Great. Well, I think we're ready to kick off. Hi, everyone. As a reminder, I'm Alex Duval, heading up the hardware team and research at Goldman Sachs in Europe. I'm delighted to be joined on stage by Matteo Anversa, CFO of Logitech. Matteo, thank you so much for joining.
Alex, thank you so much for having us. Great venue.
Thanks so much again. And just to state that this conversation is not intended for the media and is off the record. Great. So perhaps we can kick off with fiscal year 27 demand trends. It'd be great to get your sense on the latest dynamics across your various segments. And perhaps you could touch on some puts and takes that have been salient in terms of your demand in the past year. Maybe you could help us think about how to think about the consumer and enterprise demand trending in the coming year?
So, Alex, I think it's maybe a little early for me to comment in details around our fiscal year 27, which starts, as you know, in April. But overall, what we have seen also in the last quarter is, let me start with the consumer I think we called it resilient but choiceful, particularly in the U.S. We saw really the consumer looking for quality products, but at the right price, particularly on the medium to low-end spectrum of the product portfolio. On the other side, the premium. So for us, the ProLine, the MX, the Ergo, we continue to see very, very strong demand. They all grew double digit. Simulation was up in the high single digit. So translated back to your consumer question, the hardcore gamers, the individuals that are focused on ergonomics, on the efficiency, they continue to spend money pretty much unchanged compared to what we've seen in the past several quarters. So the demand continues to be very, very strong. On the enterprise side, look, we had a greater quarter where we see sales were up about 8% year-over-year in constant currency, and we continue to see very strong demand of both us and our competitors of all the videoconferencing products, and we can talk more later about the dynamics. But overall, I think on the B2B side, there's been different from the consumer. We have a pretty clear line of sight of the deals that are coming up, and we feel pretty bullish about the trend. Super helpful.
And Matteo, I think you won't be shocked to hear that I'd like to know about memory shortages. What a surprise. And specifically, maybe we could just touch on your ability to deliver products and to what degree that has an impact.
So in a way, we are lucky, right, as a company, because the vast majority of our products do not use the memory that is in shortage today. Just a portion of our VC products uses this type of memory. And I have to say, our operating team, Sri, as always, has been doing a fantastic job. They saw this coming, so a few quarters ago, we secured supply, so we are pretty much protected through the end of the first half of fiscal year 27, and we are currently working with our sourcing partners through our supplier ecosystem to continue to improve the supply situation for us. you know obviously we are seeing memory cost increases like everybody is and right now we think we can probably continue to mitigate the cost through our product cost reduction activities that we always do every year but if that's not the case then obviously we are ready to to take actions on the pricing front as we have seen starting to see some of our competitors doing And back to our pricing experience that we had in North America as a result of tariffs, we also saw pretty limited elasticity on the VC side. So I think we have room to act on that if the cost of memory continues to be inflated.
Very helpful. And obviously, the next part of the question would pertain to PC units. as we see some of these third parties talk about a low single-digit to mid-single-digit decline in calendar 26. So it'd be great to get a sense of what that means to your growth aspirations. I know historically, I think you've talked about the 300 to 400 basis points outperformance versus the PC unit.
So some people say, okay, let me take that, then I add that on to the high single digit decline and that must mean that Logitech will decline mid-single digits so please can you put into context how we should think about these sure you you know the company very well so um the uh um so I a couple of things I think to put things into perspective so first of all um in a way our attach rate on a new pc sale is about 10 to 11 percent So we are kind of insulated in a way from what PC sales really does because the attach rate is pretty limited. As we outlined in the last earnings call, the focus of the company historically and today is really on the install base. And today, basically, of all the notebook that have been sold, less than half have a separate mouse attached, and less than a third have a separate keyboard. So this represents a huge opportunity for us, and that's where the focus has really been. So how we historically have been outpacing the trend on PC sales is really through a couple of things. So number one, we focused on the attach rate on the install base. And if you look at the last decade, our attach rate on the install base grew by about eight points. So roughly call it almost a point a year, a little shy of that. so that's action number one so we have successfully proven that we can improve the attach rate on the install base just because people realize how much more productive they can be with a separate mouse or how much better is the experience when you use a separate mouse and a keyboard versus the you know what you you buy with the laptop second is share right We have been historically getting share a little bit every year, and when you look at mice and keyboards on the personal workspace, in the last decade, our share went from the mid-40s to above 50%, particularly in mice. So continued focus on product innovation that gave us share gain is aspect number two. And the third one is really the fact that through innovation, we have been focused on the premiumization of our portfolio. So if you look at our average net ASP, so the average selling price of the product net of promotion, we saw a quite dramatic increase in the last decade. Mice went up more than 20% and keyboards more than 50%. So that's really what allowed us to continuously outpace the PC sales. I would add another aspect, the number that you quoted at 300 to 500 basis points is what you see of outperformance on average, but the spread is pretty high, right? You have years where PC sales go significantly down and peripheral sales are growing low, mid-single digit. And the reverse is also true. So you have years where PC sales grow high single digit or double digit, but peripheral sales remain pretty consistent into the low mid single digit growth. So that's important to keep that in mind. And ultimately, it's very interesting for me when I come to these conferences, because if I rewind the tape one year ago, I was getting asked, OK, with the PC refresh, your peripheral sales should go through the roof. And we say, well, not really, because they're not really correlated to the new PC sales. And the same applies when PC sales go down. So it's pretty stable. That's why I'm not too concerned about what the new PC sales really is going to do.
