Good morning. My name is Crystal and I will be your conference operator today. At this time, I would like to welcome everyone to the Logitech Third Quarter Fiscal 2008 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. [Operator Instructions]. Thank you. Mr. Greenhalgh, you may begin your conference.

I would like to welcome you to the Logitech conference call to discuss the company's results for the quarter ended December 31, 2007, the third quarter of Logitech's fiscal year 2008. The press release, a live webcast of this call and accompanying presentation slides are available online at logitech.com. This conference call will include forward-looking statements that are being made under the Safe Harbor of the Securities Litigation Reform Act of 1995, including forward-looking statements with respect to future operating results. The forward-looking statements involve risks and uncertainties and can cause actual results to differ materially from that anticipated in the statements. Factors that could cause actual results to differ materially include those set forth in Logitech's annual report on Form 20-F dated May 25, 2007 and subsequent filings available online on the SEC, EDGAR database and in the final paragraph of the press release reporting third quarter results issued by Logitech and available at logitech.com. The press release also contains accompanying financial information for this call. The forward-looking statements made during this call represent the management outlook only as of today and the company undertakes no obligations to update or revise any forward-looking statements as a result of new developments or otherwise. I would like to remind you that this call is being recorded including the question and answer portion and will be available for replay on the Logitech website. For those of you just joining us, let me repeat that presentation slides accompanying this call are also available on our website. Joining us today are Gerry Quindlen, Logitech's President and Chief Executive Officer and Mark Hawkins, Senior Vice President of Finance and Information Technology and Chief Financial Officer. I would now like to turn the call over to Mark.

Thanks Joe. Let me start with an overview of our record breaking Q3 performance. We experienced continued strong demand, resulting in double-digit sales growth. Our sales grew by 13%, reaching an all-time high with exceptionally strong growth in OEM in Asia. We improved our profitability. Our gross margins increased by 70 basis points compared to the prior year and reached an all-time high. Our operating income grew by 17% and our net income excluding the transactions related to our short-term investments grew by 18% with both setting a new record. We continued to improve our cash generation. We ended the quarter with the highest cash position ever and we generated $177 million in cash flow from operations, a record high for a quarter at Logitech. Gross margin. Our gross margins reached an all-time high of 36.9%, up from last year's 36.2%. The gross margin improvement was driven by a combination of ongoing product cost reductions, particularly in the fast moving pointing device and keyboard category and supply chain efficiencies. Faster inventory turns continue to drive supply chain efficiencies which becomes a virtuous cycle for cost improvement. Operating income. Our operating income grew by 17%, reaching a record high for any quarter. We continue to demonstrate alignment between the growth in our operating expenses and our gross profit. In Q3, our gross profit grew 122 basis points faster than our operating expenses. Short-term investments and net income. Let me give you an overview of the transactions related to our short-term investments which are reported in the other income category. As we said during last quarter's call in early Q3, as part of a confidential settlement, we sold 50% of each of the securities in our short-term investment portfolio at par. That sale resulted in a gain of $33.7 million. During the…

Thank you, Mark, and thanks to all of you for joining us. As this is my first earnings call since assuming the CEO role on January 1st, I'm looking forward to sharing some thoughts on priorities for 2009 and beyond, and I will do so in a few minutes. Let me begin by commenting on our Q3 results. I am very pleased with our performance in Q3. We delivered record sales, profit and gross margin, and we generated strong cash flow by continuing to focus on improving the effectiveness of our working capital. There were a number of highlights in the quarter. This was the sixth quarter in a row where we delivered a significant year-over-year improvement in gross margin. We were able to achieve this improvement even with a more promotional retail environment and more OEM in the sales mix. Our strong gross margin continues to provide us with a more powerful source of flexibility and competitive advantage and demonstrates our ongoing focus on leveraging our growing scale. We saw accelerated growth in our sales of Harmony remotes, building on the momentum we established in Q2. The balanced growth between the Americas and EMEA is a good sign that our strategy is working in both regions. I was especially pleased with our record breaking sales in mice and keyboards. While our success in these categories is nothing new after 26 years, our impressive growth demonstrates that leadership and investment and innovation stimulates strong demand and supports improved margins. It was another very strong quarter for sales of our products designed specifically for notebook users. Our notebook peripheral sales, led by the growth in cordless mice and notebook stands grew by 59% compared to the prior year. We also achieved a record breaking quarter in gaming. Now while retail was…

[Operator Instructions]. Your first question comes from the line of Ted Chung with Bear Stearns.

