Logitech International S.A. (LOGI) Q3 2012 Earnings Report, Transcript and Summary

Good day and welcome to the Logitech Third Quarter Financial Results Conference Call. (Operator Instruction). This call is being recorded for replay purposes and may not be reproduced in whole or in part without written authorization from Logitech. I would now like to introduce today’s host, Mr. Joe Greenhalgh, Vice President of Investor Relations and Corporate Treasurer at Logitech. Please proceed sir.

Welcome to the Logitech conference call to discuss the company’s results for the third quarter ended December 31, 2011. The press release, our prepared remarks and slides, and a live webcast of this call are available online at logitech.com. As noted in our press release, we have published our prepared remarks on our website in advance of this call. Those remarks are intended to serve in place of extended formal comments, and we will not repeat them on this call. During the course of this call, we may make forward-looking statements, including forward-looking statements with respect to future operating results that are being made under the Safe Harbor and the Securities Litigation Reform Act of 1995. The forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those anticipated in the statements. Factors that could cause actual results to differ materially include those set forth in Logitech’s Annual Report on Form 10-K dated May 27, 2011, and subsequent filings which are available online on the SEC EDGAR database, and in the final paragraph of the press release and prepared remarks, reporting third quarter results available at logitech.com. The forward-looking statements made during this call represent management’s outlook only as of today, and the company undertakes no obligation to update or revise any forward-looking statement as a result of new developments or otherwise. This call is being recorded and will be available for replay on the Logitech website. Joining us today is Guerrino De Luca, Chairman and acting President and Chief Executive Officer; and Erik Bardman, Senior Vice President of Finance and Chief Financial Officer. I’d now like to turn the call over to Guerrino

Our Q3 results were consistent with the finding from the assessment of our business that we completed earlier last fiscal year. The most significant inhibitor through higher sales continues to product gaps across all of our retail product categories, particularly in the high-end, where we do not enough compelling offering to drive up sell. One metric says it all; last quarter products rise above $100 represented just 16% of our retail sales. That figure was 24% one year ago. Despite the general weakness of our offering in the high-end, many of our categories are performing well in the midrange and the low end, as demonstrated by the 8% year-over-year growth in unit shipment of our retail products in Q3. The product gaps are particularly noticeable in the remote category. The remote that generated the highest sales in Q3 was the Harmony One; a product that we launched four years ago. As successful as the Harmony One has been during that time, we are late to bring our next generation high-end remote to market. The biggest reason for this was a shifting of our digital home resources away from Harmony to bring Logitech Revue our Google TV box to market last year, during the timeframe when they normally would have been developing a replacement for the Harmony One. We are making good progress on it now, and we will fill the gaps in our remote lines with the innovative offerings that we’ll ship during fiscal 2013. Unlike remotes, the webcam category is one where we have consistently refreshed our product lineup during the last several years. However, some of these products have missed the mark, due to shifting consumer preferences. Many consumers find the embedded webcam experience adequate for their video calling needs. Our product development focus has recently shifted to enabling experiences that cannot be easily achieved with an embedded webcam. Let me turn now to digital music. Our large and growing market that is increasingly driven by the mobility lifestyle. As I have said before, we did not take advantage of this trend for a long while, given our focus on PC speakers and sound quality at the expense of mobility, convenience and frankly coolness. We have retargeted our product roadmap accordingly. In the second half of Q3 we launched the first of our new digital music product, the Logitech’s Mini Boombox. We are pleased with the initial response to this mobile speaker and speakerphone combo priced at under $100. There is more to come in fiscal 2013. While not yet fully visible in our results, I am pleased to report improved execution across many aspects of our business. One indicator was our Q3 gross margin of 36.2%, which reflected both supply chain efficiencies as well as the benefit of improved margins on a number of products. Speaking of products, I am also pleased with the progress of the new product initiatives we’ve put in place over the past several months, both for the retail and enterprise market. Addressing our many product line gaps and weaknesses is a multiple quarter process. We believe the new products will make a substantial contribution to improved performance by the second half of fiscal 2013. The most significant operational improvement is in our EMEA sales region. We believe our channel partners inventory levels are now aligned with the current demand environment in Europe. Even more importantly, we have resolved the channel pricing program related issues that cause many of our sales and profitability problems in EMEA during the previous four quarters. We cannot control the economic conditions, but we have largely fixed the things in EMEA that our under our control. As a result, we believe the region is well positioned for improved performance in the coming quarters. Now let me close by highlighting our strong cash generation in Q3. We generated over a $150 million in cash flow from operations, and we ended the quarter with $523 million in cash. We have $177 million remaining under our existing share repurchase program, with all regulatory approvals in place to begin repurchases on our second trading line. With that we are now available to take your questions. Please follow the instructions of the operator.

