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Will a Bigger iPad and PC Gaming Drive This Company's Turnaround?

The shrinking PC market and the rise of mobile devices not only took a toll on the likes of Intel and Microsoft, but also computer peripherals manufacturers such as Logitech (NASDAQ: LOGI  ) . However, Logitech has executed a remarkable comeback. Its shares have almost doubled over the past year as the company has successfully diversified its business by providing peripherals for Apple (NASDAQ: AAPL  ) products.

Diversification is helping
Logitech has diversified into digital navigation, music, video entertainment, gaming, and related segments. The company's turnaround plan has worked well, primarily due to its focus on new growth categories. Logitech has demonstrated that it can deliver growth beyond its core PC peripheral market, with mice and keyboards for gaming now forming an important part of its portfolio.

The company's PC gaming segment saw 45% year-over-year growth in the second half of the previous fiscal year, and it is bringing out new products to sustain this momentum.  Logitech recently launched its newest gaming mouse, the G502 Proteus Core tunable mouse. The company has received positive feedback for the product, and is excited about its potential. Logitech has promised more new PC gaming products in the months ahead.

Apple-driven prospects
Logitech's tablets & accessories segment is also doing well. The company has been able to leverage its keyboard expertise, and enjoys a competitive advantage over peers by developing keyboards that are priced correctly to drive increased attached rates for both the Apple and Android platforms. Logitech management claims that its market share of tablet keyboards designed for the iPad is more than 50%.

As a result, the company is in an excellent position to benefit from Apple's upcoming iPad product refresh cycle. As reported by International Business Times, Apple might launch three iPad variants this year -- the iPad Mini 3, the iPad Air 2, and a 12.9-inch iPad Pro. Apple is rumored to be equipping the iPad Pro with 2K and 4K displays, and it is going after enterprise customers with this variant. 

The last variant is expected to be an answer to Microsoft's Surface Pro, and will open up new opportunities for Logitech. In the previous quarter, Logitech CEO Bracken Darrell said that the company expects to benefit from higher attach rates in 12-inch tablets, as this form factor is gaining popularity due to ease of use in productivity-related applications.

As Apple is rumored to be launching a bigger tablet, it is possible that Logitech might become a supplier to Cupertino. The two companies have worked with each other in the past, with Apple developing game controllers in partnership with Logitech.

Logitech is also trying to gain traction in iPad covers, where its share is in the single digits. The company has launched three new protected cases for the iPad, and will continue bringing out new designs through the course of the year to improve its market share.

Some more positives
Logitech has also boosted its mobile speaker segment with its new flagship offering, the UE BOOM. The product has received a strong backing from customers, and was the key reason behind Logitech tripling its sales of mobile speakers in the previous fiscal year. The company made a smart move by launching UE BOOM in a few select markets in the first quarter of fiscal year 2014, and gradually expanded distribution to more markets once the product got off to a good start. 

The company is also actively engaged in maximizing cost savings. It booked a $5 million restructuring charge in the fourth quarter as it trimmed its Silicon Valley campus from two buildings to one. As the year progresses, Logitech is determined to execute more infrastructure-related savings that will help the company in building additional investment capabilities.

The takeaway
Logitech has a strong cash position of $469 million, and the absence debt on its balance sheet gives the company an opportunity to invest freely in its turnaround. Moreover, the gap between its trailing P/E (28) and forward P/E (13) ratios signify that the company's bottom line is expected to improve in the future.

The company has done well so far. It should continue doing so on the back of innovation and increasing opportunities in the tablet market, making it a solid long-term pick.

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