase. It is really something that is – it is what people are thinking out of their tablets. The tablet out of the box people recognize is not as productive as their laptop. So how do they get their Tablet to be as productive as their laptop?

And when you look at the purchase intent as well going forward and this interesting and it is the external mouse came up very high and again it is – what is being said there is people are seeking when they are in that mode of productivity they are seeking the accuracy and the precision that they are used to with the mouse and keyboard interface. So they know that if they can take the keyboard it gives them half the solution. They also recognize going forward they are going to look the other half of the solution which will come with the precision of the external mouse. So again it is highlighting the desire for people to have a more productive experience.

And if we talk about specific products we have today. This is one of these great areas where we have been in the keyboard business since 1998. In fact it is when we first entered the keyboard business and in sort of what Guerrino said it fail past in areas where we fail past. We have tried for 11 years to find a way to convince consumers to carry a keyboard with them with notebook computers, with PalmPilots, with all of these things, right. This has been a sort of the boulevard of broken keyboard is out there somewhere but broken keyboard dreams. And finally with the iPads the answer presented itself. People are incredible willing to carry a keyboard with them. This is a whole new category, the ultraportable area. We got two great products out there today and you will see it innovating like crazy in this category over the next few years as well because it is – and the great thing of this is it provides the consumer with the choice points. I am going on a business trip I carry the keyboards. I am going for a weekend I leave the keyboard behind. I have the benefit of the lightness of the tablets. I can take it or leave it as I wish. It is not forcing me to always carry it with me. It is giving me a choice point. So we have a great, great opportunity in this ultraportable area. And this is finally after we have found this rich scene that we are going to mine over the next several years.

The second area that we have and this is another business we developed this year. So this is an existing product. So a tablet keyboard for iPad and this is the at-home or in the fixed environment phase, the fixed workspace environment. And here what we are looking to do again is how do we make the keyboard relevant to platforms? As again what we are focused on this is specifically a keyboard designed for the iPad. We got other keyboards that we have designed specifically for PCs. Now in the context of out selling creating higher value-added propositions which is something Guerrino touched on this morning. This is an area again where you are going to see significant innovation.

What I am showing here, this product is our Mac Solar keyboards so it is a product that works on light. It requires – you never have to change your batteries, all of those things but it only on one platform. So what we want to take and where we are taking this too is, we really go with the idea you will have the zero maintenance multi-platform device where you will add a movie in your iMac with one touch you can write a note in your iPad, with another touch you can answer the SMS text on your phone and come back and you are editing your movie in your iMac again. So this creates tremendous value to that keyboard and that environment because it works across these platforms. It integrates itself with all of these platforms. So this again is a tremendous, tremendous area of growth. So we have both of those areas, we have the mobile ultraportable use case and we have the fix environment use case where we are really making the product incredibly valuable by working across all the platforms.

I am coming back to the mouse and where that is going and where that is going and this is something incredibly important. We have touched some them this morning, the idea that you are using your tablet and you have all have seen this or felt this or experienced this. It is great in that mobility, portability sense. You can type, you are typing but then you have to do this back and forth with the touch screen. And the two environment they have difficulty co-exciting, the direct interaction mode and the indirect mode. Our people are really looking for a window in that indirect mode. They want the full solution, the mouse with the keyboards and when they are in the direct mode they will just touch the screen.

So what we have already done is we have already –Android, which is the other competing operating system on tablets today from version 3.1 and onwards actually supports a mouse and we have the world’s first tablet mouse on the market for the last few months. But the other key message here is that Windows 8 will support the mouse and the keyboard in tablet mode and that is a good thing. So you can have your tablet, you can convert your tablet into a productivity workstation and (back to tablet) by having a keyboard and mouse attached. So this is the evolution of the operating system in the tablet sense for Windows 8 as well.

So lots of big opportunities in the tablet and again responding to that real expressed consumer need of how can I make my tablets a better productivity environment beyond it being a fantastic media consumption environment?

So what I want to move on to now is the Mac and PC in developed markets and again here it is a great growth opportunity and there are lots of things we have been doing in the last year and there is lots of things we will be building on in the next couple of years. The first thing, let us talk about it, we have created a couple of great value proposition within the context of the existing ecosystem so we don the world’s first illuminated wireless keyboard. It is the world’s first backlit keyboard and it is wireless as well. We have also done the first – world’s first zero maintenance keyboard so you never have replace the battery in this keyboard. It is light charged, it uses solar power. And again we are leveraging the same low power engineering capability we have to build both of those value prepositions both the Illumination and the Solar. We have extended the Solar keyboard to the Mac platform making a real Mac product so we have done the full key layout, we have done colors, we have done lots of things to make it really, really friendly to the Mac users.

But there are things that are happening beyond that and this is really where the opportunity is exciting and incredible compelling in the next couple of years. So the thing you have to be aware of is the PC platform OS is evolving. It is being influence clearly by the tablet and the smartphone side. And what is happening Mac is leading the way so OSX line which is out there, has been out there for the last several months. One the key underlying principle of Lion is it supports multi touch gestures, natively in the operating system. So you are, you can zoom, you can scroll, you can change application, you can do all of these things with gestures on the touch device on the touch pad in this case and that is the big, big deal.

If I take you back in time in 1997, so two years before the Euro was introduced just to put thing context, right. And the Euro is in the news these days. In 1997 there was a mouse out there with the scroll, really came from a company called Genius KYE mouse system so there were known as in all of those names. And the scroll was not successful because it fundamentally lacks software support. So what happens in 1997 is Office 97 built in support for the scroll wheel and as a result scroll wheel basically became standard on the mouse. Further to Office 97, Windows 98 supported the scroll wheel. And then Window 2000 and everything else followed. So the scroll wheel became basically a standard on the mouse as a consequence OS support for scroll wheels.

And touch is basically the next big bang. If you think about the OS evolution, we used to call the interface the point and click interface. It evolved to become the point, click and scroll interface. And I believe it is going to evolve to become the point, scroll, (slight) interface with this integration of touch built into the OS (there).

Going back to that KYE example where they have a product on the market that have a scroll wheel but did not necessarily dominate the market. And again the reason for that is this OS support. We got several devices on the market that already have touch built-in. The issue again is getting to that level of OS support. So we already know how to do this but what we do know as well is when the OS supports touch. Again Mac OSX line is doing this. Window 8 is the next revolution in touch will fundamentally support touch language as well. As you can see what we believe this will go and this is the next driver of the next revolution on the PC platform in developed markets.

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This will give you a vision of a visual at least of where we intend to take this. So again a big, big revolution is expected in the next several years in this space.

I want to summarize with – you know what. So I wanted to cover the key growth drivers for mice and keyboard for everyone this morning. You have seen we have opened a new business literally in terms of finally a finding a way into this on-the-go keyboard solution for tablets. And we believe this will be a strong area of growth for us. We want to see this opportunity of extending ourselves in this multiplatform devices really building ultimate value proposition by not just having a great keyboard on the Mac or on the PC but a great keyboard on the Mac that also works on my tablets. And that provides tremendous up sell value-proposition as well.

We have had a great run. We introduce our Solar keyboard almost a year ago. It has been a fantastic product for us so we see this whole area it really appeals to consumers this idea zero maintenance. People love the idea of wireless devices, they hate the idea batteries and running out of batteries and having to change batteries. This is a fantastic area where we can expand against the zero maintenance.

And then that last area really is – it is incredible and will be incredibly powerful to the whole category is this built in support, this native support for touch in the operating systems, which will proliferate itself in this sort of mice and keyboard you are going to see in the next several years.

And I think with that I get the pleasure of introducing you to the break slides.

Quin Liu

Hello everybody. Can you hear me right? Good. Good morning everybody. My name is Quin Liu, I am the Managing Director for China. Before I joined Logitech, I worked for PepsiCo in China for 15 years, and I just joined 16 months ago. It has been a lot of fun. It’s my great pleasure today to take 20 minutes to talk to you about our growth opportunities in China.

And I will be talking around the three topics. First of all is about opportunity in China, it is big. But what are the specific opportunities that’s relevant to Logitech in China? The second one is we have been putting our strategies and plan together for China, executing against our strategies, and today, I will give you a snapshot of our progress so far. And the third topic is about how can we leverage and continue to drive our strategies, so we can continue to support a high growth rate for China. So, that will be my three topics for today.

So, the opportunity in China, everybody knows the opportunity in China is very big. The GDP is growing very quickly where organization process is happening across the different tiers, and the number of the middle class is exploding in China. But what’s more relevant for Logitech in China is the number of people that are using the Internet in China.

So, this year, we are estimating the number of people using the Internet will be over 500 million people in China. We know that people are much younger than their counterparts in the western world. We know that people are spending a lot of time consuming music, gaming, video and other entertainment on hand. And we also know that in China, outside of the work or study, we don’t have a lot of other activities like sports. So, there is still a lot of time online. That has a lot of implication on how we go to market in sales, how we go to market in marketing, and that also impacts our product strategies in China.