(Operator Instruction). Your first question will come from the line of John Bright with Avondale Partners. Please proceed

LifeSize grew less than what they had gotten used to, and as you may recall, last quarter we mentioned that there being a lengthening of the sales [card] cycles particularly in the Americas, we believe its economy related. So we saw the same in this quarter. I think this is temporary, I don’t believe we’ve lost any market share at the room system level. I think you will see dramatic improvement in our infrastructure offering disrupting the way infrastructure is delivered for video conferencing. So I am confident that this is temporary, and l believe that LifeSize continues to have a significant potential for growth moving forward. But the current situation, I believe, is particularly driven by lengthening of the sales cycle, particularly in the established economics; United States and Western Europe. We are making tremendous progress in emerging countries, but we are starting from a very low base. So while the growth numbers are pretty significant, they don’t yet contribute to a full growth that we would expect to come back in the current quarters.

You talked about the profitability of LifeSize, your gross margins certainly sequentially up nicely. I think you’ve fixed the problems in Europe, certainly exiting Google TV. LifeSize on a gross margin basis certainly much more plausible. What about on an operating margin basis for LifeSize.

This is Erik. From an operating perspective, LifeSize isn’t yet profitable. But as Guerrino talked about and as we talked about in terms of those. We think about LifeSize, the product roadmap and really the opportunity in front of them disrupts the market, gain share. We talked about how we wanted to grow in emerging markets. That’s our primary focus, and we feel very good about where that business is positioned. We do see the short-term problem that Guerrino talked about. But our focus is on growing up business going forward.

Last question from me. Guerrino, part of the new strategy you have in place is to penetrate the enterprise channel specifically from the peripheral side. Can you talk about what you are doing along that strategy and how far long are we in that strategy.

It’s moving very well John. Our strategy is a combination of taking advantage of the UC opportunity, whereby being the only company that provides both headsets and webcams to this growing market, and to focus our commercial efforts more aggressively on the traditional PC peripherals, but objectively benefit in the enterprise are kind of much healthier than in the consumer market in established economies. Both things are working. We’ve found out significant numbers of second tier [VARs] and distributors. We are using fundamentally our distribution network at the first tier, but we are targeting them towards more enterpriser focused resellers. We’ve also closed our first enterprise only distributor a short time ago. So, as they are moving along, that element of business has a great potential for growing, and I am glad that we are pursuing that.

Yeah I am going to hit one as well. How big is that opportunity?

Well, we have not completely disclosed all this details, but I believe that this is a double-digit growth opportunity in the segment for both our PC peripherals and our UC peripherals.

Our next question will come from the line of Stefan Gachter with Helvea.

I have two short questions. Number one, I have recently learnt that you guys have secured revolving credit line up to $400 million. I am just wondering what’s this all about, since you guys are [hiring] it, [Cash] positive. Also whether you are going to go for large acquisition, and number two, could you give us an update on the CEO search arena?

I will let Erik comment a little bit more in detail about the credit line. It’s actually $250 million, and in the past we’ve had unsecured credit lines. But this was a routine operation to secure them. There’s nothing behind it, there’s no specific. In fact there is no plan for utilizing these lines in the short to medium term. So, that is much healthier in an economy that is very, very scary to secure as much resources for the company as possible. But behind that no plan for large acquisition, or no plan for actually tapping in to the line; as you said we have substantial amount of cash, and we can develop our business on a regular basis through our cash flow. On the CEO search, thank you for the question. May be a couple of you would love to see me gone because I am now become so bad at predicting our future results. I don’t think that that’s the case. I hope that’s not the case, but the search is progressing very well. I am not in a position to tell you or give you a schedule or a deadline. But I am pleased by the candidates I am seeing and a lot of smart people are interested in Logitech and opportunity to make this icon shine again.

(Operator Instruction). Our next question will come from the line of Andy Hargreaves with Pacific Crest. Please proceed.

