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Logitech International SA (NYSE:USA) (NASDAQ:LOGI)

Morgan Stanley Technology, Media & Telecom Conference Call

February 27, 2012 7:15 pm ET

Executives

Erik K. Bardman – Senior Vice President, Finance & Chief Financial Officer

Analysts

Francois Meunier – Morgan Stanley

Francois Meunier – Morgan Stanley

Okay. So, maybe we shall get started. I'm Francois. I'm covering European Hardware in London and we have Erik Bardman, CFO of Logitech today with us. So, maybe Erik, we had you with us not that long ago. Maybe the results were not as good as what could have been expected. So, maybe we could just come back to that and what happened to – with the earnings in the latest results?

Erik Bardman

Yes. So, there'd be a couple things I'd say. When you look at, so, we're three quarters into our fiscal year. We end our fiscal year on March 31. So, three quarters in there's a couple things I would point out in terms of not being exactly where we wanted to be.

In the first quarter, we had a large charge, non-cash charge that we took related to Google TV, a Logitech Revue product that we built. And unfortunately, it did not work out the way that we wanted. We also talked about, over the course of the beginning of the year, we had some channel issues that we needed to work through in our European region in terms of some channel and pricing programs that we rolled out that were not clear, not executed well, right, from that perspective. It took us a couple of quarters to work through that.

Those two items together, when you take a sort of a broader 12 month view on it, that's close to $100 [million] of operating income with the Revue charge, and the costs of Revue more broadly being a little more than half of that, the rest of it being related to the channel problems in Europe.

So, those are the things that, fundamentally that we have had as challenges over the near term. The key thing I would say in terms of how we look at it, is that we know what we need to do different from an execution standpoint. We have made very good progress in working through those channel issues in Europe. And we even reported in this last quarter, our Q3 results, our channel inventory in Europe was down 22% year-over-year, so we had made good progress. I think we’ve worked through the bulk of those issues.

Logitech Revue is completely behind us. We've sold through all of our existing inventory. So we have no further financial exposure to it from that standpoint. And when we look forward, we're focused on, first and foremost, what we have to do with our product portfolio, where we need to focus it, how we need to have a really clean value proposition for the consumer. That’s a little bit of some of the recent challenges and I'm sure we'll talk more about what we're looking at when we look forward.

Francois Meunier – Morgan Stanley

Okay. So before I forget, I need to read this about the disclosures. And obviously you can refer to morganstanley.com research disclosures on my site. Sorry about that. Now, in terms of what you've been describing, obviously Google TV is something we need to forget about. In terms of what's going on in the channels, how have things been improving in the past few weeks since you've been talking to us in the market?

Erik Bardman

Yeah. So, I mean, we have a stated approach and it's not changing now. So we don't provide in-quarter guidance. What I can refer to a little bit is what we talked about when we reported our earnings back at the end of January. What we fundamentally saw is, like I said, is we have made good progress in terms of getting the channel to the right level of channel inventory for demand in Europe.

In the Americas, what we're seeing is we're still seeing retailers that are nervous in general. It's hard to pinpoint exactly why. I mean, part of that, as we saw in the quarter, was related to the fact that PC sales have continued to be weak. And a lot of your consumer electronics retailers are generally looking at how much inventory do I have? How do I manage that well? That has not changed and we don’t see that changing in terms of as we look forward a little bit.

More broadly for us, the places where we saw really nice growth in the quarter, we saw very nice growth in the emerging markets in China. It's interesting for those of you that don't know us as well as a Company, a little over two years ago, we talked about the fact that we wanted to invest and we wanted to grow faster in the Chinese market. And we set ourselves a goal of trying to become, making it our third largest market over a period of time.

The good news is that we actually achieved that goal faster than we set out. And we're in a situation now where it's actually on track, in the not too distant future. That should be our second largest market behind the US worldwide from that perspective and it continues to grow nicely.

In terms of the rest of how we look at the quarter, we've made it really clear that the number one thing in front of us is changes and improvements we need to make in our product portfolio. It's one of the things that Guerrino, our CEO, is very, very focused on and very, very passionate about.