The PC is growing very quickly in China, and we project that trend to continue for the next five years. We are seeing this growth in the laptops, we are seeing this growth in the desktops, we are seeing this growth in personal computers and w are also seeing this happening on the business usage front. So, there is no doubt that the product around the PC screen will be one of the key business driver for Logitech China in the next five years.

As you can see, this might look like a very busy chart, but it’s not, okay. On the left here, what you can see is basically the Tier 1 cities. It’s still a very big part of the PC market in China. It’s still growing very quickly at mid teens. And other important point on this particular slide is we are very seeing a lot of growth coming outside of Tier 1 markets, the Tier 2, the Tier 3, and Tier 4, and this very consistent with our business results in China. We have seen a lot of growth outside the Tier 1s. And so, the geographic expansion in China is a key to our growth strategy.

So, very quickly I will take you through our progress in China. So, FY11 was actually the first year that Logitech have placed a lot of focus in China. We established China as an independent region in FY11, We have put a four-year business plan together, four years of strategies together. We have been executing our strategies in China. And we have achieved some early success. We, for example, in the past six quarters, we have been driving more than 55% of revenue growth in the past six quarters. And second, as Guerrino mentioned earlier, now China is already projected to be the Number 3 country for Logitech worldwide whereas in FY10 we were Number 10. And also impact against a very aggressive business plan we have put together for four years, we are almost one year ahead in both revenue and also in terms of contribution margins.

And I also want to draw your attention to the third point, as a big part of our success in China has been the establishment of a dedicated China product group. And in fact, more than 35% of the revenue here in China this year coming from this group. We are also leveraging these products for other emerging markets and also selectively for some offshore markets.

If you look at this chart, this is for the past two-and-a-half years, quarter-by-quarter, year-on-year growth number. And if you look at it, starting in Q1 FY11, we have been driving more than 55% growth for the past six quarters, and I feel always it can do that for the next two, three quarters. So, the momentum is very good, and the growth has been very healthy. We have seen consistent growth coming from all four of our clusters in China, and we are seeing revenue growth doubling in our Large Format Retailing business and also for Etailer business. And surprisingly to many, the Etailer business in China is more than 20% of the revenue mix this year, and we project that figure to be even higher for next year.

And as the leader of the PCP category, we have been driving the market growth in China. As you can see the chart on the left here, the market is growing at 19% in the past 12 months, and Logitech was growing at more than 44%, twice the size, the speed of the growth in the market. And as a result, obviously we are gaining market shares across all of our key categories in China. So, how do we take what made us successful over the past six quarters into the future? What are the specific opportunities we have for China? We have categorized our opportunities in China into four buckets. As we can see here, the first bucket on the left is we are talking about driving availability of Logitech’s products across China. And back in FY10, most of our efforts was around the Top Tier 1 cities, a little bit of Tier 2, and we had made a lot of progress over the past six quarters in Tier 2 and Tier 3s, and we still have a lot of opportunities in the Tier 4 and Tier 5 cities. So, this is a one big opportunity for us.

And the second one is about the channel penetration. Even in the cities that we are already in, we have not penetrated the channels enough yet. Back in FY10, a lot of our efforts, 90% of our efforts were around the IT Malls. And over the past six quarters, we made a lot of progress in the Etailers business, in the LFR business, and we still see a lot of opportunities out there for the Hypermarkets, for the Netbars, for the B2B and many others as we are going deep in China.

The third opportunity here is about how do we market to the young Chinese consumers in China. And also before, a lot of our focus were on the IT-savvy people. Everybody who knows computers knows Logitech in China. We have a very, very strong brand among that consumer group. By now, over the past one-and-a-half years, we are starting to make a lot of progress around the gamers, around the fashion group, and also music, but we still have a lot of room outside of those consumer group. So, in terms of how we market, how we do marketing in China, brand building in China, we still have a lot of opportunities.

The fourth one is about product portfolio in China. We still have a lot of room for expansion. FY!0 again, a lot of our revenue was centered around mice and keyboards, and over the past, again one-and-a-half years we have been making a lot of progress in video and also a lot of progress in gaming, but we are still playing around the PC screen. We still have the mobile screen, the TV screen, a lot of opportunities for us to grow in China.

So, for each of the opportunities, we have a very simple focused strategy to drive our business in China. The first one is talking about going wide. China is a very, very big country, and the trade structure in China is very complicated. So, to reach all the consumer in China, you have to leverage existing network, to retailers, the big retailers in China, they already have their own customer network. It’s a matter of how do we use them effectively and how we use them efficiently.

So, we have done that very well. As you can see in FY10, the mix outside of the Tier 1 cities was only 45%, in FY10. Now, we have taken that number to 58% this year and by FY13, the mix outside the Tier 2 cities will reach 65%. So, this strategy is working and will continue to work for us in China. I will give you two examples how we go wide.

The first one is in Shandong Province on the top. And we hired, what we call a territory sales representative working with the local resellers in that market in October FY11, and ever since then, we have drove more than 72% growth in the first year, in FY11, and this year we are driving over 120% growth in that market. Another province, Anhui Province, next to Shanghai, we also hired somebody in September FY10, and for FY11, FY12, we would have driven more than 300% growth in that particular market. So, this strategy, once we put in the resources and also executing our strategy locally can drive very fast growth in China.

Very quickly, moving to Go-Deep, our second strategy. Going deep means winning and winning in the stores, the point of sales. So, we have a dedicated team now in China what we call the retail sales representatives. Their key roles are visiting the stores after next stores, okay. And when they go into the store, they have three objectives. The first one is to selling the required SKUs and also selling our new products.

The second one is when they go into the store is to fight for the shelf space and make sure the product are merchandised the way we want the product to be merchandised. And the third piece is to capture of the opportunities in the store to make sure we have a very strong Logitech brand presence. As you can see in the photos here that our RSR can make a huge difference the stores. And by the end of this year FY12, more than 12,000 retailers will be directly managed by our RSR team. So, we are making a huge impact at the point of sales and when we launched new products in the future within a matter of two weeks, we will see our products already on the shelves. Very few people can do that in China in our category.

And centered to our go-to-market Go-Deep strategy is the model stores. The model stores are stores owned by our retailers and they are 100% selling Logitech products for us, and they are partners for the long term. And objective we have for the model stores is to have a platform allocation for consumers to come, to touch and feel a Logitech product. We know we have better quality of products, we know we have a product that consumer really likes if he can touch and feel it. So, it’s also with an up-sell and up from the low-end product to the mid-end to the high-end. If people don’t touch, they can’t tell the difference, we cannot ask so. So, this concept has been working for us. We have now 25 of those stores in China and we plan to have around 60 by the end of this fiscal year. That’s our Go-Deep strategy.

And in terms of Go-Young, talking about how we market, how we build brand among the young consumers in China. So, this year, working with our global marketing teams, we have rolled out six marketing campaigns in China. And for China, for the first time, we brought in a concept of integrated marketing campaign. Basically what that means is we will have above-the-line activities, we will have the below-the-line activities, also have sales to activate at the point of sales. So, we will have a campaign of the 12,000 stores I talked about, you can see our brand image, you can see the campaigns, and you can see the online etcetera. So, this is one of the things that we are doing very well this year as to work very well. And also you can see from the six campaigns, they are very young, very, very fashioned and dynamic. And also, even though they are Logitech, but they still have a lot of very strong Chinese flavors in the campaign visuals we have.

To demonstrate to you how we run this kind of integrated campaign, I will use our Colors & Patterns campaign to give you an example. So, starting with online, because in China, there’s a huge online population. We talk about over 500 million people online. So, online marketing is very critical to us. So, we have the online game design where you have all of this colors and patterns flashing out, the consumers have to use their models to catch those 10 SKUs we have for the Colors & Patterns, and if they are able to do that within 12 seconds, they can have a chance to win a prize. So, it’s a consumer promotion. So, during the two months of campaign, we have had more than 500,000 people playing this particular game.

And also, online, we have developed two viral videos for this campaign. Those videos are, one we posted them on a major Chinese Website, and also we give them to the key opinion leaders [ph] for them to pass on to the social networks in China, and it was very well accepted, and over 3.8 million [ph] clicks we got on those two videos for this particular campaign. And I will show you one of those videos. This is called the Magical Palm, a very famous Chinese martial art and how that relates to our model.

[Video Clip]

Do you like to take a picture? It was very well-received. And also in addition to the online activity, we also have gone beyond the typical IT magazine into the lifestyle in terms of our editorial articles, our PR campaigns. So, you can see, I mean, what we do is very fashioned, very young, very dynamic. It’s a bit different, it’s a very young Logitech brand. And I talked about above-the-line and below-the-line. So, on below-the-line, you can see, we have a lot of outdoor advertising and also advertising at the point of sales across 12,000 outlets that we manage. So, you see consistent campaign images across the country, wherever you go, whichever cities. And the impact has been very, very good.

Firstly, it drives a lot of revenue for us for Colors & Patterns SKUs and also it helps us to build a much younger, much more relevant Logitech brand. Now, based on our tracking before and post-campaigns, brand KPI, the results were very, very good. So, we have been continuing to do more and more of those campaigns for China in the future.