Just wanted to ask on the gross margin. For a decade it was a really, really consistent number. So what’s changed to get you in to this mid to upper 30s from the lower 30 range, and is that a sustainable number in your (inaudible).

Well we have been indicating a higher target for gross margin for a long time, and there is one thing that has stayed intact in the long term model that we’ve tabled, as we all know, expecting and waiting to revise it when we have a better sense of what the engine is doing. Certainly gross margin is a feature that I do not expect to see dramatically changing. We are an efficient company, we are mix [priced] there, we execute well. I believe LifeSize does help in that portfolio. So I would say that this is part of the operating effectiveness of Logitech that in spite of some glitches over the past couple of years, it’s still a feature of the company.

Just on the keyboard side, on the iPad keyboard side, can you update us, are you guys manufacturing all of those units at this point, and can you give us any sense for what’s the mix of the licensed keyboard versus Logitech keyboard is.

The number of keyboards that we design; we may or may not manufacture them. By the way, there’s a lot of products that we design and do not manufacture, and iPad keyboards fall in to that category largely. The mix is increasing towards product design by Logitech, but our partnership products continue to do well, and in fact the entire category is doing well. We believe we are just growing nicely, and you should expect significant Logitech designed products coming in fiscal 2013 in this category.

Give us a sense for what the overall keyboard attached to a table is?

It’s high and we are taking advantage of that. I don’t have a number with me, but its certainly in the mid double-digit, talking about may be 20%. But don’t quote me. I don’t remember it right now, but I know its very high. Its one of the most attractive categories around the Pad except for covers and things that we don’t do.

And the thing is that the trend that you are seeing more and more as the iPad and its tablets go in to enterprise, go in to business, we see it as an opportunity. We are thus going to continue to be a nice opportunity for keyboards and think it enhances your tablet. Make it more productive, make it more a true portability device, we can do more things in a business environment.

Our next question will come from the line of Rob Lamb with Citigroup. Please proceed.

I just wanted to know how confident you are in the 60 million operating profit. If there were some issues of revenue in the (inaudible) of the year, what [levers] you have pulled in effect to achieve that.

Well I do understand the reason for your question. We have been, as I have said before, pretty poor in projecting our revenue moving forward, and I can only say that I am the only one to blame. I believe that that’s what we said in our release, the biggest driver for the decline in our guidance and the outlook is the euro. When we set the guidance the Euro was substantially higher and it has declined, perhaps the most rapid rates we have seen in a long time, and I am not telling you anything. So we have now factored in the current trading range of the euro, of course, and I can’t say if that is going to be the actual exchange rate that will apply on average for Q4. But just for your information this guidance comes with an assumption of current trading range of the euro. Other than that, yes, I am confident that we will meet that number.

Just to clarify, if there was another issue and what levers could you pull and of that from anywhere.

While we try to have a company that is responsive; against the collapse of the euro it’s very high to pull any lever in a very short term. But you know when the euro goes down, our structural weapons are pricing. You don’t change prices over night just because the euro collapses. At least I don’t expect that. In terms of the long term, maybe your question is suggesting what you are going to do in the medium term. It’s clear that the focus, number one, of the company is to regenerate growth, reignite innovation, and execute increasingly and effectively, and the cost structure will then be consistent with what these actions will create. \ So rest assure that that’s part of my fiscal responsibility and I will act accordingly when and if necessary.

Our next question will come from the line of Michael Foeth with Bank Vontobel. Please proceed.

First question on gaming, how are you thinking about the future of this category both in console and PC.

We think our retail gaming reserves have been scattered very well and then less well. The major driver in the short term in the past couple of quarters has been this resurgence of this steering wheel that has been driven by particular games. Every time you have a success which is driven by one particular game, if it works, it tends to be very good in the first short period of time or medium period of time and then it sort of fades away. The biggest gaming opportunity to exist in the PC gaming category is being actually growing and we are talking about mice and keyboard designs specifically for games. It has been growing and I think it can grow faster. It’s one of the subsections of the PC business which has potential and we’ll take advantage of that.

So will you continue to serve the console gaming space or are you withdrawing from that overtime.

At this point we are not, but increasingly consoles will provide cross-platform opportunities, and when that happens, we will take advantage of those. That’s actually more specific. Dedicated controllers for dedicated consoles that do not allow cross-platform utilization, we are not interested. But, for example, the Xbox is promising substantial cross-platform opportunities across the entirety of Windows 8 and we’ll certainly take advantage of that.

