I "second" the following:
The turnaround is actually progressing.
Tablet Accessories Still Very Strong
The Logitech turnaround thesis is actually surprisingly simple: optimize the traditional PC markets for profitability in order to fuel the three core high growth areas: PC gaming products, tablet accessories, and wearable & wireless audio products. Tablet accessories were up 142% Y/Y, largely driven by continued tablet growth as well as continued market share gains in the space. The trick for Logitech has been adapting to the more breakneck pace of the tablet accessory cycle, and it seems that the company is getting a solid handle on this business.
Now, what's interesting here is that while Logitech offers tablet accessories for both the iPad as well as various Android devices, the product line is very clearly much richer for the iPad than it is for the Android side of things, with the company's site listing 12 products for the iPad, but just one for Android/Windows. I would be interested to see if, going forward, the non-iOS business becomes more substantial for the company, particularly in light of Apple's continued share loss (although the iPad is still growing, and Logitech doesn't have 100% share, which means the iOS growth opportunity is still attractive).
PC Gaming - Finally Back In The Game
As I noted in my original thesis, PC gaming is a growth market, and as a result accessories that cater to this space are also growing. However, Logitech had taken its eye off the ball in this space and lost significant market share, despite being one of the most recognized brands in this space. In the most recent quarter, however, it looks like management really delivered on its promise to try to take back share, as sales in the PC gaming segment were up 50% Y/Y from $26M to $39M, far outpacing the 20-30% projected industry CAGR. There is still significant work to do here, but a look at the product catalog, reviews, and even testing out a good number of the more recent Logitech products helps to drive my confidence that the company will continue to rebound here.
Wireless And Wearable Audio Also Showing Signs Of Life
The final growth vector - wireless and wearable audio - was also up a solid 31% Y/Y. I'm largely encouraged by the results here, particularly as the segment is divided into two distinct parts: wireless speakers, which the company expects will see an industry CAGR in the low 60% range, and then the earphone market which is significantly less robust (and far more vulnerable to commoditization, so the company needs to pick and choose its battles more carefully). My only concern here is that while the company continues to differentiate on sound quality and aesthetics on the wireless speaker side of things, the competitive threats may not be so easy to dismiss, which poses a threat to the margin story here.
The Non-Growth Businesses: A Mixed Bag
While Logitech has deftly maneuvered its business to focus on the growth businesses, it is important to keep an eye on how the "non-growth" businesses are doing, particularly as these still represent a significant portion of the company's revenue and gross profit dollars.
PC keyboards & desktops were actually up 3.7% Y/Y, which points to market share gains given the weak environment. Now, interestingly, management indicated on the call that there was still room for continued market share gains over the foreseeable future, which helps to allay fears that the company had hit a saturation point here. PC audio, on the other hand, saw a dramatic slump (16% Y/Y), largely due to the fact that the product lineup here has not been updated in years, coupled with a weak end market. I expect Logitech to do better on iterating new products here to offset some of that weakness, but this will still be a challenging business long term.
Pointing devices were down about 1% Y/Y, which is pretty solid considering the weak PC market. Video (which includes webcams) was down about 5%, playing into the weak PC story.
All-in-all, Logitech seems to be managing these businesses well (although the long thesis would be materially diminished if the company relied solely on them), and the share gains and cost management here should help to keep profitability largely intact as the growth areas drive the company forward.
Conclusion
The Logitech growth vectors seem to be playing out as expected, and the legacy businesses seem to be doing quite well, particularly as share gains and product refreshes help to mitigate the effects of a weak underlying market. I still think shares go higher from here and that investors willing to be patient will be amply rewarded as the story continues to unfold.