Go Broad, our product strategies are basically built around four panels. One is about going broad. So, we have to expand beyond the mouse and keyboard and beyond the PC screens, and there is a lot of opportunity for us over there. And also, about going heavy on music, actually within two weeks, we have a huge launch of UE products in China. That’s going to happen, we already have six Chinese artists lined up to support us as ambassadors of our UE product in China. And so, we have a big effort behind our UE campaign. And obviously, wireless is a big opportunity for us in China. We have seen over 100% growth in the market for wireless. So, the whole wireless adoption in China, it’s just getting started, and we are seeing tremendous growth and we want to faster that growth. And also we want to continue to build our leadership in this particular category.

And obviously, our product, we also have to go young, and we want to have beautifully designed and nice looking products for young Chinese consumers. So, those examples of, one, we have launched in China this year and we will be doing more of this in the future.

So, that’s basically the four strategies that we have put in place for China, the Go-Wide, the Go-Deep, Go-Young, and also Go-Broad. And of course, with all the great strategies in the world, if you don’t have the right foundation, the organization to execute it, then that strategy doesn’t mean anything. And I think we are very happy with the progress we are making on the people front and organization front.

As you can see here, not only we have built, developed our regional management chain based in Shanghai. I am personally based in Shanghai as well. We also have localized management teams for each of the four areas in China. So, for each area, we have a senior, what we call Area Sales Managers leading this organization. Within his organization, we have people dedicated on trade marketing, what we call TMR. We also have people dedicated on reseller management to develop the territory Go-Wide. We also have a RSR to manage the retail, Go-Deep. So, it’s an integrated sales and marketing organization that we have put in place. And we are happy to report that a very big percentage of the management team are already underground and are kicking in. So, this team will start to make it more and more impact as a point of sales as we move forward.

And so, we have the strategy in place. We have been executing against it. So, the team feels very good. The China team right now, we feel very motivated, we are winning and we have set up a new target for ourselves for a new vision. So, by the year FY15 and we aspire to have 10 times of the revenue than where we started in FY10. And that’s the same case for our contribution margin. And also by that time, hopefully, we will be more than 10% of the global Logitech revenue.

I won’t go into the details of our vision line by line, but I want to draw your attention to the last one, which is the Employer of Choice in China. Our teams are passionate and we are very committed to make, to develop a very strong local China Logitech culture where we can attract, where we train, where we can develop and retain top talents for us. I think if we are able to do that, we are very confident we can deliver the vision that we have set up for ourselves in China.

So, that’s basically the end of my presentation. In summary, we have put together a strategy. We feel very good about our strategies and we have been executing against those strategies and the results has been very good so far. And we still see a lot of opportunities in China in terms of product distribution, channel penetration, and brand building, and also category expansion. So, lot of opportunities for us in China. And we feel very good about the organization and also the foundation infrastructure that to sustain the growth in China for us. We know it’s a long journey, the plot in China and we are just getting started. It’s a lot of a challenge ahead of us. But we have a very good start. As the Chinese saying that a good start equals to half the success. So, we have a very good start, and we feel we are already happy there. And I am very confident that we will become a very good growth driver for Logitech worldwide, and we feel we are going to build a very solid business for China in the years to come.

So, that’s the end of my presentation, and thank you very much.

Michael Helmbrecht

Good morning. I am Michael Helmbrecht, Lead Product Marketing at the LifeSize division. And I am happy to talk to you this morning about our view on the market, share some analyst data on trends and where we see them going. And then really, what I want to talk about is our strategy of how we grow in this market, very much looking at how we have grown over the years since our inception in the last six years that we have been shipping products through innovation, and the areas where we think we can accelerate our growth through further innovation, building on the technology foundations and team that we have to disrupt this market and gain a larger share than we even have today.

So, I want to look at the market from two standpoints. The first is a fairly new one, this is from the Gartner Group. Gartner just started really doing market forecasts on the video communications market his year. Prior to that, it’s really been Frost & Sullivan who I will also show, and another end of the panelist firm we work with closely called (inaudible).

This one is interesting and I have simplified it for our purposes here. Because while it continues to show that video conferencing from an endpoint that goes into a conference room or PC software on your PC or Mac or mobile device, as well as the infrastructure, and by this I mean devices that go on a customer’s premise to allow them to run a video conferencing network. So, this is multisite bridging, streaming and recording technologies, firewall traversal capabilities, directory services, all of the things you need to run a video conferencing network.

That continues to be a large and growing market, and it’s one in which we at LifeSize have continued to gain share, both on the endpoint side where we began and where we have been the technology leader and the innovation leader since our beginning, over six years ago shipping products, but more recently in that infrastructure space, of customer premise infrastructure by building products that are higher quality, higher performance, but that deliver a better total cost of ownership to our customers. We have been doing that for a little over 12 months now, and while we don’t disclose our share as part of Logitech today, we continue to grow it a premium to the market there in that traditional model.

But what’s really interesting about what Gartner pointed is, is they articulated and put a number against the trend that the other analysts are speaking to but have not yet sized. And this is that there is an opportunity in the market for the infrastructure market to change. And that can happen in multiple ways, and I am going to talk to two of them today.

The first is the idea that for companies, for many organizations, infrastructure, the ability to build out a network to support all your users, all your employees, using video calling from their mobile device or from their PC or their Mac or from any of the conference rooms that they use everybody can be cost-prohibitive from a CapEx standpoint as well as an ongoing operational maintenance. And it also tapped the skill set that many companies don’t have or really don’t want to develop. And so, like many other industries, they are forecasting – many other industries within tech, their forecasting is that there will be significant growth in an emerging infrastructure as a service market that takes those complexities away from companies and brings whole new user communities and whole new work groups into video communication in ways that we have in today.

We certainly believe that we can continue to grow at a premium in the core on-premise infrastructure and endpoint markets, but we absolutely intend to lead in the infrastructure of the service market as well, and we think that Gartner, whether they are exactly right in the timing of the size, directionally, we think this trend is essential and we are investing heavily behind it.

So, this is a view from Frost & Sullivan, and it’s a market share view, just of the infrastructure market. This is a market that has been defined historically by very high cost, inflexible, hardware appliances to solve problems. So, unlike most sectors of IT where there has been a trend towards more of a software-based model, that’s still nascent in the video collaboration and generally any real time communication market overall.

What that means is while we are gaining share through higher performance, higher quality, more accessible and cost-effective solutions in this space, we think there is also an opportunity much like there is in the cloud infrastructure of the service world, there is also a significant opportunity for us in the customer premise, on-premise world to gain market share in that market through disruption and again through innovation, which is the theme I will keep talking about. By moving to much more modular flexible solutions, and this taking advantage of trends that exist in the rest of IT, but that really aren’t there yet in our market, and that’s frankly I think the incumbents have some (inaudible) because of the revenue streams they have by the hardware, we don’t encumber ourselves with that, both because we are newer to the market, but also because we think the opportunity here is substantial and we have to lead and that’s how we will grow.

So, LifeSize, we talk about this idea of relentless innovation, and it’s sort of a cultural theme within our division and particularly within our engineering community. But it’s our view on a changing market, and it’s the idea that, that if you want to control the future, you have to invent it. And so, very much we come from a perspective that we have to create products both hardware and software that works together that changes the way people use our technology. And frankly, that’s what we have done from the beginning. So, one of the things that I would like to point out, there is often a question of, well, you are Number 3, you are small, you are six years into the market, Cisco is a behemoth, Polycom is larger than you as well, how do you go from being Number 3 to being Number 2 or Number 1. And that’s absolutely our goal. It’s the question how fast we can get there.

And our point of view is very clear. Number 1, we win innovation. We win through taking risks that appeals to customer needs that our competitors are reluctant to take, because it puts their core existing business at risk while they do so. We take it anyway. The second piece is we believe we can do it because we have shown year-after-year from the day we began that we can disrupt the market by taking our diagonal approach to the way we bring technology to market, bringing higher-quality solutions that are more cost-effective, that are easier to use and systemically simpler for the IT organization to deploy. We did this from a recurring session with life-sized room, which was the first mainstream true HD product in the market. We then cost reduced the same technology into small form factor into a product that’s really redefined the market, and a category for LifeSize Express for us.

We brought a whole line to market in 2009, two years ago, but there is really still nothing else in the market that matches in terms of quality, bandwidth efficiency or ease-of-use. A year after that, we jumped into the streaming and recoding market, taking a totally different approach that our competitors have, tightly coupling the functionality to room-based video communication systems for company meetings, executive communications, presentations and training, and I will talk more about that.

That then built into infrastructure bridging. We have always had the ability to bridge sites together in a way that our competitors have struggled to match within endpoints, within rooms, but now we do it at a much higher quality level and much more accessible cost point in the infrastructure space with the Bridge. This year we are moving faster than ever. We bought a company called Mirial in Milan, Italy that’s by far the leader in mobile video calling and standard base way, I will talk about that.