My second question would be regarding mice. I have recently seen more and more branded HP mice in retail shops. So my question is are they moving away from the OEM approach or they are trying to compete with Logitech in retail or what is going on with that.

Well, I thinking you are thinking that HP would actually focus on mice, it’s a little bit extreme. We have not lost market share, actually we’ve gained market share. Just to give you a sense, in the last data that I have, we have more than 50% of the US market in mice. It never happened. So we are definitely the mouse king, and we will continue to be the mouse kind. I have no reason to believe that HP is doing anything else that they have done in the long time. I just don’t even know if they find their mice. They do have mice; they sell them mostly in the enterprise market as attachments to their other enterprise products. No, I don’t consider that this is a matter that should give us any cause for improvement.

But in the end you are not producing these or --.

No we are not producing. But still just to be very clear, we are still a supplier of HP and virtually every other manufacturer on the OEM side. But we are not building retail mice for the (inaudible) base.

(Operator Instruction). Our next question will come from the line of Michael Studer with Bellevue. Please proceed.

I’ve got three questions; may be the first one pretty simple, on the tax rate. You’ve change pretty significantly your guidance now for this year. Can you elaborate a bit, what influences the tax rate and what should we think going forward.

In terms of when you look at a quarterly tax rate, that can be very volatile. There can be things such as discreet events in last year versus this year. So it actually says to your point that the right way to look at us from a tax rate perspective is to look at the full year basis. When you look at the full year basis, the single biggest factor in terms of why our rate is changing on an outlook basis is related to the fact that the drop in our outlook isn’t profitability for the year. Because you estimate that as you go through the year and then you estimate your provisions needed, etcetera, in terms of how you think about your taxes and the tax rate you end up with. Also to give you a little bit of just perspective on it is, when you look at us over the last several years as we’ve seen is, our tax rate does tend to move inversely to the growth in our profits and that’s the reaction you are seeing here, very consistent with that.

So there is not much geographic impact. So thinking of Europe or US being growing slower than Asia doesn’t have an impact on tax rate, it’s more adverse reaction on growth actually.

Yeah, the last part of what you said there is right. In this particular case the biggest driver is that factor in terms of the change in our outlook. But just to make it clear, yes all the time we have changes in geographic mix which does move around, but it wasn’t the primary driver in terms of what changed this time.

One question on your cost structure in general. What we’ve acknowledged a bit is that, as you say, that gross profit margin is actually rising in the recent year, where as marketing and selling cost is rising elsewhere. So your operational leverage exposure has risen recently, and therefore the risk on the operational leverage has increased the profile. So my question is, is that how we should think that’s how its going forward, or can we assume that your marketing and selling cost, so your fixed cost block will kind of tend to go towards the levels we’ve seen two year back or so.

That’s a complex question to answer. Let me say that on a non-marketing side, we do not expect our G&A, for example, to grow in absolute terms. So there will be substantial leverage on that front. On the marketing side, it depends on the mix. On certain initiatives the marketing requirements are higher than others. Driving, for example, LifeSize is a substantial operating expense embedded, but comes with a much higher margin than the mix of the company. Certain consumer initiatives will require marketing, others will require less marketing. So net, I would say that, at worse, you should expect marketing to grow with sales, but it should be doing better. My view on the long term business model of the company, while I am not prepared to numerise is just completely quantify it. I do believe that leverage is embedded and we will resume it as soon as our growth resumes. I think that’s the number one driver for the company, number one focus for me at this point. Reigniting growth will benefit all the structure of the business model and there is no reason to believe that that’s not going to be the case.

But assuming, lets say if you [plan] for example in to next year, would you assume that you are flexible especially on the marketing and selling front as well or should we already think of a fixed cost walk that that is very deep.

Absolutely. Thanks for clarifying that. A, we are not assuming that our sales will decline next year, and I would not say more than that at this point. But in that hypothesis, we do have - our true fixed is actually much lower than the number that we actually said, and we do have marketing leverage. We exercised it all the time; and that is one that we can exercise and will exercise even in the short term. So it would not be correct to consider those [this far].

Our next question will come from the line of Joern Iffert with UBS. Please proceed.

Quick one on the R&D expenditures, can you give us somewhat details for products (inaudible) year. How much for example are [tablet] peripherals, LifeSize, webcam and remote. Thanks.