We have places, for example, in our Harmony lineup where we don't have the offering we need today to win in the way in which we think that value prop presents itself, right. We think we've got an aggressive roadmap. We're working very hard. It will take us some time.

And then, there is a few other places in across the business where we have not made the value proposition of some of our products as clear as it needs to be. And what it's about is that if I've got two or three offerings in a particular category, I've got to make it really clear. If I’ve got something at $20, at $50 and $70, what is it, what's different about it?

Why because historically we've done a very good job of having consumers look at the value prop of what we offered and understanding, hey, for $20 more, I get a feature. I get wireless or I get Bluetooth capability or it works on any surface, those types of things. And in some cases, we have cluttered that for the consumer a little bit. It's really a result of one basic thing. And that is that when we were growing very fast for a number of years off the backs of Windows-based PCs growing very strongly.

You were very well positioned that if I had five keyboards in the market, if I put a sixth one in the market, I'm incrementally better off. And when the market's growing, you're grabbing increasing share of a growing market. If that market slows down a little bit, then, if you're not as clear with the consumer, suddenly you've cluttered things in their view. And so, there's not everywhere in the portfolio, but there's certain places in the portfolio that we've got to do that.

So, you heard it a lot when we announced our Q3 results. You'll hear a lot more about it from myself and Guerrino and the team going forward. That's our number one order of business, because we have to improve execution. We have to do a number of other things we've talked about. But creating the right products that consumers really understand, that's number one order of business. And we know where we have to go improve that.

Francois Meunier – Morgan Stanley

So basically when I go to the shops, what I realize is that maybe today if I'm looking at a $70 product, it's a bit difficult to convince people to buy it, especially because it's – like you have introduced a product recently, it’s a bit like it’s the Touch Mouse. And I’m sorry, this is the pricing in sterling is $70 – £70. It’s more expensive than an Apple Touch Mouse and it feels like a bit – maybe it's too expensive. So, maybe what you are doing today is trying to lower the prices of your products. Is that basically what you are saying?

Erik K. Bardman

No, yeah, let me to be really clear about that, is fundamentally what you want and what we historically did well and we haven't done as well recently is you want what I call a good, better, best value proposition Right, if my best offering in mice is the M600, the Touch Mouse that we just came out with, right, which is completely touch, no buttons or dials needed on it, and it's built for both. It can operate on the Windows – or on the OS platform, but also is built in anticipation of Windows 8, which is going to bring touch to that operating system, right?

It’s s Bluetooth, great battery life, a number of other things. You want to make sure that that's really clear, and then the one that's maybe priced at $40 or $50. You understand what the differential is. But, if I've got two or three in between there, what I don't want to do is confuse the consumer, because if you confuse them a little bit, you're going to force them to do probably one of two things. You're either going to force them to think just price, they all kind of look the same; I'll spend less money, right?

I like Logitech, love the brand, can't go wrong, right, if the value prop's not clear Or, I confuse them enough that they say I'm not going to buy today, right? That's not what you want to have happen. And so, for us, like I say, it's not every part in the product portfolio, but there's key places where we can see it and those are things that we've got to address. It will take us a little bit of time, but that's where the focus and the energy is right now.

Francois Meunier - Morgan Stanley

So, that's probably as well reducing the number of SKUs as well somewhere.

Erik K. Bardman

Yeah, in some cases, it could translate in terms of making sure that you've got the right number. So, it may not actually be in many cases that the number is radically different. But, what it comes back to is the product I'm putting out there – and I'll give another great example where I think we have done it right recently. So, we have the solar keyboard designed for the Mac, right, wireless keyboard, tremendous selling product. It's a $70 or $80 price point. Selling very, very well because what it does in number one, it was designed to look really good with a Macintosh setup, right?

It has custom colors for the Mac. It's solar, never needs a battery. You can stick this thing in – I haven't tested it yet, but our engineers say you can stick it in a closet for six months with no light whatsoever and it will still work when you bring it out, right, never needs to be in natural light. Has hit a real excitement point with consumers where they say not only do I like the keyboard, it's a great experience, but it's a green, eco-friendly product. I never have to worry about a battery, right?

