Logitech Loses by Winning

So I hear that yesterday, Logitech (Nasdaq: LOGI  ) reported its fiscal third-quarter 2008 numbers, and in the process, it soundly thumped analysts' earnings estimates.

  • Revenues came in at $744 million, a 13% increase over last year's Q3.
  • Gross margins improved 70 basis points to 36.9%.
  • And profits per diluted share leapt 45% to $0.71 per share.

So, um, why was the stock down 9% yesterday?
My question exactly. But after looking over the report, I've got a couple of theories. First, while improved margins drove profits up 13% past the $0.63-per-share showing that analysts were expecting, sales actually came up a bit short -- 4% lower than expected.

One thing's for sure: The epicenter of all of this investor quaking doesn't reside in the Eastern Hemisphere. Retail sales (not including OEM sales) in the Asia Pacific region leapt 44% in Q3. In contrast, sales in Europe, the Middle East, and Africa (a "region" often lumped together under the acronym "EMEA") grew a mere 4%, while the Americas grew a respectable 9%, on par with overall retail sales.

Enough with the webcams, already
So why is Logitech lagging in Europe? You know this story already. Ever since Microsoft (Nasdaq: MSFT  ) began gunning for Logitech's market share in webcams, investors have fretted over the havoc the Redmond Raider would wreak here. Toward the end of last year, Logitech was suggesting that it had successfully fended off Microsoft's assault, but Logitech appears to have spoken too soon, because Microsoft is making inroads. On the plus side, Logitech enjoyed strong growth in keyboards and mice -- such as the ones yours Fooly is tapping away on right now.

Beyond webcams
Optimistic investors may dismiss all of the tearful webcam-mugging and focus on Logitech's outlook of 15% sales growth this year and an increase in its earnings expectations to "more than 20%."

Fair enough. But even more important, in my view, is Logitech's successful expansion into a new product category: remote controls. Profiled several months ago in a Wall Street Journal column as a way to help TV viewers get a handle on the myriad electronic devices crowding our living rooms, Logitech's "Harmony" remote controls have encountered remarkable success in the marketplace. Sales rocketed 72% year over year. Selling as they do for up to several hundred dollars apiece, Harmony currently holds four of the top five "bestselling" slots on (Nasdaq: AMZN  ) under the remote-control category.

I don't know about you, but if I had my druthers, I'd like to fast-forward past the webcam silliness. I want to see how Logitech's expansion into ever-higher-tech products aimed at simplifying consumers' lives helps this company to grow. And I'm pretty certain it will grow.

Monitor Logitech's progress with:

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