Joern, in terms of the growth that we saw in R&D on a year-over-year basis in the quarter, it’s almost exclusively driven by investments in LifeSize, so no other specifics in terms of seen it grow at a high rate in other categories. It was driven by the investments on LifeSize.

Let me add something here. I said and repeated many times that the right products, great products are essential to our growth. If you take everything out, if you take the euro out, if you take anything else that we’ve discussed in this call and in the past, this is the single biggest, most important priority of the company, and this is where we are most behind. So if I need to spend more in R&D to make that happen, I am not expecting to, because this is not a question of quantity, it’s a question of quality, but that is the lever that I am ready pull. Because you know, all successful companies in the consumer market have proven that great products drive everything, and we just have to do more. Now if I look at the roadmap for the next 12 months, I am actually pretty excited. I like what I see and I want to see this product happen, happen on time and eventually get the impact that I expect they will have. There’s nothing more important for Logitech.

Can you then also confirm that you are further investing R&D in webcams and remotes? With the R&D expenses, it’s not declining in absolute terms.

Well I can’t say that. I cannot say that. We are not crazy, we will look, we will put our R&D money when we expect we can deliver maximum consumer benefit. In some categories we can in some categories we can less. But we are not splitting, we don’t talk about how much we invest in each of the category and certainly I won’t make that exception today. But just be clear, we are not flattening thing. We just put our money in everything because we think everything is great. We can be a little bit smarter than that, even though it may not look like it today. We are definitely identifying the areas where the best opportunity is for us to differentiate and to provide a meaningful consumer experience exist, and these may or may not be webcams or Harmony. But I wouldn’t go for a little less.

(Operator Instruction). Our next question is a follow-up question from the line of John Bright with Avondale Partners. Please proceed.

Let me ducktail on those questions. The debate of that question is that, any time is doing a product refresh, is it concerned that OpEx gets out of control. I think they were dealing directly with R&D. Can you talk about the sales and marketing side of that as well, and do you actually look at R&D on a product basis i.e. the spend or does it have overlap.

We definitely look at R&D on a product and product category basis. Absolutely, we definitely do that. Thanks for clarifying what the concern behind prior questions could be. The last thing I would say about our total expense envelop is that it isn’t out of control. It is completely in control. We know what we are spending and we know what we are spending for. As I said and repeat, our R&D expenditure, which actually happens to be a very small percentage of our total revenue, continue to be precious to me as long as we know where to apply it. Then we will use marketing where we need it in a more extensive way or in a less expensive way, depending on the category. But again, my concern is not whether we are able to control our expenses. My definite concern is how do we set the business model so that it is consistent with our growth opportunities, and that is some thing that we definitely are looking at.

A different question; certainly at CES ultrabooks were a big theme, and it looked to be so in calendar ‘012 looking forward. How are you thinking about ultrabooks and peripherals for ultrabooks?

We think that is great. Anything that moves the PC forward is great, and ultrabooks are one of those, another one we believe that mice are going to be very attractive for ultrabooks. We have products today and more will come. Ultrabooks, and also I would add Windows 8 will create another dynamic in the PC. It will make touch more mainstream and that’s another thing that we will take advantage of. If you remember our investor day in November we alluded to something, and I still believe that that’s a great opportunity. So ultrabooks are good thing, and I have seen the same myriads of ultrabooks, so everybody wants to have their Mac here these days and that’s a good thing. We don’t believe that there is any reason why an ultra book [quick] users would not want to work more comfortably with a mouse as much as a notebook user would.

Eric a follow-up question for you on my original question. One; what size in the sales does LifeSize need to be to become profitable, and then, a separate question on an overall basis particularly on the peripheral side, what’s the health of the inventory.

To your question about LifeSize, it’s not a question of absolute that you get to a particular number and you magically get to a certain level of profitability. We are really running that business, as I mentioned, in terms of looking for where we continue to be able to find opportunity to take share. And as Guerinno mentioned, really just intermediate and disrupt that market; and we feel very good about the product lineup and we think several things over the course of the next couple of quarters, they are going to continue that trend. When it gets to thinking about their income statement. We don’t disclose income statement, details about LifeSize. But when you think about it, it is a scaling aspect. So, today the operating expenses and other things are typically moving in line with the top line, and so it comes to us continuing to focus on how we grow that business, and we feel very good about the profit potential. But the focus right now today doesn’t matter to me to get another dollar of profit out of LifeSize, it is how much share can they gain, how much can they go after that space. To your other question about the health of the inventory overall; are you asking about channel or are you talking about our inventory itself.