And if I asked you, if I said can there be innovation in keyboards, a lot of skeptics would say no, the keyboard's been around for however many years, you can't put any innovation in do it. When you get it right you get that kind of response. And that's what it's about for us is getting that piece right, because when you think about Logitech historically what we have always done well, we did not invent the keyboard, we didn’t invent the Webcam, we didn't invent the PC speaker, we didn't invent the mouse, but we made the experience better, right..

And when we do that well, that's when we sort of hit our sweet spot. And we think we absolutely have the capability, it comes down to focus, it comes down to execution, and getting that product line up where you want it to be.

Francois Meunier - Morgan Stanley

So obviously the main next question is obviously tablets. And most people in this room actually use tablets today. Well if I've got a tablet, I don't need a mouse, I don’t need a mouse, I don't need a keyboard. But, it looks like actually it could be additive.

So, maybe the tablet market plus the netbook, laptop, whatever, is something which, as a category, is growing and for you it is additive. So, maybe the debate of what yet that's right of, well maybe not the mouse for tablet, but just the keyboard for a tablet is not really the issue.

Erik K. Bardman

No, and actually I'll talk about that in sort of two pieces. First I'll talk about the tablet market that exists today, which is primarily an iPad market, right. They have got 80%, 85% share from that perspective. And in an iPad world, we actually have found a couple of unique additive for us, attachment opportunities. One is keyboards, right. We have some combination keyboard/case combinations that have sold very well. We have some other Bluetooth keyboards that have done nicely because as more and more people take their iPad to places, they want to use it as a productivity tool.

The keyboard has been a very nice companion. It’s added noticeably and very accretively to our growth in our keyboard category. The other place is now starting to be music as well. We launched a product in; I think it was early December. It’s the Logitech Mini Boombox. It'll fit in the palm of your hand, about that high, about three inches long.

It’s a high audio quality, it’s a Bluetooth wireless speaker that will work with any Bluetooth device, so your smarphone, whether it’s Apple or Android, your tablet. And it addresses that pain point of when you're watching a movie or listening to music on a tablet or a smartphone, you've got a really poor audio experience, right.

And this is a product with great sound quality, retails for $99 is doing very well. It is currently starting to be placed in Apple stores and also is doing very well in Amazon, five stars on Amazon. So, it is early days, right, because the tablet is still growing in terms of how people use it. But, in the iPad world, we’ve seen some opportunities.

The next piece we think that may be coming is, as Windows 8 comes out in the fall and Windows 8 enables the Microsoft and the Windows platform to come to tablets design for Windows. We think that’s an incremental opportunity not just in terms of audio and keyboards but also it’s going to create for the first time cursor control and the ability to have a mouse on a tablet.

It's impossible for me to predict how much that could be, but it is incremental. It doesn’t exist today and I think it is part of Microsoft's strategy is to bring the whole Microsoft suite of products or the office products; this is Excel, PowerPoint, and Word, they want to bring that to tablets on Windows 8. That plays very well with productivity-oriented devices, whether it’s a keyboard or mouse.

Francois Meunier - Morgan Stanley

So, in your discussions with Microsoft, do you believe that if you want to use Excel on Windows 8, on a tablet, you will have to use a mouse?

Erik K. Bardman

I don’t know if it’s an absolute, but what I would say is this, is one of the reasons why over the last 25 years, people have declared the mouse dead 15 times, right? And why has it endured as a fantastic productivity tool? It is an extension of your hand that allows you to work with lots of data in a very precise way, whether you're building a PowerPoint presentation, those types of things.

I don’t see that changing, not specifically talking about how Microsoft is specifically designed it. But, when I look at incremental tablet opportunities and I look at Windows 8 enabling Windows on tablets we think it’s something that could be beneficial for us overtime.

Francois Meunier - Morgan Stanley

Okay. Now, just to come back to the debate about speakers, I think the difficulty of the speakers market, and we have seen it with several hit products like headphones like Beetel, [peripheral] speakers like the JAMBOX. I'm sure you've seen these products. It’s very fashion driven, and maybe it's not where Logitech is super strong at.