Great, thank you. You mentioned that the overall macro demand seems to be pretty healthy. How much confidence do you have in that outlook going forward as there is lot of data points coming in that points to a potential slowdown?

Ted, I missed the last part of the question. Could you repeat it?

Yes, quite a number of data points coming in that raises concerns about potential slowdown in consumer demand for the U.S. How much confidence do you have about that your full year outlook, especially fiscal year '09?

Well, I mean our fiscal 2008 outlook is what we said it was. And for 2009, I would repeat what I said, which is these are preliminary targets. At this point, we feel confident in sharing it with you. Our first order of business is to focus on concluding 2008, and the guidance is the guidance at this point.

I guess, the other way to ask is are you building in some conservatism regarding the fiscal year '09 outlook just given the macro conditions or --?

Ted, I think the thing that I would say is just that we try to forecomprehend everything we understand in the marketplace right now when we do that. You know how we tend to operate. We take our responsibilities to the shareholders very, very seriously. But I think this is our estimate at this point. I would say also that when we look at the full current scenario, keep in mind, you know in particular the resilience of our business model and how that tends to do fairly well over the last 10 years. In fact, we are on course to post double-digit sales growth for the tenth year in a row through a lot of different cycles and economic events and that type of thing. So we think it's a resilient model, we think we have a good roadmap, we have a good market space, and just reaffirms the points Gerry made.

And just one additional question. Given that product innovation is key to your product success, how many products do you... should we expect in terms of new product launches this year?

Ted, I would say that it's going to be consistent with what we've done in previous years. And then on top of that, remember that we've acquired WiLife, so that's on top of what we would normally do. So it will be a normal year for us with a lot of exciting new products.

Thank you guys.

You're welcome.

Your next question comes from the line of Lowek Sabathe [ph] with Chevron.

Good afternoon. I first got a question on Europe. Is the weakness we saw early due to the webcam division or do you see an overall downturn in European consumption? And also in the U.S., do you see a different consumer consumption trend during the two last weeks of December? And my second question will be on cash. A question first by the amount of cash you had just at end of Q3, what will you use it for?

I will comment on the first part and I'll ask Mark to comment on the cash piece. Relative to Europe, I refer to something that Mark called out in his remarks, which is that our demand in Europe or our business in Europe, if you look beyond webcams or look at it excluding webcams, was up about 13%. We had very strong demand for mice, for keyboards and for Harmony remotes. So without a doubt, webcams restrained the growth in Europe and in the Americas. But fundamentally, we saw very solid demand for core products like mice, keyboards and Harmony remotes. And there were other categories where we saw very solid growth and our emerging markets are doing very well in Europe. And the other part relative to the Americas is a very similar story. Our growth in the Americas would have been about 15% excluding webcams. So webcams restrained our growth there as well, but very strong demand in the Americas for mice, keyboards and Harmony remotes. Mark, do you want to comment on the cash question?

Sounds great. Yes, we really have two primary priorities for our cash that we've had as a company. The first thing obviously would be to fund the business, and that's kind of business as usual. The second thing that I would say that we think is very strategic is to be able to use this for M&A. And we have shown this year, for example, with WiLife that we were willing to do that. And actually thirdly, we think share buyback has proven to be a great thing for our investors. And so we think, certainly the M&A and the share buyback are a very strategic use of our cash. I might also want to call out that this is a great thing. It's a great time to have a strong cash generation process, to have a record cash conversion cycle. It's a great strategic situation to be in in today's environment just to have a rock solid balance sheet because it gives us some very strategic flexibility. And so we think that's good and that will help us in the days to come. Next question?

Your next question comes from the line of John Bright with Avondale Partners.

Thank you. Good morning, good afternoon. Gerry, the webcam market continues to lag. What do you believe may jumpstart adoption of webcams?