Both.

To give you a little bit of a sense; on the channel side, I think and Guerrino has mentioned it and we talked about it in our prepared remarks as well. We’ve talked about that we struggled the last couple of quarter in EMEA a little bit. We’ve actually made very good progress operationally there. We have our channel; it was down 22% year-over-year in Q3 in the EMEA region. So we are making good progress, we feel good about where we are positioned. So overall I would say channel is definitely healthier than it was several quarters ago. We obviously watch it very closely, as we said, we can’t control the macro economic environment, but we are going to respond to it and go from there. In terms of Logitech inventory, it was down about $29 million sequentially, about 9% and down just a little bit year-over-year. So I would say its appropriate given where we are. Its another thing where we are currently, constantly managing transition of products in and out. But I think overall the health is solid, its how you’d describe it.

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

In terms of LifeSize, could you characterize the competitive environment now and where you actually see those market share gain potentials, because it certainly appears like the market share gains LifeSize was making over the previous couple of years that have slowed down.

We definitely believe we can continue to compete in the Room system level. We continue to plan for further disruption at that level. I think the biggest opportunity though as the market is going increasingly mobility and sort of cloud, we are definitely planning to aggressively play those two cards. We made acquisitions on that front; we made a product announcement in outsource video conferencing, LifeSize Connect. That is a direction that we will employ increasingly to play a different game. So I believe that the outcome of that will determine the growth opportunity and the market share opportunity of LifeSize. Now, the market is complex, the market share is measured in many different ways, and we are interested in taking advantage of the discontinuities, in fact to lead those discontinuities in certain cases and that’s our primary focus.

Then a follow-up. One other thing you mentioned at the analyst day Guerrino was really trying to get the market faster with Apple where you’ve kind of lagged historically. When you walk in to a retail store now, we almost different set of competitors on a lot of the Apple peripherals than we’ve seen traditionally in PCs. So there are companies that literally bet their entire businesses on Apple. To what degree do you expect to be on par in terms of skews and speed to market with those types of companies?

We are more focused on velocity and the sales and number of skews frankly, but your observation is correct. We’ve been kind of pretty absent or marginally present in Apple stores. Our presence has increased. We have increased the number of products in the variables area. The Logitech UE products, in fact they are doing well. We will increase soon and I am not sure we are at liberty to discuss that, but some further presence, we’d like to put it this way. We happen to be one of the best selling keyboard for the Mac on the Apple side, and our solar keyboard for the Mac is being received incredibly well. We are actually being short of that product for a while, because the response has been much better than we expected. In general, you should expect us to be more present, both in the categories that exists in the Apple (inaudible) music definitely, but also in categories that are more traditionally Logitech. We intend to pursue this strategy of making our best product first for the Mac and move them on the PC, and you will see examples of that in fiscal ‘013.

Our next question comes from the line of Zahid Hussein with Citi.

Just a couple of questions, if I may; the first ones really around visibility going in. This is not the first downgrade we’ve seen, and obviously its not the first time you’ve had to take your positive guidance down, where the numbers come down about I think 400 million s far this year. What I really don’t understand is, you’ve now taken it down again. Obviously you’ve factored in the effects of the last quarter of the year; you know your portfolio coming up. I want to know how convinced you are that there is no way that your revenues number will be below 2.3 billion, and also why you are so confident that you will hit the 60 million, because it is a very, very big downgrade to, so I guess where you’ve been (inaudible). That’s kind of the first question really. The second question is, obviously you’ve got a very, very solid cash flow. I understand that you are trying to be strategic about the environment that’s coming up, and other areas that you had looked to grow the businesses, other small Bolton acquisition you would think about, other things around LifeSize that you could do to may be make the portfolio slightly more attractive. And finally just really on OpEx control, obviously you’ve got to kind of invest a little bit more in it to build up that channel. How quickly can you kind of cut down your sort of overhead if you needed to, let’s say, demand really falls off let’s say in the next six to 10 weeks. Thanks.