Erik K. Bardman

Right.

Francois Meunier - Morgan Stanley

Give or take…

Erik K. Bardman

I didn't even pay you for this, you set me up great. That wireless Boombox, Mini Boombox I was talking about, that competes directly with the JAMBOX.

Francois Meunier - Morgan Stanley

Yes but cheaper.

Erik K. Bardman

It's half the price. Half the price, same or better audio quality, and it also functions as a speakerphone. I don't know if it's cool enough, the consumers like it so far.

Francois Meunier - Morgan Stanley

That’s the question, is it cool enough. Yeah.

Erik K. Bardman

Yes. I mean, I think absolutely. Now, one thing that is very important. This comes back to hitting that value proposition right, okay? There is more of a fashion element than there was five years ago in terms of what you do. But, if you make a product that consumers absolutely get what you're trying to do, it solves their problem and it looks good with whatever it sits next to, we think we can absolutely do that. I don't see that as a barrier to us in terms of what our capabilities are and what we can do going forward.

Francois Meunier – Morgan Stanley

So, in terms of profitability, I mean, I don't think you disclose the profitability of speakers specifically, but is it below the company's average?

Erik K. Bardman

So, what we have talked about, so we won't disclose individual product line profitability. We have talked about, we run a portfolio gross margins and audio has, audio PC speakers has at times been below that average a little bit. But the speakers, the type of products that we're talking about are not PC speakers per se, right? When you talk about Bluetooth and you talk about eventually potentially cloud-based speakers or things like our Squeezebox products, right, where you're bringing the ability to stream music, whether it's through a phone or through the cloud, from that perspective those are different from a PC speakers in a traditional sense.

So, right now I would say is, we don’t see the growth in audio as being something that's detrimental to our overall mix of margins, right? It's not something that’s a barrier that way. And you're going to see, we've got a, we have the Mini Boombox out that we talked about. We have another product which is coming in the very near term that's actually going to go to the higher end of the range as well. So, there's part of that that we need to experiment and learn as well. But, we don't see a big barrier there.

Francois Meunier – Morgan Stanley

But I guess speakers of PCs, it's something which is quite competitive, because I'm seeing lots of competition. If you go, in England, if you go to Dixons or anything you've got white box manufacturers or anything. So, probably it has a mounting pressure and even to be even welcoming…

Erik K. Bardman

Yeah, and I’d be honest, this PC speakers is not a future fast growing market. Now, it’s a place where we can make good money. We have good share, we’ve got great placement, those types of things. We think there is some opportunities to improve design, do a few other things and that’s on our roadmap going forward. But, don't get me wrong, I am not saying that PC speakers in and of themselves is a massive growth opportunity.

But, we look at music, the fact that music has become very mobile and the fact that, whether it comes through your phone or your tablet or some other device, there is an opportunity to help the consumer there, and we see that. It's a newer space, but we see it as something that we're well positioned and we have permission to play there.

Francois Meunier – Morgan Stanley

And you mentioned the Squeezebox, which is a company you bought maybe two years ago.

Erik K. Bardman

It's probably about four years ago, I think, now.

Francois Meunier – Morgan Stanley

So, what’s going on there, because I remember when you bought it, I thought it's a pretty good idea to have them.

Erik K. Bardman

Right.

Francois Meunier – Morgan Stanley

It was a software, which was a big source.

Erik K. Bardman

Right.

Francois Meunier – Morgan Stanley

Where is it now? It's bit like off the radar.

Erik K. Bardman

Yes, so it’s a product that among its most loyal users, is very, very popular, right? And we've made some good improvements, we came out with a new product a little over a year ago called the Radio, which was one of the smaller form factors for it. We actually are taking some of the technology capabilities and it’s helping us in some other product that will necessarily be clear to the end-consumer, they don’t really care where the technology comes from, so we’re leveraging some of that.

We also think if there is opportunity over time, there are improvements we need to make it a little more user friendly, because it’s such a powerful product in terms of what you can do with it, but it's still not easy enough to use right out of the box. The out of the box experience has got to get better, that's one of the things that's on our product roadmap. But, we like the capability. We like the technology that it gives us.