Yes, good morning John. We are clearly, as I said in my remarks, disappointed that it's taking longer than we expected for the webcam category to recover. But I would go back to what we've been saying all along. We are absolutely convinced about the long-term viability in the category and we are absolutely convinced that the three point plan we have discussed previously is the right approach. Just to remind everyone, we are focused on three things: continued product innovation, in-store consumer marketing and communication and leveraging partnerships like the Skype partnership that we announced in October. Without a doubt, the biggest challenge is speaking to the consumer in store. I think we continue to do a great job on the product innovation side. We've introduced a number of innovative products in fiscal 2008. We have a great lineup for 2009, and it's mostly about... it's really at this point it is all about category development. The share situation looks fine overall, channel inventories and webcams look fine overall. Neither one of those are the major issue. It's really just about category development.

Do you think it's going to be an ease of use case where it's embedded within the desktop package or the laptop itself that helps people start to use the webcams more that might drive the Logitech after-market sales?

Ease of use is definitely one of the areas where we are focused on continuing to improve the experience. Without a doubt, that will help. But we continue to believe that the biggest challenge we have at this point is just talking to the consumer in store, getting the message across, helping them understand the excitement in the category and the value that we bring in some of our offerings.

Mark, a couple of questions for you. One, gross margins continue to perform very well. What's the sustainability of that as we look forward?

Well, first of all, John, we are very pleased about the gross margins and what's driving that; again, just a strong improvement with our pointing devices, our keyboards, some of the things that are really nice year-on-year improvements, our supply chain efficiencies. And so we are pleased about the performance and the strategic flexibility that gives us John. In terms of going forward, in terms of the range of gross margin that we are going to talk about in FY09, kind of our philosophy is let's finish up strong in the current year and then when we get to the IR Day kind of classic approach, we'll get into even more detail on the make up of the optics of the P&L. But we are very pleased in the position we are in right now with gross margin.

Okay. And then the normalized tax rate adjusting for the unusual items in this quarter, Mark?

Yes, I think... exactly right, John. That's closer to the guidance that we gave you of 12-ish percent for that if you normalize that. So a way to do that is just take out the gain on the short-term investments. And if you pull that away and look at the calculation, that's pretty much what our normalized GAAP tax rate is.

Okay. And then finally, so Guerrino, how is operational retirement?

Well, I am participating as actively as Gerry let's me. I am establishing my routine and I am very thrilled and I hope I can continue to contribute. It's kind of awkward for me to sit down quiet in a conference call like this. But I thank you for allowing me to open my mouth. It's difficult to keep my mouth shut. So thank you.

Thank you guys.

All right. Thanks John.

He is doing well, John; just to answer your question.

Your next question comes from the line of Manny Recarey with Kaufman Brothers.

Good morning. If I can ask the gross margin question in another way, as we look forward, is there anything that you can see where the gross margin would kind of contract again? Is anything on the horizon that we should be concerned about that you can see where it begins to pull in to the last four, five quarters has been at the top if not above the range that you give?

Yes. I'll start. Mark, you can add some comments if you'd like. We're obviously very pleased with where we are as Mark said. We're constantly looking at our gross margin performance versus our business model targets of 32% to 34%. And we continue to work on the things that really drive the gross margin up, which are number one, product innovation and number two, using our growing global scale in manufacturing and supply chain to continue to drive our costs down. Those two things are obviously working very well. We will continue to drive those as hard as we can. And at this point, we will continue to evaluate our long-term targets. And the only thing that would make us revise our targets for the long term would be if we saw sustained delivery of gross margin in this range for a significant period of time, we would revise it up. At this point, we are very pleased that it gives us the competitive flexibility that it does and I'll leave it at that. Mark, I don't know if you want to comment.

Maybe one last point to add to Gerry's comments. John, the thing that we think about, to Gerry's point, on the strategic flexibility, when you think about FY09, Gerry has outlined the guidance for the year for FY09. There is a lot of moving parts. We'll use gross margin as part of the bigger picture to make sure that we deliver the outlook that Gerry talked about for FY09. So it gives us the strategic flexibility, but again, that's not the endgame. The endgame is to deliver the higher level expectations that Gerry has called out.

I guess the only other thing I would add on top of that is our fixation has always been from the financial model standpoint. Our fixation has really always been on driving the top line and maximizing gross profit dollars. And that's really what we are fixated on. We are doing obviously a good job of that. We're pleased by that and that's what we will continue to focus on.