We also brought two new very existing things to market. The first is a product called Passport Connect, which is a reduced cost endpoint that brings HD to more people and more places. And finally, I talked about before about the trend towards cloud infrastructure, the service I will talk about, are announced and soon to be generally available service called LifeSize Connections.

So, five focus areas. That’s the past and some of it’s kind of almost the present, but as you look at our focus areas against this market and where we innovate to grow and disrupt, the first one is Mobility. We fundamentally believe that for a video to become a mainstream technology, you have to be available to anyone, anywhere on any device on whatever network they have accessible. We believe that streaming fundamentally combined with multisite calling. So, by directional calling in some sites and streaming to other sites, the hybridization of that is a disruptive technology that can change the way certain applications or certain news cases are addressed, and I will talk about that.

Cloud, we are betting very heavily on Cloud with a unique approach, with our infrastructures and service offering connections. And we continue to simplify and expand the market for portable systems. We won’t touch as much on the core on-premise infrastructure side because it speaks to announcements that are soon but not yet made, but I will give you a sense of where we are going to redefine that category as well.

So, the first focus area is Mobile. This has gone from being an interesting area to IT organizations to being an essential area in a very short period of time. And certainly, this tracks to the bring-your-own-device trend in the IT industry and the consumerization where – look around the room. How many of us today are sitting here with an iPad or an Android tablet or an Android phone or an iPhone, the majority. Two years ago, very few of us would have anything except perhaps the corporate BlackBerry. It’s a totally different market. And what’s changed is in most environments, workers expect to be able to bring those devices in to the workplace. Well-documented trends, the recent channels have talked about it extensively. It’s certainly what we see.

So, what that means is users need, organizations need the ability in a secure manageable way to extend video calling not just to their conference rooms and the people on PCs and Macs, but also to the remote user who might be in a hotel or an airport or a cab on a 3G, or a Wi-Fi or 4G connection that has a tablet or a smart phone and let them participate and have bidirectional video calls and share data and be part of that staff meeting, the much richer way than a simple audio conference can’t. That’s why we bought Mirial, by far the clear leader in this space, the broadest and the fastest moving.

This is something we built a while back for a launch we did, but I use it to highlight. Our industry is rife, by that I mean the video collaboration market, video conferencing market rife with claims and the claims are generally future-driven. What we like about Mirial is and that team which is based in Milan. It’s a small team of about 20 people, almost all engineers. They don’t make a lot of claims, they deliver. They are extremely agile. They have demonstrated for a very long period of time, but they can take a very portable extensible approach from platform-to-platform, and now, in matter of weeks, when a new operating system version or a new device comes out from HTC, Dell, Motorola, Apple, you name it, they can be on top of it in a way that our competitors struggle to do.

So, while there has been tons of announcements in this giant bit of white space here, Mirial has been steadily and consistently bringing out more devices to support whatever employees bring into the organization wherever they are on whatever type of network connection they have. There has been a bunch of recent announcements on iOS 4 from smaller competitors. Polycom got into the game recently and said that tablets should be part of video calling, but notably apps in our smart phones which are four times larger in the market than tablets are today. We don’t make those distinctions, and the important thing here is that breadth matters in a market where users bring their own device. You have to support smart phones, you have to support tablets, you have to support Android, you have to support iOS, you have to support multiple manufacturers.

We support more than 35 devices today and counting. If you put everyone else in the industry together, they don’t’ even come close to that breadth. It’s a huge competitive advantage, it’s one best buying. The other piece tied to breadth is speed. Speed of development, speed of agility in a changing market. This team was able to launch iOS 5 support the day that it released. We launched iPhone 4S support the week that it released. Nothing has come out from our competitors and won’t for a while. And it’s part of the changing market.

The reason that’s important, CNET put out a report today that said 40% of iPhone users and iPad users have already upgraded to iOS 5. It came out three-and-a-half weeks ago. If you don’t have support for it and everybody upgrades to it and your application is dead, it is no longer useful. You have to lead, and that’s what we are doing with Mirial.

So, another area that we think is really a highly differentiated approach to market is we combined our capabilities for encoding and decoding video on room-based appliances, our endpoints, and enable people to without support of IP walk into a conference room, press a single button and start streaming and recording an HD video call to one site, to multiple sites on an infrastructure bridge, to thousands of people on the Web to who just access it via a browser. It can be secure, it can be decoded, but it is exceptionally simple. There is nothing on the market like it. Cisco has nothing like it. Polycom bought a company called Accordent to try to be like it and still has nothing like it, and it’s redefining the way companies and universities frankly adopt certain news cases like education, lectures, corporate training, corporate communications. This is picture of Guerrino De Luca, our last company meeting a couple of weeks back, but this is how we use it, and I think it’s an illustrative use case, this is how a lot of companies use it.

We have a multisite call in HD between up to 16 sites around the world or even we can do it with up to 48 if we want, and then we can have hundreds of users live around the world in a web browser watch this, toggle between the presentation and the video or watch both at the same time in HD, they can chat questions and they don’t have to be in one of the rooms. And if they miss it, they can come back and watch the whole thing on demand, and it is just as rich as if they were sitting in a conference room participating. Nothing else like it in the market, and it’s something we continue to invest behind.

Another focused area is Cloud. We think infrastructure as a service is a transformative technology for this industry. This is something that as part of the Logitech acquisition, we have had a unique set of assets that we could invest behind. So, the combination of a group called SightSpeed that was bought by Logitech shortly before LifeSize was bought, the combination of some other technologies we have around firewall traversal and bridging, and then the rich devices we have that Eric will talk to on the B2B side around cameras and headsets and others to equip the mobile user on their PC or their Mac or sooner iPad or Android device and smart phone for this service. It gives us a unique set of assets that have been in the market in various forms for a long time, but now come together as really a first of its kind turnkey infrastructure to service offering that connects conference rooms to mobile users on whatever device they have with single clicks.

We take away all the directory dialing challenges that customers face. We take away the problems of enterprise firewall traversal. We take away the complexity of bridging. We bring something that’s very Skype-like in its simplicity, but make it enterprise grade in its manageability, its scalability and its performance. And what we are going to do with this to our partner network is enable customers really in three ways. First, customers that are new to video, that may not have the CapEx or the IT skill to deploy a full-video infrastructure. Second, bringing customers that have unique user groups that are difficult to support with video conferencing with an on-premise infrastructure that you want to operate, folks that are highly mobile and that work from home offices for example, like sales people and tele-workers in general, sales offices, connections into partners and other folks outside your firewalls. So, we can enable those work groups in use cases in a way that just really even practical or possible on-premise.

And third, overtime will be a hybridization between this and the on-premise world. There is really nothing else like this on the market. Cisco has announced a service called Callaway. It’s U.S.-only, it’s targeted to SMBs, it does one function only, which is firewall traversal. This is a very different thing. Polycom has announced a consortium where they are going to try to get all the big carriers in the world to federate, and we wish them the best of luck. In two or three years, if that’s working, we hope to have several hundred thousand users already running on this that will already be satisfied. We think that much like mobility, this is a space where execution and speed are essential, because it is changing fundamentally week-by-week and month-by-month. And so, we have the assets within Logitech now, and we are about to be in market there generally globally, very shortly with something that we think will be highly disruptive to the incumbents and enable us to gain share in a whole new set of customers.

Complementing this are devices that are far more accessible. So, with connections, with the service, we will be able to bring to market a product called LifeSize Passport Connect which is the first of its kind, but the first of many. It simplify the user experience of deploying a device, of making calls, of having a more accessible technology from a cost standpoint that could be put into a home office and yet doesn’t burden the PC with encoding and decoding video while you are also doing other workloads, which many organizations find attractive as a supplemental product. But we really optimize something for this cloud environment. And this is about a third of the prize of the next closest comparable device in the market today (inaudible) connection service, and by the way, the next closest device in the market is ours.

Compared to a true competitor in the market, it’s 20% of the cost of anything outside there. And part of what makes that possible is our own technology as well as now leveraging the USB webcam technology from Logitech to capture new HD cameras that allow us to cost reduce and simplify the model and you will see a lot more coming like this, simplifying the experience, simplifying the deployment.

Finally, and the one I am just going to touch on, but not tell you too much about yet that’s not announced is redefining infrastructure. So, I said in the beginning that we are attacking the infrastructure market fundamentally in two ways, because ultimately infrastructure is core to how people deploy video and therefore how you get to all of the other devices that people use, whether that be endpoints or webcams or headsets or anything else. If we can control that for a customer and give them a better experience, that’s more affordable, everything else will follow.

And so, on the one hand, we are attacking the market through a very aggressive infrastructure and service for customers that lack the CapEx or the skills or the desire to build their own network. On the other hand, the on-premise market is still attractive and rapidly growing. But is rigid and monolithic. Customers have to buy a technology in fixed server [ph] based blocks ahead of the curve of what they are going to need, because they are not modular and flexible. And we believe we can introduce products that are where the licensing can be scalable, where applications can co-exist, and where we can give customers much more flexibility to manage video conferencing the way they do other applications within their data center on their preference. This is not revolutionary technology.