Francois Meunier – Morgan Stanley

And obviously, you have been talking about China. And it's true that if you say, okay, I'm a European manufacturer or US-based manufacturer and I'm going to make something which could look like a commodity like a mouse or a keyboard, obviously you might think differently, and I'm going to attack the Chinese market, how does it work, how can you win over there?

Erik K. Bardman

So, it’s interesting because not only have we, do we see the opportunity to continue to win, we’ve been winning for the last couple of years, right? So, a couple things, because I said, as I mentioned, I think, early on, we made a concerted effort a little over two years ago to invest more in China. I think on a trailing 12 month basis, our growth in China is close to 50% year-over- year, right? Like I said, it's on track to become the second largest market in the world for us, only behind the US, right?

So, we are winning today. How we’re winning? It’s a combination of things, it’s broad-based. So, for us, it’s mice, it’s keyboards, it’s desktop combinations, it’s webcams, it’s starting to become some more audio products. We are winning in tier one, and also some of the tier two, three, four, and five cities as we expand distribution

One key element though, and I think this is what you're touching upon as well, is we started to do and we’re increasingly doing more of it. We're designing products specifically for sale in the Chinese marketplace from the original design.

So, if you take a Webcam or a keyboard that was designed for sale in Western Europe, you can’t take that product successfully over the long-term. Just convert it into RMB and sell in China. The price points are different, points are different. And increasingly the features and functionality the Chinese consumers are looking for is a little different.

What we’re doing more of, and we started to do it with mice and a few other products is we’re designing it from the beginning in terms of the products, the materials, and to go to market, that's it going to be sold in the Chinese market at 100 RMB or 90R MB. It put you in a much better position

The powerful thing, as you do more of that, if you have a product that's successful there, you can take that and put it in some of your other developed markets, and it gives you a very nice especially entry type of product. But it's a combination of those things that has been successful.

Francois Meunier - Morgan Stanley

So, do you do the R&D over there, or is it still (inaudible)

Erik K. Bardman

Our R&D is really global. We've got a core base in Switzerland, but then we have different capabilities that would be some of it’s in California, some of it is in places like Ireland, there is a little bit in parts of Asia and India. So that’s not necessarily different, but we do certain types of things in China, but our R&D footprint is really global.

Francois Meunier - Morgan Stanley

And how do you build the brand over there?

Erik Bardman

So, it's interesting, is that the brand has generally a good initial reception from consumers. In tier 1 markets they know something about us. I mean it’s one of the things that originally attracted me to Logitech and I think is, continues to be very powerful. We build our brand not by spending hundred’s of millions of dollars in advertising.

We build our brand by building really good products, right and it resonates well with consumers. So, we start from a place of strength with consumers that know us already and then beyond that it has been, as we grow that distribution, we have a very strong team in china and we’re continuing – the other thing that’s interesting about china is you have to go after the younger demographic, that’s where the growth is and we're seeing very nice traction in terms of some other things we’re doing, marketing online in other places, so it’s been a combination.

Francois Meunier - Morgan Stanley

Okay. Now, there is a line of business where I'm always a bit struggling with Logitech. It's LifeSize. So, what's going on there? Apparently growth has been slowing down quite quickly in the December quarter. So can you just remind us what LifeSize is doing and what’s your plan with this one?

Erik Bardman

Yeah. So LifeSize is an acquisition we made a little over two years ago. It’s a key player in the high definition video conferencing space for enterprise, right. They are typical, where they make the meat of their sales today, is in what I would call the mid-tier of the market. These are companies anywhere between a couple of hundred up to a couple of thousand employees. And they do play across the full spectrum, but that’s where they primarily focused.

And there’s really three pieces to the business. They are not equal in size, but I want to talk about each real briefly and then I'll come to your question about growth, is first and foremost is their endpoint market. Those are cameras and codecs that would allow you to outfit a conference room for high definition video conferencing. They’ve got a great value price proposition, well positioned and growing nicely have nice share there and have continued to grow their share.