That's super helpful. And maybe just to clarify as well, you talked about innovation and sort of being able to increase that attachment installed base. Is there anything that's changed or anything that you're seeing which would suggest that can't be the case going forward?
Look, we had, I'll give you just, Alex, a couple of examples. MX Master 4, the new mouse that we launched in September, was the biggest mouse launch in the history of the company. And this is for the personal workspace case. On gaming, if any of you in the room are hardcore gamers, we launched two weeks ago the Super Strike that has this haptic technology that is perfect for FPS type of gamers that significantly reduces the latency of when you press the button and we click the button on an FPS game and has been extremely successful. And so the technology engine of the company is a key focus for us and is not going to get away.
Super helpful. And I guess if we also look back over the last sort of five or six years, obviously, during COVID, there was a big pull forward of demand. Obviously, some new TAMs opened up and then there was a normalization period. Fast forward to now, is there also an opportunity there that you may need to do some refresh of that install base?
Very good question. So generally, the refresh cycle for our products is between four and five years, depending if you look at peripherals versus the video conferencing. So we're getting really into that space, right? If you bought something new during COVID, now it's due for a replacement. So that's the general rule. But even more importantly, what we are seeing our customers do is they really buy peripherals almost independently from a new PC or a new game being launched. Is the new experience, is the new feature of the product that ultimately drives the replacement. And that's why the focus on MPI and keeping always being ahead of our competition on the feature that we give into our products is not something that we negotiate. It's a key focus of the company, exactly to the point that you are making.
Super helpful, Carlo Matteo. And I think one of the features of recent results has been the sort of geographical bifurcation. We obviously saw continued momentum in Asia-Pacific. You know, North America, it's been a slightly different picture. So I wondered if you could just help disaggregate the different dynamics you've seen.
So you said it right. If I look at, let's take the third quarter, Asia-Pacific grew in the mid-teens. And for us, AP is really China, right? That's our biggest market. But the dynamic in China is the momentum is terrific, particularly in gaming. Hanukkah and I actually were in China a couple of weeks ago. I came home extremely energized and with a sense that really what is happening in gaming in China is unique. and I don't think there is a sign of slowdown in the gaming market in China for quite some time. So I would expect the tailwind to continue and indeed also when we outlined the outlook for the fourth quarter, we said, look, IP, we think it's going to continue to grow in the teens. Europe has been a good market for us. We continue to grow, low single digit and we are expecting that to continue also in the fourth quarter. North America was, I think, an interesting dynamic and what we have seen, particularly in the third quarter, was a sizable decline of the gaming market and we can talk more about the different reasons. But on the other side, particularly towards the end of the third quarter, we saw an uptick, a recovery. So sequentially, our AMR results in the third quarter improved compared to the prior couple of quarters. So we are overall, you know, cautiously optimistic. And when we, you know, described the outlook for the fourth quarter, we said, look, AP is going to be, you know, in line with the third quarter. Europe is going to be in line with the third quarter. The real swing factor is going to be the AMR. And at the midpoint of range, We are expecting AMR to continue to be flattish. And on the higher end of the range is AMR continue the positive momentum that we have seen in the last part of the third quarter and grow into low-mid single digits. So that's all. We'll have to wait until we post the results, but that's our assumption right now.
Very helpful. And is there a way to sort of help quantify or give confidence in terms of the visibility you have in these different regions? That would be very helpful, I think.