Okay. And one other question if I can turn to the audio segment. If I understand correctly, part of the problem was just the difficult comparison year-over-year. And as I look out for the next three quarters, the comparison maybe a little easier in the March quarter, but then in the June and September quarter, you had strong, very strong growth in both of those quarters. So kind of what type of comfort do you have that the growth is not going to in the audio segment, in the June and September quarter, kind of drop off again because of the tough comps?

Yes. So just for a little bit of context, last year, biggest quarter ever for sales, our mm50 iPod speaker which is the best selling speaker we've ever sold. So that was a primary driver. But I'd also point out that the biggest segment of the audio business, which is PC speakers, had another record quarter, up 22%. So that's the most telling comment I think about the overall health of the audio segment. And the other thing is PC headsets dragged the overall performance down and PC headsets are clearly tied to the restrained recovery in webcams. As webcams recover, we are absolutely convinced that PC headsets will recover. And we are very bullish obviously on the long-term prospects for the PC speaker category, which is, I will remind you again, the piece of the overall segment. And we have a great lineup for iPod speakers in 2009, and that's the number one thing always for us is product innovation to drive category growth.

Okay, thanks.

Thank you.

Your next question comes from the line Simon Schäfer with Goldman Sachs. Simon Schäfer: Yes, thank you very much. I was wondering whether you could share with us what percentage of the product portfolio is now more than $100 and perhaps how that compares. Over the years, it seems to have gone up a significant amount.

Actually, Simon, the actual portfolio itself, if you look at the number of SKUs and price points between the $10, the $20, the $30, $40 all the way up to $100 and then over $100, largely that has been unchanged. We have had some very high profile, higher than $100 items that people love to talk about. At CES, people just were swarming looking at that and the excitement and they value the innovation that we are delivering at that level, which has really been a lot of fun. You can look at the Harmony 1000, you can look at the diNovo Edge, you can look at just a lot of examples, our G25 steering wheel. People love some of the higher end products, but the reality of the SKUs and what's driving our revenue long term. I think it's actually been quite stable.

Simon, the other thing I would add is two of the best performing SKUs we had in the quarter, the VX Nano mouse, this is our newest mouse that has a little micro receiver, the VX Nano mouse, and then the V220 optical mouse were both products that are much more mass adoption products. So we continue to innovate across a series of price points quite honestly.

Even add some of the other excitement when you look at some of the things that were really exciting too. I mean the VX Nano, as Gerry talked about, the V220, we are getting a whole spectrum of response to the demand. Simon Schäfer: So even if it hasn't changed in terms of percentages, what type of portion of your sales is more than $100 now?

We don't actually get to that level of detail that we disclose consistently. But it really has not changed materially at all. Simon Schäfer: Understood. And my second question would be you are about to... some of the perhaps... rest [ph] of the product categories that have been bundled with webcams, is there any other product categories that typically tend to get bought in a bundle alongside a webcam just like PC headset sales may have been?

No, I would say no. Simon Schäfer: My final question would be just on gross margin, just a follow up, what impact did you see because of the euro to dollar effect in the quarter?

Simon, we've kind of taken a consistent position on this that we... you know we introduce products with a fairly current life cycle regularly, and that kind of tends to create a global pricing effect. And we constantly are having new products coming to the market and coming to the market at new current exchange rates and such. We've never described foreign exchange as a big helper or hindrance to our business, and we are consistent with that. So we don't... we've never disclosed in more detail than that. But I think you can see with our global pricing, number one. We've shown that in the Investor Day presentations very analytically kind of how that works. And then secondly, I know you have tracked for a long time, we've never made the quarter or not made the quarter because of foreign exchange. Simon Schäfer: All right. Thanks so much.

You bet.

Thank you.

Your next question comes from the line of Matthew Yates with Merrill Lynch.

Hi Gerry. You've mentioned a couple of times on the call about the three ways of turning around that webcam business. I assume you already have now a new product in the channel, and for about a year now you have been trying to readdress the marketing spend. So, effectively, you now are pinning just all the hopes on the Skype venture.

No. It really is about all three dimensions: product innovation, in-store marketing and communication and leveraging partnerships. Frankly, the Skype partnership which was announced in October is really just getting started. We are very... the early reception... early feedback has been very good. But it takes a little while, as you can imagine, to get these things ramped up. And I would actually say the biggest challenge continues to be in-store communication. But it is primarily an issue of category development. As I mentioned to an earlier... in response to an earlier question, the channel levels look fine, market share situation overall is fine. It's primarily about category growth. And it's not the kind of thing that is instantaneous. It takes a while to communicate and get the message out and build awareness and get word of mouth out their trial. It takes some time. But we are absolutely committed to the category long term and we believe it's going to remain a great category for us. The WiLife acquisition is a wonderful complement to the overall category. And as I said, we believe we will return to growth in 2009.