The other piece for them is about a year ago they enter the infrastructure market and that is where they have brought out the LifeSize Bridge. It’s your ability to put infrastructure in the back and so that you can pull, bring more of these types of video conferencing systems together and allow company to manage a bigger network of it effectively. I mean again, great value price combination.

And the third piece, which is really nascent today, but I bring it up because it’s where chunk of the market is going, is we launched commercially back in, it was late November, early December a product called LifeSize Connections, which is a cloud-based hosted service solution for video conferencing. It’s a monthly subscription and it allows whether it’s a big company or a small company for, I think it's about $25 a month.

You sign up and you gain a seat. And it's ability for you, it’s a desktop software that allows you to connect any one of your people, not matter where they are. They could be on a webcam at home, they could be on one of the other LifeSize video conferencing system, to bring them together for a video call seamlessly right from your desktop.

And the interesting thing about it that differentiates it from a lot of the free or semi free services is you have enterprise class security and you've got enterprise class firewall transversal, which is really important. So, you can say to a business, if you need 10 seats today, you get 10 seats. If next week you need 50, you can get 50, right, if you need to scale down.

And it allows a company to build out video conferencing with no on-premise equipment, which has been one of the challenges over time from that standpoint. So it’s nascent, it’s small, but it’s relatively new offering and we like where it positions the business going forward.

To the other part of your question, we did see some growth slowdown in the last quarter and a half or so. It’s really what we see as a shorter-term issues. LifeSize is still predominantly more a US-based market business. I mean it is global. They are growing in Europe. They’re growing in Asia.

One of the challenges is that they’re growing very fast in emerging markets but we’re smaller than the other players have, because we just haven’t been around as long, right. We’re growing quickly but we’re not benefiting as much as some others in terms of as those markets have grown.

And then the other piece is, we’ve seen, particularly in Americas, we have seen the buying cycle from enterprise buyers lengthen a bit. We track lots of things, we’re not seeing our win ratio drop. We are getting into places where we want to win and I think we’re doing well. But buyers seem to be, in the near term, they’ve been a little more concerned, right.

It’s taking them a little longer to come to a buying decision, so that’s affected us in the near-term. But, we see those as short-term challenges, not something that changes while we’re excited about the long-term and as we think about those three pieces that I talked about.

Francois Meunier – Morgan Stanley

Okay, but different retail channels obviously…

Erik K. Bardman

Oh, yes. No, this is all B2B and it’s a separate go-to-market organization, it goes through value-added resellers and partners like that. But like I said, we’re excited about it; we love their roadmap of products. They’ve got some very cool things coming over the next quarter or so and people will see that.

Question-and-Answer Session

Francois Meunier – Morgan Stanley

Yes, questions in the room maybe, yes (inaudible)

Unidentified Analyst

Hi. Quick question. You mentioned a lot about tablets. Obviously the iPad 3 is coming out pretty soon; how do you see your opportunities in the iPad 3 differently than your position in iPad 2 in particular, you had that pretty well received ZAGGmate keyboard; how is your opportunity in the iPad 3 different from your iPad 2?

Erik K. Bardman

So, it’s two things I would say, and no one knows for sure exactly what the iPad 3 will do. There’s a lot of discussion. But one thing I feel very good about is, we’ve learned a lot in the last year about how do you make products work well in the tablet environment. We had some that worked well, some that didn’t that we quickly learned from and pulled back and dumped there.

We have a couple of new approaches with the iPad 3 that are coming out, some keyboard related, some in one or two other places, where I think the offering is going to do well, we like it. But it has been, it has to be a quick learn cycle, right, because not only is that the iPad growing quickly, consumers are using it for different things all the time but that’s how we’re thinking about it right now.

Unidentified Analyst

And no need for the mouse.

Erik K. Bardman

Well, an iPad will not, does not have cursor control; you cannot have a mouse, can’t exist on an iPad, right. So, that’s not something that’s on the roadmap of the iPad, we think it’s a potential of Windows 8, but not for iPad.