Obviously, we look at different data, right? The consumer behavior, consumer sentiment, what happens to the gaming market, what we hear from our sales force on the B2B, on the enterprise channel. So that's generally how we form our opinions. And based on the information that we collected, that's what we think the future is going to be, at least for the next quarter.
And then double-clicking on North America, it sounds like some of this was to do with caution, given the sort of cohorts of people who are spending on things like gaming. Is that how I should think about it?
Yes, I think if you look at North America, you go through our own product lines, we saw very strong growth in the personal workspace. Personal workspace was, I think, up 7%, 8% in AMR in the quarter. and for sure the launch of the AMX Master 4 that I mentioned earlier also really supported the growth pointing devices was up significantly and we also gained a few points of share in personal workspace across all the regions VC continued to grow the decline was in gaming share was consistent so we basically declined in line with the market And our interpretation of what is happening in gaming in the U.S. is really a combination of a couple of things. Number one, as I said, the age of people that are really gamers between 25 and 40 are the age range that are mostly concerned about the state of the economy and what's going to happen. the fact that no big AAA titles have come out now for quite some time in the Western world and an overall price of consoles remain pre-elevated. So that depressed demand. But at the same time, all these factors are ultimately temporary. So if there is a bright line on this thing is that we believe that gaming is not going to go away. Actually, people continue to grow gamers continue to grow also in the US it's just a matter of time and as long as we remain focused on new product like the SuperStrike SuperLight that we launched a few quarters ago I think you will continue to see growth Very helpful and perhaps also focusing on China that's been fascinating how it's gone from being a drag on growth to actually delivering mid-teens growth if we look out over the next year could we assume similar growth rates Look, as I said, I was really impressed by two things out of my trip. Number one, the market. The gaming is a social phenomenon in China. And it's definitely a less mature market than what we have in the Western world. So that's one of the reasons. But the innovation is going at a very, very fast pace. There are new trends like iCafés. We went to visit iCafés. They're becoming a new trend where people book a room with their friends and they game. I remember when I was in China several years ago, KTV was the big thing. You go there and do karaoke. Now it's iCafés, right? And this plays really in the sweet spot for us, right? So as I said earlier, I think the growth in gaming will continue for quite some time. So we have a natural tailwind of the market, but then on top of it, our China for China strategy that we instituted about a year and a half ago, which is really centered around developing products in China for the Chinese market at China speed, really helped us, not only in gaming, but also on the personal workspace. So we saw really good momentum on our share, particularly on mice and keyboard, both on the personal workspace and in gaming. So that also compounded on top of the natural market growth that we have seen in gaming. And then also a more, maybe a smarter way of approaching marketing, particularly in China, where I think we, a couple of years ago, we missed a little bit the boat. We went the traditional Western way. China is much more social media. So we diverted our dollar more to social media. That also was very helpful for us. So we're bullish on Asia-Pacific. We're bullish on China. And I think we keep focused on China for China as our strategy is paying out to be correct.
Super helpful. And do you think there are sort of learnings that you could take from China and apply perhaps to some of the other developing markets and even developed markets?
Absolutely. Even the developed, exactly. So if you take the Alto Keys, right, the mechanical keyboard that we launched in China, because that's where really the new wave of mechanical keyboard started. This keyboard, we just started to sell it also in the US, in Europe, is going very, very well. So that's a perfect example of how we can develop a product for the Chinese market. And then if it works, we can transfer it to also the developing market. We have still, I think, headroom to do on the share side. I talked about I'm happy with the MICE keyboard. I think we have a little bit more room to grow on headsets in China. and then we have emerging markets which for us is still a huge opportunity where we can focus on we had that haneke and i went to brazil november of last year the team is great uh there are so much great opportunities for us to capitalize on um and i think the the experience of the modus operandi that we developed for the china for china strategy can be really applied also to some of the other regions and that's where we're working on so more to come very clear and
um you mentioned video collaboration before and how you're sort of really focused on the enterprise side of things which i think historically has been very important in terms of gross margin um you know post covid there was some uncertainty about how people would particularly implement you know back to office policies and so on um how do you think about the demand environment right now and the sort of visibility um have we sort of moved beyond that that level of uncertainty um and perhaps related to that there's so much enterprise spend that one might think will go towards ai so how does um how does that leave the sort of demand that you can