This is leveraging technology that companies use day in and day out today. They run their data centers, but the application of it to this space is highly different than anything else that’s been announced or that we anticipate coming anytime soon from our competitors, because it is so different and so disruptive to the incumbent revenue models.

So, with that, we very much believe at LifeSize, I said in the beginning, you have to invent the future and we have done that sustainably overtime. We certainly are making more bets and accelerating those bets in areas like mobility and streaming and multisite collaboration, and cloud, and changing the infrastructure market, we think those can redefine the categories and accelerate our share even beyond what we have done today. We also believe that, that systemically simplifying the experience for the IT organization and reducing the total cost of owning video and using video wherever you are, on whatever device you have, to whoever you want is critical to the growth of the industry and ultimately to our acceleration in success.

So, with that, thank you.

**

Rory Dooley

Good morning. I am excited to talk to you about Logitech and business and I am the last presenter before your lunch break, so hang with me. The first things is that the opportunity for us for digital peripherals in business is large today and significantly growing. We took a conservative approach to saving the markets, we took out OEM mice and keyboards and we excluded office headsets that connect, the phone to market that we don’t sell and the market to date worldwide for vendors is $1.2 billion.

This market is expected to expand significantly over the next year with a 13% CAGR, driven by the continued growth of the PC market and business as well as driven new role for the PCM business which is being a new communication platform and driving headsets and webcams. So by 2015, we’ll have an addressable market of $2.2 billion. We actually today significantly underpenetrated in this market.

And if you look at our current review, our (inaudible) estimated revenue for Logitech and you divide that by the installed of PCs, we generate 6.6 times more revenue per consumer PC than we do in the business world. So, very significant opportunity for us to drive (inaudible) business. And as Guerrino indicated earlier, we could triple our penetration or more than triple our penetration and business margins. The timing to take advantage of this opportunity is now. We have a number of secular trends that are playing in our favor and that they are going to allow us to drive the penetration in business.

The PC retains its leadership role in business. It continues to be a primary computing platform and the growth is being driven in the PC business in B2B by a refresh cycle Win 7 or Microsoft Office or the expected refresh cycle and grow through Windows 8. Expect developments which is not necessary and I’ll talk more about it, is the shift from desktop to notebooks, actually creates enhanced (inaudible) for us. It is something that helps us drive the most significant business and I’ll talk more about that, especially around mice and keyboards.

The third one which is driven by this mobility trend and the shift to notebooks is the pervasiveness of work spaces; from your home to the coffee shop, to the airport and that pervasiveness of work spaces creates additional (inaudible) for us to solve which (inaudible).

The fourth one is around the consumerization of IT. The increased (inaudible) on the PC purchasing behavior and purchasing cycle drives up (inaudible) for us in business.

And the fifth is the disruption that the PC brings into this market and communication as we shift from hardware communication platforms, namely headphones [ph] to software communication platforms and bring software to the PCs, driving (inaudible)

So, the first one around the PC retaining its role, it’s the crisis, this is example of the US, the B2B PC market has experienced a significant growth driven by the Win 7 refresh, driven by the Office refresh, and that growth is continuing and driving sell-through of peripherals. That growth is significant in notebooks and we are clearly seeing the sales shift to notebooks and businesses, but it’s also true for desktops. The desktop market is growing in business. Tablets are additive opportunity and I’ll talk more about where we see adoption of tablets in businesses, but it usually comes as a secondary device. And the new refresh cycle is expected with Windows 8.

The second one is around the shift from desktop to notebooks. If you think about the desktop peripheral market, it is (inaudible) by a higher attach rate or high bundling rates by PC OEMs of mice and keyboards to desktop platforms. And it is characterized by what is called the system dealer market or system dealer builder markets where you have resellers that bundle desktops with third-party peripherals. In that space, it is either a market controlled by PC OEMs or markets where the brand preference around aftermarket brands like ours is reduced or where the PC OEMs have a higher brand stability. As you shift to notebooks and as you shift to an aftermarket view, our PC peripherals, where the peripherals are not sold, bundled with the notebooks, but as an aftermarket sales, the brand preference for Logitech greatly, greatly increases.

So we have additional (inaudible), we have a strong brand preference, as you see here, this is example of the US for mice, but you see the cross categories and cross regions. Our brand preference increases 25 points that drive higher attach that drive higher brand preference for our brands, that drives also higher ASPs in an aftermarket sales.

The third one is what mobility drives. Certainly, work comes with your wherever you are and you want to be productive and collaborative wherever you are, be it (inaudible), be it at the airport and the hotel room or at work. And that creates new pinpoints around new productivity and collaboration and that creates enhanced opportunities for touch. From open spaces where people bring their laptops, but once you recreate the desktop-like experience, they use docking stations, they use monitors and in those environments peripherals are very critical to (inaudible) environment, be it in the dramatic life of telecommuting where increasingly companies are providing peripherals to work from home, for example, webcams, or be it in the mobile office on the go where we’ve seen a significant adoption of tablets as secondary devices in the last month and that adoption has happened for highly skilled mobile professionals, be it pilots, be it bankers, be it consultants, be it (inaudible) where the prime need is to recreate a desktop-like or a notebook-like in this case experience and with a very, very high adoption rate of keyboards.

The fourth one is a trend that is often discussed around the consumerization of IT that has a dramatic impact also on our category. If you see here, this is in US businesses, but again, the same goes true for example for Europe. The purchase figures of standalone peripherals. The number one purchase figure is coffee on the keyboards, that’s what drives our business.

And number two and number three is around employee preference, because the employee requested an upgrade, because the employee is experiencing pain and wants to (inaudible) whole solution around keyboards, around mice and so forth.

So, the employee driven influence creates significant upsell for products, please, do not want wires, employees want (inaudible) and the consumerization of IT and the (inaudible) fashion, frankly, it’s very nicely also in our product around totalizing environments with a nice mice, with a nice keyboard and so forth, will provide significant upsell opportunities for our business, compared to what was a little (inaudible) mouse business in the desktop space.

The fifth secular trend that plays in our favor is around PC-based communication. If you look at the data from (inaudible), 100 million lines are going to be converted over the next year from the hardware-based platforms, meaning your phone, your traditional desk phone on your table to a software-based platform and that software-based platform where the PC becomes your new communication platform drives a significant demand for better audio and better video experiences and a significant attach for webcams and headsets. So, very different trend from what you saw from Guerrino on the consumer side.

The other secular trend that is being driven by the shift from hardware to software is the decision maker and the buyer in the enterprise, it’s shifting from the telecom department that was involved in telecom decisions and in hardware-based platforms and devices to the IT manager that clients drive – (inaudible) be it Microsoft (inaudible) be it Cisco, be it Avaya and is involved now in the trading on the purchase of hardware devices that attach to the proper platform. That drives a very different behavior and a pattern that plays in our favor, especially compared to the headset vendors that have traditionally been selling for office headsets and call centers into the telecom buyer. The IT channel is experiencing the highest growth around these new peripherals, both of the traditional telecom channel.

The brand preference is shifting towards IT relevant brands versus traditional telecom relevant brands, like headset vendors. And the third slide, the third element is a focus on price levels that are more comparable to our traditional PC headsets, that are comparable to the traditional high ASPs enjoys in call centers and office headsets. So, a number of trends that play in our favor versus the traditional headset vendors that (inaudible) to take advantage of.

And I talked last about what figures come across as developed market trends. The opportunity is also significant in emerging markets and especially China. China alone represents a $250 million to $300 million addressable opportunity for us, very much driven by large government and enterprise, very much driven by mice, keyboards, but also the emergence of communications, driving headsets and webcams. So, very significant opportunity. You say a price tag on that opportunity or a dollar expectation, $100 million in Quin’s realm [ph]. In Quin’s presentation, we are going to go addressable [ph] after this market.

So, the market is large, the trends are playing our favor, but when we really started becoming cheers (inaudible) about business this year, we went to see customers to see if our offering was relevant. And what surprised us is that the product that we develop on the consumer side or for vast majority directly relevant, and not only relevant, but actually appealing to business customers. If you talk to IT managers purchasing our brands, we have a higher reputation with IT managers and CIOs and we appeal specifically to what matters to them.

I told you that the third cause of replacement of the peripherals is coffee on your keyboard or broken peripherals, so their number one requirement is around – for the – and durability of those peripherals. Number one decision criteria for IT managers and one that our brand stands strongly behind. The second element is immensely [ph] driven price. Employees increasingly advising selection, advising the consumerization of IT and advising and influencing the decision process. We are brands to our consumer to our consumer heritage that appeals to consumers. People like our aesthetics, people like our frequency [ph], people like our brands and it’s (inaudible) approach (inaudible) of our brand and acceptance because of the quality and durability.

But the third element is that it is, we are a brand that also appeals to B2B channels, because of the breadth of our portfolio. If you are an IT channel that sells PCs with more low margins for you, you want to drive the highest potential to catch an upsell around the PC and we provide that opportunity versus competitors that are more focused on mice, on keyboard, on headsets, on webcams. It’s an easy sell, when easy sell as a brand and we are an easy sell in the extent of our portfolio to drive that to any PC that gets hold in the business market.