Unidentified Analyst

Just to go back on LifeSize, if you look Polycom of Cisco, they haven’t seen this market slowdown first. And so I think the market seem to me driven a lot by collaboration, so Polycom is making the bet to partner with Lync. Cisco has its own solution there; so, what’s your game here?

Erik K. Bardman

So, a couple of things; one, it’s easier for me to compare us to Polycom a little bit because they have publicly released results and Cisco doesn’t really show their video business standalone and they sell a lot of products bundled. But a couple things, one is, we actually are Lync certified on a number of our products today. So we’re working with Microsoft; as Lync ends up in more and more places, we benefit, right, in that perspective. So, that’s part of our collaboration game.

We also think like I talked about LifeSize connections, that’s a key element of collaboration because it’s one thing to be able to connect people easily if they’re sitting in a set conference room space; but to be able to connect people when they’re traveling, when they are on the road, whatever those types of things need to be, that’s where we think we’re positioned well. But no, so I think we’re in the right place we think we can continue to compete head-to-head and gain share and really play in that space.

Francois Meunier – Morgan Stanley

Any other question? Yes, at the front. Thank you.

Unidentified Analyst

Hi, you have some segments that are in decline and some that are growing; can you talk about the mix and when it might be that the ones that are in decline get so small that the overall can grow again significantly?

Erik K. Bardman

So, yeah, I mean we’re trying to be really transparent with folks about when you look at places that are in decline right now, so for example, and I’ll talk about consumer not business; the consumer webcams, the tethered webcam, the one that you put on your PC and you plug-in to the USB port, that is a declining business. That will not, right now I don’t think it’s reasonable to assume it will grow again.

Now, it doesn’t mean that we can’t make profits from it. We have market share position. We have placement strengths that we can utilize, because there’s a lot of them being sold in some markets like in China, there is double-digit growth in PC webcams, but not globally, right.

So that’s a business that’s in decline. In the near term, we expect that we’re going to continue to see declines in our Harmony remote control business. Now that is primarily self-inflicted. One of the – there were downsides obviously to the Google TV investment, one of the other ones that isn’t as obvious is, is that we have a singular R&D team.

It’s focused on Harmony remote controls and the development of Google TV. For an extended period of time, we had them focused on Google TV to bring that product to market. Unfortunately as we missed an entire Harmony update or refresh cycle as a result of that.

And so the problem for us right now and you’re going to see for the near term, you’re going to see a continued decline of my Harmony sales is I had some of my flagship products there are three or four years old, right. That’s one where I see a period of decline, but I do see that the fundamental opportunity is still there. We’re not providing any type of forward-looking business model or forward-looking guidance right now. So I can’t really address your other question about when do you see the opportunity for growth outpacing where we’re declining right now.

But I would say this is we typically do talk about at least our next years view when we get to our year end results, which is typically the end of April when we release that, but suffice it to say, it’s going to be about focus on the product line up where we need to strengthen it, the things that we need to do whether it would be China, LifeSize tablets and where we can maximize the growth.

Francois Meunier – Morgan Stanley

Yeah.

Unidentified Analyst

Don't mean to beat on a dead horse, but what is the synergy between the LifeSize and your rest of the business?

Erik K. Bardman

Right. It’s interesting is, is that there is actually when we did the transaction, we were really clear to say this was not a deal about go to market or cost synergies right, because they’re different, they’re different go to market channels and those type of things, but it’s not necessarily transparent to the end user. We have swapped technology so far.

So for example LifeSize connections is based off of the site speed platform that we acquired several years ago in the Logitech side, that’s where the software and the capability came from. There is the passport connect the latest product from LifeSize, it allows high definition video calling under a $1,000 that uses Logitech camera capability right.

So we’ve already taken synergies in terms of the technology roadmap and we’re using them today, but that’s not something that we’re necessarily going to show to people, because the brands are separate and we don’t necessarily that’s not important to the end user, it’s does it do what I needed to do.

Francois Meunier – Morgan Stanley

Okay. Very clear. We’re just running out of time. Thank you very much for coming.

Erik K. Bardman

All right. Thank you. Thanks.

Francois Meunier – Morgan Stanley

Yes.

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