benefit from sure so i um look we are very pleased with the results we had a great first three quarters of the fiscal year 26 we were up we see eight percent in constant currency last quarter can't expect every quarter to have a double digit or high single digit but but because you know b2b tends to be a little lumpy but overall we are very optimistic about the future of our b2b first of all because we are building a fantastic team and second because there is I think still a natural tailwind in the market. If you look at worldwide, you have a few dynamics happening. Number one, if you look at the conference rooms, still only 30% of the conference room worldwide are video-enabled, right? So many companies that are going back to the office, both in Europe and in the U.S., are finding themselves with a pretty archaic and old office structure that requires an upgrade particularly when you don't mandate which days people need to be in the office so inevitably you're going to have a member of your team that is not going to be in the room with you that needs to join via video so you need then companies need to upgrade their office space and that's a we play right in the sweet spot on that right there is the refresh cycle that we talked about so vc is about five years roughly so some of the rooms that are video enabled are due for a change um and then you know it's interesting you mentioned ai um that's why b2b tends to be a little bumpy but overall actually ai i consider ai a tailwind for vc and here's why Because the products that we are launching today that have AI feature, so really software feature, right, like the site, which is like the producer in the room that we talked about, right, that use smart framing, which is an AI software type of feature. The Rallyboard 65, which is the portable video conferencing device that creates a cocoon, is perfect for open spaces, so it cuts off anybody who's not part of the conversation. So all these products and use AI feature make the product much better than the earlier version or the experience that people used to have with the prior version of the product. um so so that's why we think so these are really the top two three reasons why overall we really want to double down on b2b um obviously selfishly speaking being the finance person obviously to your point b2b has a higher gross margin rate compared to the average so it's also good for the margin of the company but uh but i think it's a great opportunity to rebalance a little bit more the split of the company from 60% consumer 40% B2B to a more 50-50 split that's really what what we are aspiring very clear and can you just help us think about how the premiumization sort of dovetails with this aspiration to improve ASPs I assume it's not purely about gaining volume share at this point it's really it's really generally the product particularly if they have a software which we feel is better than what our competition has then we drive a premium on the uh on the average selling price which then helps obviously the uh
the gross margin of the b2b team and uh and uh in the company so very clear and i think you um talked about gaming and how um you know there have been some um products which maybe been a bit delayed in terms of the actual games um if we think about the consoles um you know there have been some news items talking about delays there to what degree do you think that will have an impact in the next year just put on i think what happened in the third quarter the console pricing being a little elevated also as a result of the uh the you know tariff actions that many companies took, including us, that impacted demand.
The good news for us, and I have to compliment you, and the gaming team, in a way, we built a gaming franchise which is completely independent from any titles being launched. right we have our g family that we continue to evolve through our logi play you know events and that's our own community and so that's why look there are game new games triple a title coming up generally is a tailwind but we never count on it we learned and this is really credit to you Jess and the team to build our own community and that's why combined with the continuous product innovation I think that's all we can do and that's what will continue to drive gaming growth and in spite of being the gaming market down mid single digit in Europe, high single digit in AMR last quarter, we still grew gaming you know in the low single digits so that's a testament to the work innovation and this culture of the Logi family gaming family that the team has built very clear and I think
if we take a step back from a strategic perspective you talked about doubling down on enterprise yeah I'd just be curious if you could talk a bit more about this strategic approach of going into new verticals. I think you talked about education, healthcare. So how do you think about the scale of the opportunity and where are we in that journey?
So if I go back to what we said at Investor Day, right, we are expecting us expanding into these verticals to add one to two points of growth to the growth of the company, right, when we are all done with all our work. We identified these three verticals you said it right education healthcare and the public sector and the reason why we focus on these three is because two primary reasons number one these are areas where our products have already a proven relevance and and and superiority b these are fast growing markets now we can do other ones right it requires a little bit of investment from the company, not too much on the product side, but more on the sales force. We need more boots on the ground. We need new tools. So last year, we implemented, for example, CPQ in North America. That made us going much faster in answering to requests for a quotation and addressing requests for a quotation from our customers. We did in North America last year. Now we're expanding this to Europe and then emerging markets. we are starting to build a dedicated sales force for these verticals we are done in North America a little bit more work to do in Europe and we are in our infancy in emerging markets so that's where we are but that's a key focus for us education, I'll give you an example the demand in B2B so the sell through in B2B in the last quarter was up in the mid-teens education was the main driver of that because we already have good products, particularly in the K-12. And so that's why this is a key focus for us and the company. So one point, one to two points of growth, that's the expectation for the future. A little bit of work to do on the product and on the sales force, but I think the initial results that we had for the last few quarters, as you've seen from the numbers that we printed, are very encouraging and we are pretty happy where we are.