And just as a sort of follow on, can you just go through in perhaps a bit more detail what you think has gone on in PC headsets and what consumers issues with that method of communication appears to be?

I think PC headsets are pretty straightforward. It's primarily the linkage to webcams and the softness in that category is spilling over into PC headsets. We really don't think it's a whole lot deeper than that.

So effectively, are we saying the consumers aren't so much interested in either audio or video communication over the Internet, and therefore I struggle to see how the Skype joint venture is going to address this.

I would not reach that conclusion at all. We absolutely all... first of all, the research that we continue to do about the viability of individual products and the power of this category and its benefits, communication connection et cetera, the research is very compelling and tells us that this is a very powerful category for consumers and this will be a great category for us for a long time. So we absolutely believe that this is a great business for us and it just... it's going to take us a little while to turn it around.

And just perhaps one last one for Mark. Bit of a hypothetical one, but you mentioned that it was a more promotional retail environment. The question earlier alluded to... there is a little bit of data points there suggesting the consumer is getting weaker and weaker. If we were to say that your sales growth next year was only going to be 5% to 10%, can you limit operating expense growth in line with this?

Well, first of all, hypothetical... I totally respect your kind of scenario from that standpoint. I would kind of draw it back to the following points. We are on our tenth year of double-digit growth as a company and I think there is... historically speaking, our model showed real resilience through the dotcom era, through the 9/11 era, through growing through the German market when the consumer market was tough. We have... I think the current environment, different people have different interpretations of that and our model, the resilience, the portfolio has performed in a very nice way. So I want you to understand that our mentality is all around growth as Gerry called out, and that's our intention and our focus from that standpoint. And that's... we are excited about our market space, we are excited about the roadmap, and yet, we are ever mindful of the environment as well. But we are about growth as a company. Secondly, though, let's just step back away from that and address the question differently. Do we have good discipline on our operating expenses and the ability to toggle our operating expenses with gross margin? I would say that year after year, we have demonstrated that if our gross margin is growing at X dollars, we are able to have our operating expenses less than that over time. We have shown great discipline and agility to be able to adjust those two. So I hope that our investors are confident that there is a strong level of control on that and that that modulation has worked beautifully, historically speaking. So growth, resilient model, market space exciting and also the discipline on the operating expense side. Does that get... kind of the jest to what you are trying to get at?

Sure. Essentially, I mean how much of your marketing and R&D is what I would call flexible?

Well, I am not... probably, we don't have time to go too deep on the fixed versus variable, and I don't know that we have disclosed that in great detail. But here is what I would do, Matthew, is go back and look at FY06, FY07 and any of the quarters in this period, and you will see real variations. Especially, if you go back and look at FY07 and the early periods, we had gross margin dollars growing at a much slower pace. Our operating expenses were toggled down there. But when you look at when we expand, we are able to capitalize on that and invest in the business. One of the things I am most pleased about is you are able to post profits and invest in the business and yet still be disciplined. So I think if you go back and look over the last couple of years, I think you will see a real fact base that supports this agility, this discipline to both invest for our future, but also be tempered and controlling our spending.

All right, guys. Thanks for taking the question.

You bet.

Thank you.

Our next question comes from the line of Tavis McCourt with Morgan Keegan.

Good morning guys. Three questions. First on the Squeezebox Duet, is this going to be a global distribution ramp and how does that compare to the distribution you have for the Squeezebox product today?

Squeezebox, our Squeezebox products have primarily been focused on Europe and the U.S., and Duet will be the same. We are selling Squeezebox in Asia, but it's primarily been a focus on the U.S. and Europe. And we are very pleased with the progress we are making.

Okay. But the Squeezebox today has already been distributed throughout U.S. and EMEA.

And EMEA, and frankly in Asia, but it's just small in Asia.

Okay. And then in terms of the OEM business, obviously a very strong quarter this quarter, driven by gaming. How sustainable is that just to kind of set expectations? I mean I know a lot of those programs are relatively short term in nature, but I don't know how aggressively you guys are going to work to win more of those in the future.