6 to 10 weeks is actually a short time. We do not expect the demand to fall off the cliff, and yes we have some leverage, as I have said answering another question. Let me go to the core of your question. I could not be more disappointed, by the fact that for four times we had to lower our [outlook]. You can understand that. And every time we did, we had our bad (inaudible) on it. We had bad data on it, and we just mis-forecasted it. It is the last time. I would not even answer that question because, what kind of credibility do I have. If I tell you that I am confident, you will say, right, you were confident three months ago. So, we actually struggled on the fact of whether we wanted to put out a number or not. Then we expect we are one month in to the quarter almost. We know what we think not to share it with our investors, I this would be a little bit silly. But I understand the risk is, hey you may be wrong again. Do I say that I will swear on the head of my children that the numbers we are going to make, no, of course not. But believe me, we have considered everything we could consider; the trend, the channel, the products, the consumer, the customers, and that’s what we come up with, and that’s all I could say. Frankly, you know, there’s no additional reassurance I can give you that will take the way you are concerned that we actually were wrong four times, and I’ll have to live with that. On the investment and how quickly they returned etcetera. As I said and I repeat; there are areas of our business, products, regions, markets in which we are investing and we will invest. These are not semiconductor company investments, they will not just have to return in six years from now. They are all relatively short term. We’ve seen what we have done in China. China continues to grow spectacularly well. We continue to invest, but China is a profitable element of our portfolio and will continue to be. So I will expect similar profile and geographic in commercial investments. There will some increase and then a short term return, or we’ll stop it, if it doesn’t return. On R&D side, as I said, we are investing and will continue to invest moderately because in our R&D we are not throwing additional engineers to the portfolio. We are refocusing those engineers. We have almost a 1000 in our products group. We are focusing on products that are more meaningful. May be a fewer products but definitely more meaningful, more impactful. Then the quantity is good; strategy we’ve had for the past three or four years. That has changed. Will it require more R&D? Not necessarily. Will it require R&D? Definitely. I am not sure if I answered the portfolio of the question here.

Yeah, that’s mainly. I guess just the follow-up to the first and then I will ask you the other ones. In terms of the confidence there, that’s the best way to look at it. Last time when we spoke, you were very confident about 90 million. Now coming to the 60 million how has your confidence changed. You knew what your portfolio looked like six weeks ago, 10 weeks ago, 15 weeks ago. You knew what it looked like in a capital markets day. So what is changed today that makes you even more confident. The magnitude of the downgrade or is it fact that right now the kind of the minimum level you will be. That’s what I am trying to gauge, because the 90 for me was always unachievable, where was the 60 for me looks like its very sort of low end target for you. Is that for you an aggressive target.

I would not characterize the target. Let me tell you two things; the difference between the 90 and 60 is fundamentally the two reasons. Number one is; we said and we repeated; there is a significant component in currency and that we cannot control. Remember when we gave that guidance, I would say the euro was at the end because the euro will never get back there. At the end of its trading range, at the highest point of the trading range. And the impact, if you just calculate arithmetically on the top line and on the bottom line, is very significant. Responding in a short term to those currency changes is definitely impossible for any company. So that’s one element that says, yes, may be I was wrong in guessing the euro; we never do guess the euro. We take the current trading range and supply it. So, that’s number one. Number two, the 90 was looking at a six month period. Now the 60 looks at a much shorter period. So these are two big differences. Is the 60 aggressive, conservative, regular, I won’t even correct or write it in any way. It’s the number that we are comfortable for sharing today.

Finally just in terms of the investments that you could potentially do. So obviously there might be certain things that would be looking at, not only in terms of R&D, organically where you can go in to the valuations of a lot of your businesses that you might be looking in to or coming down the lot, and certainly with that sort of cash (inaudible) may be make sense to add to your top line.

Sorry, I missed that part of the question so I apologies. As usual, we are definitely always looking. We are not considering a major acquisition to be very clear, and untying to the question about the credit lines etcetera. No we are not. But, Bolton, small acquisition absolutely. In the LifeSize space, outside LifeSize space absolutely. But bringing top line has never been the strategy with any of our acquisition and I don’t believe it will be the strategy of any of our future acquisitions. We’ve always acquired growth engines and that’s the kind of focus or ingredients. The Mirial and Paradial acquisition were great ingredients to enable LifeSize to play in to this disrupted sort of mobility [flash] cloud infrastructure development. So things of these nature, absolutely. In the more traditional Logitech space certainly. But acquisitions that add top line upfront, not the priority.

Ladies and Gentlemen, that concludes our conference call today. You may all now disconnect. Good day everyone.