So encouraging start. is correct characterizes super um i think um maybe on pricing if we could touch again on that um you know clearly you've had to navigate through this sort of tariff situation we did um moving you know very significant amount of production um to different geographies and it seems like pricing and pricing power has been an important part of that um you know are there any regions where sort of higher pricing has sort of created a headwind? And, you know, to what degree do you think you can maintain and perhaps even increase your pricing across the broader portfolio?
So I think, you know, overall, I think the team did a great job. We will close the year with about 43.5, roughly, gross margin rate, which is going to be flat year over year. So we were able to offset entirely the impact of the tariffs through exactly as you said the pricing actions that we took in april um the if i look back so first of all just to remind everybody we only increased prices in in the u.s right um and uh the when i look at the product portfolio um we saw very limited elasticity um in the b2b side and on the premium side of the product lines and a little bit more elasticity on the low end and in gaming. And that's where we used some of the promotional dollars also during the holiday quarter to make sure that demand was appropriate. But very limited elasticity on the VC. So back to where we started the conversation, That's why we feel that if memory cost stays elevated, I think we have room to take additional pricing actions on the VC side, particularly. That's where the memory issue is prevalent for us. So that's our lesson learned on the pricing action post-Liberation Day. And then I think the team did a great job, to your point, in making our supply chain very, very flexible. So we closed the calendar year, calendar year 25, with less than 10% of the products that are sold in the U.S. coming from China. I think we are very happy where we are. So we are now in a China plus five supply chain situation, and we really love the flexibility. As you have seen over the weekend, the tariff environment remains fluid. And I think having the supply chain fixability that we created last year, it really puts us in the perfect spot.
Super helpful. And in terms of the change we've seen in the past week, to what degree does that have a meaningful impact?
Very limited. No impact for the fourth quarter. And based on what now there is 10% or 15% in the debate, as long as the exemptions remain in place, which is what we have today, the impact for fiscal year 27 is immaterial.
Great. I think we're coming into the last couple of minutes.
I think we had a question from the floor. Oh, perfect. I'm curious about what's basically changed in China, because if you go a couple of years back, the Chinese government put in place this great prescription. You're absolutely right. Time spent, et cetera, and releases of new games, right?
So what has changed? So maybe, I don't know if, let me repeat the question. The question is around what changed in China, right, in terms of the behavior of the government. It was 180 degrees. my wife is Chinese so I remember a couple of years ago at the uh at the dinner table all the all the our friends were all you know talking about that how they had to limit the time their kids had to spend on on the social media on the games that created an issue this was completely changed uh the uh and for sure that created a tailwind these um eye cafes I remember you know TV were a big thing many years ago. Now, iCafe is a big thing. And also, the other thing to remember, the pace of AAA titles that are launched in China, specifically for the Chinese culture, Chinese game, is a much faster pace than what we are seeing in the Western world. So it's a complete change of how the teams in China are behaving compared to 24 months ago. So for us, it's a great tailwind from the market, exactly as you state, plus the effect of our China for China strategy that then helped us grow.
That they can change their minds again?
Because I think the starting point was that we would like people to spend less time gaming, spend more time working and studying, which seems like a rational target. based on what we are talking to our teams on the ground literally a couple of weeks ago we are not seeing the growth in gaming in China being substantially reduced for the foreseeable future great question one more question it's just in terms of thinking about the balance sheet cash returns growth opportunities yeah so the question is uh cash on the balance sheet so more you know paraphrasing capital allocation basically um so um we are very happy with the cash that we have in the balance sheet i think uh it's uh it's good to have a strong balance sheet particularly when you have this uncertain world that we are living in uh our capital allocation strategy is unchanged so So first priority for us is reinvest the cash that we generate into the organic growth of the company through MPI, as we discussed. Our return on investment capital is greater than 25%, so that's money really well spent. Second, we want to continue to increase the dividend. So we did that now consistently for the last couple of years. The last one was in the last September. Third, M&A. So we put some very clear boundaries. We are not looking for large transformational deals because we are very confident about the organic growth of the company. But we are more looking for tuck-in, bolt-ons that can expand our product reach in the areas of work and play, where we play in. And then fourth is returning cash to the shareholders in the form of share repurchases. and we are committed to the share repurchase you know plan that we announced last year and investor day which is two billion in three years that's really the framework great well i think we're out of time so matteo thank you so much thank you so much extremely interesting discussion and thank you all for joining. Thank you very much, great questions.