What do Logitech (Nasdaq: LOGI), Western Digital (NYSE: WDC), and Dolby Labs (NYSE: DLB) have in common? They're passengers on the desktop/laptop PC cruise ship, and they can see the tablet iceberg on the bow.
OK, so maybe that seems a little dramatic. Tablet sales are projected to make up 20% of the PC market this year, but they aren't practical replacements for laptop and desktop personal computers used for computation, word processing, graphic design, video production, and digital photo manipulation. But all three companies' revenues are tied to PC sales, and the likelihood of a 20% impact in the first year of widespread availability suggests more later.
Taking on water
Logitech manufactures add-on components for desktop and laptop PCs. Their most popular products are keyboards, mice, speakers, and webcams. While relatively few new computers come with Logitech hardware, the brand is a popular choice for add-on and replacement input devices. While deciphering the exact extent of Logitech's PC exposure is difficult, it's the vast majority of their sales.
Western Digital builds hard drives. PC hard drives account for at least 66% of revenue. Tablets use flash memory for storage, rather than disk, in the process sacrificing speed for battery life.
Dolby licenses its digital audio technology to PC manufacturers. The Dolby name is synonymous with high-quality audio and digital audio decoding. 29% of Dolby's revenue is PC licensing. Tablets to date do not include more advanced Dolby technology that collects higher licensing revenues, nor is there a compelling reason to incorporate it -- as with MP3 players, stereo earbuds are standard for audio output.
Manning the lifeboats
Companies that can move quickly to include tablet-friendly products may fare better. Logitech, for example, has recently signed an agreement with ZAGG (Nasdaq: ZAGG) to manufacture and distribute the ZAGGmate tablet case with keyboard. That is an excellent fit with its existing product line, although it will take several quarters to see how it impacts revenue. Rather than tackle the tablet issue head-on, Dolby appears to be spending its research budget on 3-D sound for theaters and flat-panel TVs, which may be promising as a replacement source for licensing revenue. Western Digital just bought Hitachi's hard drive unit and seems to be locked in a death struggle with Seagate (Nasdaq: STX) for high-volume, low-margin market share in a market that may be shrinking.
All hands on deck
Logitech may be the winner in this group -- it is actively adapting its products to the tablet market. But there are obviously other companies whose fortunes are tied to either PC or tablet sales. Let's talk about them in the comments section below.
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