The second element specifically around communications is we are the only provider that can provide you the breadth of hardware that you require for unified communication deployment, from lifestyles in the waiting room to accompanying you in the desktop where we are increasingly driving (inaudible) around desktop peripherals, extending that even further with our partnership with (inaudible) and we are going to continue both innovating this space and extending that partnership. So, as you think about an IT manager that is confronted with a Microsoft Lync deployment, he can partner with one vendor that deploys that platform both in meeting rooms, at the desk and ultimately on mobile platforms.

If you think about a channel partner that is involved in that Lync deployment, he can follow his customer from the meeting room to the desktop and not through the sales to somebody that will take care of the desktop deployment. So, various peripherals, something that’s resonating very well in the market and that we are taking advantage of, nobody else offers that breadth of offering across multiple platforms (inaudible) and across our breadth of portfolio.

So, all that is nice, but it is not – really extensive to deploy, right. The go to market must be, (inaudible) going to take three years and is going to be something that will be detrimental to the company. And there is obviously the question we ask ourselves when we started this business this year and actually what we found out is that the leverage from the consumerization is much greater than you would think looking at business markets, and I’ll talk to you more about it.

The first one as I hopefully showed to you is on the R&D side, this is very, very strong leverage of the consumer product innovation and the consumer product portfolio. We are fueling its obviously pinpoints, because the pinpoints are different, in a field environment, it’s around noise, it’s around privacy, it’s around academics, so the way you (inaudible) different, but the fundamental products are the same, so very, very strong leverage, especially mice and keyboards from consumer to business, the keyboard is a keyboard is a keyboard.

While we are driving innovation in business, but in a very focused manner to address portfolio gaps, especially around the unified communication. The second one is around marketing. We are not trying to be a business brand and try to wear gray suits, we are leveraging and taking advantage of the consumerization of IT and coming with our consumer heritage, coming with our (inaudible), coming with our simplicity, coming with our quality into the business market, employing up actually the systemization of IT to be a relevant brand for businesses. And I’ll talk more about that.

The third one which is most probably the most critical one is around the sales model. And I’ll talk more about how we are looking at sales in business markets. We are looking at it in three buckets where we have both, a high leverage of the consumer organization and also (inaudible) but also where we have elements where we need to build upon this market, but in a very efficient way. And the fourth one is around partnerships which are very critical in unified communications where we have a significant leverage between (inaudible) business and (inaudible) of providing this one-stop shop.

So, marketing, you hopefully saw or you will see at the break some of the videos out there. We’ve brought the new campaign called the New Office that is very relevant to the trends that matter to businesses and CIOs around how do you solve in New Office, how do you equip the employees at home, how do you (inaudible) employees on the go, how do you bring tablets in the enterprise, that is very relevant to the consumerization of IT, how do you bring Mac in the employees, at the same time is very Logitech.

So, it is a fresh campaign that brings the Logitech brand in a seamless way in the business environment. We have been displaying this campaign very successfully (inaudible) through Twitter, through LinkedIn, through You Tube, we have more than 130,000 viewers of these videos on You Tube, so relevant target, so we haven’t gone to 15-year old on You Tube, but those are targeted campaigns and relevant audiences. And we’ve been deploying this campaign in co-marketing activities with our channel partners that have really loved this campaign.

So, let me – let’s spend a little time on the sales model. We have two-tiered distribution model in business. The tier is around distributors, (inaudible) among others and those are direct leverage from the consumer organization. So we didn’t have to recreate the infrastructure, we didn’t have to recreate the contract with those people, we didn’t have to recreate relationships. On day one, we were up and running with distributors, but we’ve had the long-stand and relationships with. As you saw, I think, in Guerrino’s slides, or in Erik’s slides, Ingram is our only very large or is the largest customer of Logitech and is the brand and a distributor that is as relevant in B2B. So, direct leverage, have not had to recreate the sales team, have not had to recreate logistics, have not had to recreate sales operations or anything for infrastructure, it’s direct 100% leverage from the consumer organization.

And the business market around peripherals is basically divided into two major categories. One is called the (inaudible) which stands for direct marketing resellers and our principal [ph] stores. So it ranges from people like CDW or PC Malls to people like Staples Advantage which is the B2B branch of Staples. And the other side of the equation is around value-added resellers and just system integration and system integrators, either people that sell as part of the solution, so you don’t (inaudible) again the unified communication deployment, or people that are specialized in specific geographies or specific verticals. For example, Iron Bow is one of our channel partners, Iron Bow was named Cisco Channel Partner of the Year for Feds [ph] and so, predominantly into the US Federal Government.

So, on the (inaudible) what its size, we had existing relationships. So, again on day one, those are contracts and relationships and supply chains that we did not have to build, those were already existing. What we had to build is a deeper one to one sales coverage with those people. The good news though is that this is a very concentrated channel. In the US, you most probably have six or seven players that represent the vast majority of the market. So, driving a one to one coverage with those players is a fairly efficient model.

On the (inaudible) that is a fairly new channel for us. They’ve always bought Logitech, but almost by chance. And when I first started to visit them this year, they had – Guerrino stole my thunder, the first reaction was where have you been? Why where you not there? We’ve been waiting for you and we’ve been hoping that somebody from Logitech called, but nobody showed up. So, that’s what the first interest reaction. I didn’t have to tell them into what is a mouse, I didn’t have to tell them into what is Logitech, and I didn’t have to tell them why it matters to them.

The critical element is many of those (inaudible) have become really sophisticated around sales of PCs and peripherals by establishing corporate portals, where basically you are a Fortune 100 Company, you now have embedded into your Internet [ph] the corporate model that is managed by one of these (inaudible) where you have (inaudible) peripherals and (inaudible) employees and every system for every employee can directly purchase from that online portal. And then you have a direct pass-through from that online portal to the (inaudible) So, a very efficient go to market.

So when we approached them and asked them what they really from us, do they want (inaudible) in every (inaudible) the answer was pretty simple, they said I want the reason to work with you, financial reason to work with you and I want you to be simple to the business world. So, we responded in an efficient way to those two requests in terms of having a financial incentive or reason to work us, to Guerrino’s earlier point, in many cases, they were – that the fact that we were giving them was higher than with any (inaudible) two-men shop would get from us. So, they had no incentives to do that.

So, we put together a channel program where if you commit to certain revenue levels, obviously much higher than what we would typically from those folks, we give you a discount and we give you the marketing programs. That had been very efficient. We signed 75 partners in the first three months and continue to accelerate that trend around people that were not directly doing business with Logitech.

The second element is, as I said, they want something – somebody that’s simple to do business with. And simple to do business with translates into two things. If I have a question, I know who to call. And to date, I have no idea of who to call at Logitech. So, I want somebody – I want the phone number, I don’t want somebody to call. And the second element is, if I have a bid for 30,000 webcams, 20,000 headsets and 10,000 keyboards as an example, which is a common bid, I want you to give me a price in 24 hours, not two weeks, because I am competing for that bid and respond times and the ability to give me that bid price is critical. So, we set up a telesales organization so that every single of those (inaudible) program has somebody to call to, it’s an outsourced sales (inaudible) so every cost efficient model, but they have a phone number to call and they have a designated person that they can call and ask questions on anything they want.

The second thing as part of this (inaudible) is we put the bid to grid, so specifically established prices for bids based on volumes and we put the bidders together, so that if you (inaudible) and you call us in the same day, we can give you a price, so that you can compete effectively in the bids, very effective models and we’ve seen already very strong growth in the (inaudible) channels which is obviously a critical path to market.

The fourth element of our efficient go to market model is around partnerships, especially in unified communications, it’s a black and white situation, either you are compatible and even certified with these platforms, or you are not, in which case you are out. And we’ve been very successful together with LifeSize in partnering with some of the leading players and providing that one-stop shop deployment around hardware for the major market makers around unified communication. So, we announced together with LifeSize last summer our certification with Microsoft Lync. So we are the only player that is certified with Microsoft from the meeting room to webcams and headsets, providing you the full hardware play deployment.

LifeSize announced that they were certified with Avaya last summer, if I am not mistaken. We announced two weeks ago all our peripherals were certified with Avaya. So, again, if you go to an Avaya deployment, we can provide you the full breadth of hardware attach for your deployment, very critical relationships and you are going to hear more and more about that around one such certification, around co-marketing activities with these partners and around higher levels of innovation together with those partners. So, in summary, the opportunity for B2B peripherals is large today and growing at a significant rate and we are providing the peripherals that allow you to work the way you work is happening today, be it at Starbucks, at home, and office, in the queue, or wherever you wanted anywhere office.

The secular trends are playing in our favor and are driving significant growth in our business, as well as significant preference for our brand. And we’ve built the models based on the R&D side or on the go-to-market that is efficient and scalable to go after this opportunity.

With that, thank you.

