Weakness Persists in Logitech's 4Q

Logitech's LOGI financial performance went from bad in the third quarter to worse in the fourth quarter. Sales declined 32% from the previous year, accelerating from the previous quarter's 16% decline. The weakness was across the firm's entire product line and reflects a dismal consumer demand environment as well as retail distribution partners delaying orders as they sell out inventory. Profitability also reflected the softening demand, as both gross and operating margins declined versus last year and the previous quarter. We believe Logitech's current weakness is entirely a reflection of the economic environment and not due to a worsening competitive position. The company remains a solid cash generator and has a strong balance sheet with more than $2.70 per share in net cash. Nevertheless, the current weakness and near-term outlook were worse than our expectations, and we are placing the company under review while we update our long-term assumptions.