Yes, a couple of things. First of all, we've been very pleased with the performance in our OEM business in total. And yes, without a doubt, the sale of microphones for the singing games has driven a lot of the growth. But in fact, we had very strong growth across OEM, including in our core products. So it's been a good quarter across the board in OEM. We are probably at the peak of the microphone opportunity, but there will be other opportunities going forward. And so the microphones will be less of a driver in our OEM business going forward. But I'd go back to what I said at the beginning, which is what we are really pleased about is that we have also seen strong growth in mice and keyboards, our core products.

And is there webcam in the OEM business at this point?

There are, and we continue to compete aggressively in that segment as well.

Is there enough business in that business where it's offset the declines the last few quarters in the retail business for webcam?

We are not going to get into that level of disclosure at this point. But I think to Gerry's point, we think that we are competing very, very effectively in this particular area and we think that this is part of our future.

Great. And then a final one for you Mark, in terms of cash conversion cycle, done a fabulous job improving that over the last couple of years. I presume your interest [ph] is going to be there is always room for further improvement. But are there any... is there room for significant further improvement from here or is most of the kind of low-hanging fruit done in that regards?

Well, first of all, thank you Tavis on behalf of the whole team here. We are pleased to see the improvement this year. Again, a record low at 34 days over last year's record. And if you go back to a couple of years, you were at, what, 71 days down to 34 days. So we are making real progress. I see no structural reason why we cannot continue to make progress on the cash conversion. We've talked about being attentive to this for the last couple of years. We are excited, we are committed and focused, and we think this is an important pillar that creates the kind of flexibility that Gerry talked about and certainly puts us in a rock solid position for our balance sheet.

Okay, thanks a lot.

You bet.

Thank you.

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

Hi guys. I am just wondering if you can give us how big notebook accessories are now as a percent of the mix.

I don't think we give out that information. I can refer back to one of the comments during... I think it was during my presentation which was that we had a great quarter in notebook peripherals, 59% growth year-on-year. And so we continue to make great progress in that overall segment. And I can remind you what's included in notebook peripherals the way we look at it. It includes of course cordless mice, notebook stands, webcams for notebooks, speakers targeted specifically for notebooks. It's a great segment, growing very nicely and we are very pleased with the 59% growth in the quarter.

Are you guys finding that with notebook accessories that the purchasing behavior is any different than with desktop accessories? And what I mean by that is are people... since it doesn't come with a notebook or a standalone keyboard buying those at the time of purchase or is it still a follow-on buy?

It's a good question. The consumer behavior varies. A number of consumers buy at the time of purchase. But we also know that, and we also have good data on the percentage of consumers that come back in 30 and 60 and 90 days. And so we work with our retailers to leverage that information in terms of our in-store marketing, our consumer messaging and our merchandising programs. But the real answer is consumer behavior varies.

Okay. Then just on WiLife, what the distribution channel there is going to be, is it going through your traditional retail channel?

Well, that's... we are really just starting to establish that. And yes, they will absolutely... those products will absolutely be sold through a number of our core retail channel partners. We had very good reception at the CES show from our customers for the product lines, and they think it's a great acquisition on our part and they see that it's a very small segment today, but they see the opportunities that we see. And they are very excited about partnering with us to help grow it.

Thanks.

Thank you.

Your next question comes from the line of Michael Foeth with Bank Vontobel.

Yes, good morning gentlemen.

Good morning.

A question on the OEM success here again. How much is the success in OEM related to the success in Asia, or put it the other way around, was OEM so strong because it was strong in Asia or is that wrong... a wrong conclusion?

I don't know that we would actually draw any of those kinds of conclusions, Michael. A good question. We typically haven't kind of gone in that way.

Okay. A question on WiLife. You mentioned to WiLife expense, could you just repeat that again please for the quarter?

One thing I just would say is just kind of thinking about your question more, they really are totally disconnected between OEM in Asia. Just kind of going deeper in your question, we don't get into too much particulars there, but we think those two are completely disconnected just to tie up on your prior question, Michael.

Okay, thanks.

And then WiLife, could you restate that please?

Yes, just the expense on the cash side that you had for the WiLife acquisition?

Yes, in terms of the total spend we had?

Yes.