Question-and-Answer Session

Unidentified Company Speaker

Okay. We are going to go to a Q&A, maybe I would ask everybody to just take their place on the stage or the presenters. Well, we are providing (inaudible) actually. Give us a second to set up, everybody has to get their microphone, I understand. And the microphones are on the chairs (inaudible) The number of speakers is bigger than the size of the space, so –

Unidentified Company Speaker

So, if you have any questions, just want to raise your hand, I’ll bring a mic to you.

Unidentified Company Speaker

Yes, this microphone (inaudible) maybe on Office (inaudible) so you Guerrino, you said in the beginning that’s too early for you to kind of update your long-term business model, so I was just wondering whether the old one still stands and you might update it or whether you dismiss that and come up with something new at an appropriate point in time?

Guerrino De Luca

You can simply assume that the different business model is not a (test book) but it would be, I think notepad and whether our new business model would be attractive as the old one, possible, but it’s not – we are not (inaudible) say that. We understand, I think that a very clear understanding of those mix, of the margin mix of these businesses, I would say what we set up as gross margin is probably going to spend, but when it comes to the momentum and acceleration of the topline, especially medium term, as well as the total profitability, I think it is – it will be not realistic for us to say, I think it wouldn’t be even – not even achievable, because we still don’t know a number of things needed to (inaudible)

Unidentified Analyst

And then the second question was, you said that obviously you expect within maybe one year to have the product lineup that is exactly where you would like to see it. Now Christmas is coming up and you are going into the Christmas season with what you have on hand, should we expect a particular push from your side to be still able to sell sufficiently into this Christmas season, or are you just going to wait and see what’s happening, or should be expect new product in the coming week still before Christmas, how should we see this year’s Christmas season?

Guerrino De Luca

Okay. You have to think – I think this microphone is not working well. You (inaudible) first of all, our product line is more than bigger, our product line is not as it should be

Unidentified Company Speaker

Is this one better?

Guerrino De Luca

Yes. Our product line is actually very respectable, is not as it should be and so, I have no doubt that we will go through this Christmas with all the energy that we’ve always gone through with Christmas season and I wouldn’t expect any strange behavior on our side that it’s going to reflect in whatever product line we might have. In fact, you’ve seen some new products and there will be new announcements coming, but you see the lineup. The truth is that in order to bring back sustainable growth, we must have better products and that’s the main message. And that process will take (inaudible) you will have new product launches without the Christmas season, and new product launches in the first quarter of fiscal (inaudible) this is not going to be a day in which (inaudible) there would unveiling of the new lineup. So, some lines will perform better than others sooner, but to give you a wholesale approach, look for Christmas next year as plan – you should look at the frontline and see how we executed and most importantly, what impact it has had.

Unidentified Analyst

Ed Barno [ph] to Eric or Quin, so I wanted to ask, what’s the relative size of different channels as discussed, distributors, (inaudible) which one is the most important (inaudible) return?

Guerrino De Luca

Yes, Eric?

Eric Kintz

So, the relative size is roughly, think about DMO [ph] as being half of the market and Wi-Fi being the other half. And there is no – it is one way of getting penetration on the buyer side is obviously critical, because we are addressing half of the opportunity. Medium, long-term, I don’t think there is one that’s more critical than the other. DMO [ph] (inaudible) are basically better penetrated in SMBs, (inaudible) are typically better penetrated in either large enterprise or in specific verticals, like healthcare, education and government. So, both are equally important depending on the dynamics whether you want to – we want to address both the SMBs and enterprise, as well as other verticals. So, both are equally important.

Unidentified Analyst

Does that mean longer-term that we should evolution in products going to the business channel, because the nature of that user might have been different?

Erik Bardman

Yes, (inaudible) the third party is under setting the pinpoints and seeing out of our consumer portfolio which is applicable and the vast majority of that portfolio is applicable, but you see from a product –innovation in new products that are dedicated to business channels.

Unidentified Analyst

Just lastly, going to the Christmas of next year, because obviously, volumes will happen until then.

Guerrino De Luca

(inaudible) That is – your –

Unidentified Analyst

But something between now and then is likely to be Windows 8 and you’ve alluded to – a number of you have alluded to Windows 8 brains [ph] and there is a lot of excitement around it. What does 8 mean to Logitech and where do we the levels of innovation other than a new exciting and barebones mouse?

Guerrino De Luca

Well, Windows 8 is a big deal and I agree with you, this is one of the probably most exciting thing that’s supposed to come up from Microsoft in a long, long time. Windows 7 was actually pretty decent, but let’s drum that, okay. Windows 8 is really revolutionary and I think it reflects the learning of many lessons from Microsoft and we’ll give it back [ph]. Microsoft is great when they can learn lessons from others and they have learned a lot of lessons. For us, it’s relevant across the entire tablet and PC line, I would say there is no particular product. Of course, navigation is a big deal and you can expect things to happen on the navigation side begun. It’s very hard to project, Microsoft is promising a date, who knows. There will be these uncertainties around anything that we don’t control, but Microsoft is, I think they learned many lessons and I believe that our focus when it comes to PC portfolio is very much on Windows 8.

Unidentified Analyst

Are there products other than just the mouse, the Windows 8, of course, Logitech had opportunity to come out with?

Guerrino De Luca

I won’t discuss it specifically at this point. I mean we actually have given you some sneaks of products that do not exist and we usually don’t at this stage, but I thought it was important for you to have a sense of perspective here and – but I would not go further than that.

Tavis McCourt – Morgan Keegan

Thanks. Tavis McCourt at Morgan Keegan. A couple of questions. First, Guerrino, can you tell us a little bit about the timing of a full-time CEO announcement? And then secondly for the gentlemen from LifeSize, on infrastructure as a service, how are you solving the directory problem? (inaudible) require a LifeSize client download on PCs and would interoperate with other standards based systems and how do you go – how do you solve that challenge?

Guerrino De Luca

Well, thanks for two very different questions. Let me take the first one. So, I don’t have a date for replacement. I’m – commitment to (inaudible) everybody learns what they did in the back, they learned a lot or they did in the past. My interest is to find the right person that can lead this company for the next 20 years and will make my life as a Chairman as enjoyable as I was planning it to be. So therefore, I know what we need and I also – I committed to be here as long as it takes to find the right – that person and for that right person to be ready to do this. And I would leave it at. There is no deadline, there is a very active search, there is a lot of interest in Logitech, I am not surprised; one of the few Logitech consumer product company that actually makes things. But are we going to be – we are – the Board and I are going to be very careful in picking the next CEO. There is nothing to announce in the short-term. And now please – I am not sure (inaudible)

Unidentified Company Speaker

(inaudible)

Guerrino De Luca

Okay. We’ll see if it’s – this holds up.

Unidentified Company Speaker

To the question on – Sorry, I am pretty loud. To the question on LifeSize connections and how we address directory. So there is really three issues that service have to solve to be successful.

Guerrino De Luca

(inaudible) interrupt you. People on the webcast are not hearing you, because this microphone does not work (inaudible)

Michael Helmbrecht

So there are three factors that you have to have to make a hosted service successful for business. Directory, which you have added is one, enterprise great firewall (inaudible) second. And then, the third is, scalable, affordable HD bridging. And those who believe this among other things, but fourth and our belief is interoperability to the meeting room based device. Today, it’s really just mobile. There is interoperability in the meeting rooms. To the question on directory, one of the advantages we have building on the (inaudible) architecture that was actually a small scale, early stage business offering prior to the acquisition by Logitech, and then being built into grid, which was consumer offering and that being built into a much more robust business offering as – we’ve got about 10 years of development on building a global replicated infrastructure across sites around the world and data centers around the world.

And what we can have that is unique, it’s very different than the consortium based competitive approach is that whether in the short term on PCs and Macs soon – we’ve announced we will have tablets and smartphones and third-party competitor end points able to participate, not just LifeSize. We can have one unified directory that is securely partitioned by customer.

So each customer can have their own console operational environment, just as they would in a non-premise world, but they can opt in to allow their users on their own or the companies to tie to others and it’s not a complicated federation mechanism, it’s purely a allow or disallow and you can’t search. So if you know, I am Helmbrecht and I am on the service or Michael Helmbrecht you can find me, but it’s not like Skype where you can find every Michael Helmbrecht in the world. So it gives the much higher level security, but it allows very rapid and dynamic extension.

There is also and we didn’t talk about this, the ability to bring in guests at no charge. So for an organization that spends a great deal of their time or workers that spend a great deal of their time externally, you can bring in guests for free that’s from PC or Mac and install a very quick client, and they can participate in calls with you, share data and other four participants service as your guests. And so that’s how we are solving these problems, a very different approach than some of the others that have been announced or anything that’s on the market today. And the initial data results, data feedback on this has been very, very encouraging. So we’re looking forward to launching the general availability here soon.

Unidentified Analyst

Michael (inaudible). You’ve talk several times on the acquisitions, can you give us a sense of what should we look for? Do you want to add another order product category, you believe there are some big candidates or do you want to strengthen some product category that you are in and you think you are not strong enough?

Guerrino De Luca

The general response would be it’s more the latter than the former. We had used, selected small acquisitions to strengthen LifeSize, the two large acquisitions we made, our technologies that have been used within LifeSize and we may continue to do that. But if you look at the traditional consumer portfolio, we’ve always (inaudible), but I believe that we have taken the areas in which we want to play, so most likely – and it’s very hard to believe this forward-looking statement, there may be something that we haven’t seen and all of a sudden, we believe great. But most likely, if we make something, it’s going to be within the categories that we are talking about to make us stronger, in fact they are more differentiated in one of these.

Unidentified Analyst

And what kind of size do we think of, because for me, it seems you are thinking a larger size, at least, from what emphasis you put on?

Guerrino De Luca

I would surprised that it’s going to be a LifeSize acquisition, but again, it’s – we are opening as to a wide set of options in this space. And – but I would say that the primary focus is actually smaller rather than large.

Unidentified Analyst

All right.

Unidentified Company Speaker

Guerrino, we have a request from the folks who listen to the webcast for you to repeat your answer on Michael’s [ph] question about the long-term model, because it wasn’t audible because of the mic problems you are having. So if you could just repeat the status of the long-term model for us.

Guerrino De Luca

The question was whether the long-term model that we shared with you a year ago is still valid. And my answer is, it was unrealistic to consider the model valid. We say that we are building a new model, that new model will – may end up being exactly as same as the old model, but we don’t have enough data today and enough understanding of the growth dynamics of the various new initiatives (inaudible) initiatives to believe that model still holds for the long-term. We know – as an understanding of our gross margin mix, we know that most likely the gross margin targets that were in the model will stay in the revived version, but beyond that (inaudible) you want me to tell. It’s important for us to understand the dynamic of what we are building today and the microphone that is kind of going back and forth even at the (inaudible).

Unidentified Analyst:

Hi, thank you it’s Andrew Strom [ph] from (inaudible). Erik, I was curious, you had in your slide, Quin has said that there has been a shift in buying for headsets from telecom to IT vendors, I am curious you would expand that a little bit, how much of that change things for you, is it that impact on – how far into that are we? Thanks.

Eric Kintz

Yes, it’s something that we’re experiencing in the markets in the peripheral headsets market and businesses, a market that’s we don’t play in. The telecom buyer were buying this Cisco phone and Avaya phone and deploying headsets either (inaudible) or for call centers, that’s the traditional headset business – in business. What is happening and it’s a fairly recent shift, is that you are moving to the deployment of unified communication platforms, be it Microsoft Lync or Avaya or the Softphone side, Cisco on the Softphone side and others. That deployment authority has been driven by the CIO and IT managers (inaudible) And those IT managers are driving the purchasing decision around headsets, but they are going to be attached to the new platform.

So it’s a shift that’s happening, the traditional call center headset market, the traditional office headset market is still driven by the telecom department, but the UC related headsets and webcams are driven by the IT department. And that’s a very big trend for us and it’s critical, important. We don’t play in the traditional market and we do not want to play in the traditional market. It’s a market that is dominated by two brands, Plantronics and Zebra. It’s a market that is well (inaudible) slow growth, but well established with established channels, established players and the telecom buyer that has been buying Plantronics and Zebra for the longer time.

We believe that there is a huge disruption with unified communications, but the disruption is not only happening in terms of growth and increased attach of headsets, it’s also happening in terms of buyer and that change in buyer drive, pressure (inaudible) that are closer to ours, drive different product innovation because certainly you need to attach to PC, not only to a desk phone and obviously we know – we are the leader in the PC headset market. It drives different channels, because suddenly the IT manager doesn’t necessarily buy in the telecom channel, that IT manager buys whoever he buys those peripherals, but could be a DMO [ph], it could be (inaudible).

So, it is a very consistent channel without a product. And the grand preference changes dramatically because you change from a telecom buyer that is very focused on acoustics in call center environment to an IT decision maker whose first priority is deploying Lync and headsets is something that he needs to attach to have a better acoustic or better audio performance, but the desire around audio quality is not the same as a call center environment. So all those – that shift in buyer is of critical importance to us, because it dramatically plays (inaudible) in terms of who buys, what brand he prefers, what channels he buys into, and what type of products he buys, all those trends play in our favor, plus [ph] Plantronics or Zebra.

Unidentified Analyst

Okay that’s really helpful. And I was curious as I think about on the example you said with Lync for example, as that shift happens, you have a partnership with Zebra as well I believe, so is that shifting to your products or is that shifting just more to Zebra and you guys get benefit from that partnership, how does that play out longer-term?

Eric Kintz

The Zebra partnership is critical for us and is going very well and you are going to see announcements in the next week to further accelerate that partnership. It’s – to a great extent of time to market element. We had the commonality of interest where they are looking at similar trends and looking at the opportunity that we have with their product, especially in the U.S. in IT channels and be relevant as a brand to IT decision makers. At the same time, we were looking at the breadth of that portfolio and innovation, and bring that perhaps to market. Over time, you should expect the blend of our innovation increasing the well [ph] drive innovation, so that’s several times, then you see peripherals, the webcams and headsets, as well as continue to extend the Zebra partnership. So we’ll be very aggressive in the headset space and expect more and more from us in that space.

Unidentified Analyst

Thank you.

Unidentified Analyst

(inaudible) with Total Asset Management. Two questions. First regardless of where the tablet is used as a productivity tool or as a video application, would you expect a lower price point with tablet in relation to desktop to factor in to how much the consumer is willing to pay for accessories, attach the tablet as opposed to desktop? And the second question is regarding Europe, what actions are your channel partners expecting to take to repair those relationships and will it result in permanently lower profitability in Europe than has been experienced in the past?

Guerrino De Luca

On the kind average selling price impact, today you can buy a PC desktop a lot cheaper than you can buy a Tablet, so I don’t know exactly what – I don’t know exactly what you are referring to. Consumers, and either it be notebook price winning [ph] studies that say people do not make pricing decisions with touch and broad comparative view, people spend a fortune for something and then want to be a very cheap on something else and vice versa. People value a lot – differentiation of a lot, for example PCs, they are all the same in the consumer mind, while in my house, peripheral is different, it’s – there is many, many buying and people do not make decisions (inaudible) because I spend 200 for this, I don’t spend 200 for that. But somebody (inaudible) multiple categories I believe it typically true – it’s true in ours. Well, I don’t expect that particular diver to be more significant in the last two or three year, let’s say in terms of general pricing.

On the European side, hard to say, I believe that there is no reason our margins and our profitability should not lead back to what it was. Other than other market dynamics, I don’t think we have (inaudible) we have to pay a bribe to customers, that is not, that is not my expectation. There is no repair that is going through, a very reasonable, realistic expectation of what each party can bring to the business. No, I don’t expect this to – that permanently damage our profitability in Europe. And there is a – revisiting this entire program and understanding where we apply, in which subject to progress, we apply the incentive that we decided to apply everywhere.

What do we – what kind of pricing levels we are defining to allow incentives to resell at a certain period, it’s very complicated. So what we want to do is avoid to do this in bits and pieces. We have managed the short-term, we’ve clarified a number of things in the short-term and that accounts or the improvement in Europe. And now we are trying to find what's the best makers that have turns that reverse it (inaudible) that the all that (inaudible) we suppose to have without having all the complication to it. So we are looking on much improved version of what we did and we have to be that to roll it out to our consumers and it could (inaudible) away and that’s how produced (inaudible).

Unidentified Analyst

(inaudible) again question for the gentlemen running China for Logitech. A lot of companies that have ramped up business in China over the last several years have at some point during the growth phase. (inaudible) channel inventory as used because it could be some more difficult to understand sale through versus sale in. how are you managing there given the accelerated growth rate that you are seeing right now especially as get into tier two, three, and four cities.

Quin Liu

I've been moved forward to China I mean we have a sales team (inaudible) on the ground working with the our customers very directly. We have very discipline way of checking the inventory on week by week bases. So we are not really pushing the inventory in to our channel partners. To us I mean coming from the FMCG background, well inventory exceeding our DCs or exceeding our customers the inventory is exact is the same to us. So we have to achieve well understand this process and we are discipline to manage our inventories that way.

So, the kind of growth we have seen in past 16 months or 18 months is been true growth as the sale (inaudible) sale out data, not really the depth of selling. Yeah, in fact next step we are moving forward for china were separating the teams from the selling from the sales (inaudible). So, and also we are separating the sales (inaudible) and sale out, as you saw in may presentation its RSR basically have achieved is out the drive in and sale out. Tiers are the chief driving of the sale (inaudible), so we have very clear with possibility at each point of the channel, so that risk actually it minimize because of the segregation of rolls and responsibilities in China (inaudible).

Guerrino De Luca

Let me add to this because it’s a critical point that was my (inaudible) question long-time ago about China (inaudible) you – there is a black hole out there. One of the things we wanted to do because – this to gain somebody and understands exactly what this means and I take the probably bad thing in our China strategy is the go to market or channel (inaudible) strategy that could implement it, it’s absolutely something, you cannot say that it should – will not surface, but I think is probably the best go to market strategy we have worldwide. If there is no more questions, I think (inaudible) I hope you will stay for lunch and thank you for being here today.

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