We paid $22 million for it.

Okay. And you mentioned, Gerry, that you're going to use part of your cash pile for further acquisitions. I mean should we continue to expect these small type of acquisitions, or given that the cash pile that you have, can we also look at larger acquisitions?

Well, the first thing I would say is that we are pleased about the cash position because it gives us flexibility not only for acquisitions, but frankly for market development, for driving our brand, one of the other priorities I mentioned, and certainly it gives us additional flexibility relative to acquisitions. Guerrino has said and I have said, it bears repeating, our approach to acquisition has been and continues to be that our focus is not on size per se. It is always on can a particular acquisition that we are looking at create value for the shareholder. That is first and foremost the criteria that we use more than any other. We are always looking at other things such as can we bring our points and difference to bear? Can we leverage our points of difference with this particular acquisition, again, regardless of size? Those points of difference are: the ability to leverage global distribution, a global brand, our strength in product innovation and engineering and then culture fit. Those are the things we look at. We look at a range of acquisitions in terms of size, and we have in the past and we will continue as we go forward. And the ultimate criteria will be do we think it can meet those parameters I outlined and can we create value?

Okay, thanks. My final question would be just to make sure that we should not expect any further impairments or other expenses related to the short-term investment portfolio, is that correct?

I would say that you should expect... our anticipation is no further impairments, very limited exposure. And just to give you a sense, out of the $510 million in cash and short-term investments, $500 million is cash, just to give you a sense.

Yes, sure.

Okay.

Okay. Thanks a lot.

Yes, absolutely Michael. We can take one last question.

Your next question comes from the line of Thomas Schneckenburger with UBS.

Yes, good morning everybody.

Good morning.

My question is related as well to your excellent job in supply chain management, triggering this improvement in cash conversion cycle. And this leads me to two questions actually. Gerry mentioned that concerning gross margin the two main drivers are supply chain efficiencies and second one product innovation and product mix. So your gross margin target of 32% to 34% is now for a couple of years known and at that time supply chain efficiency was completely different. So in order to be at the lower level of this range of 32% gross margin, something must go wrong with the product mix or innovation cycle, is this right? And the second one is also related to the use of your $500 million, but not referring to acquisitions. But if cash conversion cycle and cash generation from operations is sustainable, shouldn't we see then a major buybacks going forward?

So let me take the first part. Just to clarify what I hope I said, what I think I said that really the two main drivers of gross margin over the long term are first and foremost product innovation, because that's the best measure of how effectively we are creating innovation or we are delivering innovation that consumers are willing to pay for. So without a doubt, gross margin we look at as the best metric for how effectively we are innovating. So our product innovation effectiveness drives it. And secondly, it's frankly our total operating costs. Supply chain is a piece of it, so is our manufacturing cost. And as we continue to grow our scale, we focus on bringing those costs down not only in supply chain, but also in manufacturing costs. And we are working hard on those and we are doing well. In terms of to go back to the 32%, yes, something would have to go wrong. But what I would say to you is we are in very competitive categories. We don't know what... how our competitors are going to behave. There is a... it's a very fluid situation. And if we see sustained performance for, I don't know, maybe four more quarters at the high end, we will revise our business model targets from 32% to 34%. We look at it right now as it's a great source of competitive flexibility. And I will refer back to what I said earlier, our real fixation is on maximizing the top line and maximizing gross profit dollars. We pay a lot of attention to gross margin because it's the best measure of how effectively we are innovating. But our real fixation is maximizing gross profit dollars and maximizing the top line. Your second question was about cash I think. Mark, you want to take that?

Yes, let me take that. And so you are right, certainly, the cash conversion cycle is generating a lot of cash. It has an impact on share buyback. If you look at our share buyback year-on-year through Q3, you will see that the number, the amount that we were doing in terms of shares was up substantially in terms of our buyback. We certainly think that we'll continue to look out for the best interest of the shareholder with our share buyback. We think it's a great thing for them, it has been historically. You should expect more of that, Thomas, in the future.

Thank you.

Thank you.

Okay.

We have reached our allotted time for questions and answers. Mr. Quindlen, are there any closing remarks?

No. I would just like to thank you all for joining us. We look forward to a successful conclusion to 2008. And once again, I thank all of you for taking the time to join us.

This concludes today's conference call. You may now disconnect.