Hi, good morning, everyone. Can everyone hear us okay? Great. I'm Mark Newman, Bernstein's US IT hardware analyst. Great to see you all here this morning, and great pleasure to welcome today, Hanneke Faber, CEO of Logitech. Thanks for joining us today. Thanks for having us. Great. I've got a few prepared questions I'm gonna go through. Happy to open up to the audience. You should have some app. You should be allowed to submit a question. I'll have access to that. I can ask the question for you. Starting off, Henk, third-party research has been estimating a bit of a decline in PC shipments this year, partly because of all this cost impact from memory and memory shortages. How does this impact Logitech's growth aspirations? You previously mentioned the $1.8 billion upgrade opportunities within the existing PC installed base. What are the trends you are seeing in penetrating this space, and what are the biggest hurdles to converting those users? Yeah, that's a lot of questions in one. First of all, it does not impact our growth aspirations. Our long-term aspiration is to be a high single-digit top-line growth company, made up of mid-single digits on the core, plus some growth in verticals and adjacencies and a little bit of M&A. That absolutely stands in this context, and that stands in the shorter term as well. Why? The big prize for us when it comes to the business, our business, you know, our core business of mice and keyboards and webcams that attaches to PCs, the big prize is the installed base. Somewhere between 1.5 and 1.8 billion PCs around in the world. You'd be surprised, less than 50% of those users use a mouse. Less than 30% of those use an external keyboard. That is the big prize. We love it, that, you know, every year, whatever, 30 million new PCs get sold, but the 1.8 billion is the big prize, and we have a fabulous track record. Over the last decade, every year, we've added close to a percentage point of penetration, so more people using a mouse, more people using a keyboard, and we intend to continue to do that, and that's what's driving a big part of our growth. As you mentioned, Logitech peripherals are able to outgrow PC unit sales. Absolutely. As we navigate this potentially much weaker PC cycle, given elevated memory costs, could you just walk us through the drivers of this outperformance historically and going forwards? Mm specifically regarding market share gains, and also ASP growth? Yeah. Historically, if you take again a decade, we've outgrown PCs, by 300 to 500 basis points. That doesn't mean there's a direct correlation on a month-by-month or quarter-by-quarter basis. There may be quarters where PCs are great, and we grow a little less, and there's many quarters where PCs are not so great, and we keep growing. Mm-hmm. But over time, it's that 300-500 basis points outperformance. What drives that? First of all, what I just talked about, us driving the market, higher attach rates. Versus a decade ago, 8% more usage of mice and keyboards. That's one. Second is market share growth. A decade ago, we had about a 45% market share in mice and keyboards. Today, we're over 50, so we have a really great track record of continuing to grow market share. And finally, ASP. Again, if you compare it to a decade ago, our average selling price now is 50% higher. We're driving all this with premium innovation and premiumizing the lineup, and that delivers growth year on year on year on year, unrelated to new PCs. How does your promotional cadence help capture these values in terms of how you're marketing and promoting these things? We use promotions very strategically. you know, we use it in places that are competitive, where we need to drive trial, but overall, it's not a huge part of our marketing mix. Premiumization, again, driving those ASPs up and driving the right mix is a much more important piece. I'm also curious, given the current environment we're in PCs, some of the OEMs, Dell- Mm-hmm ... HP Inc., who just reported last night, yesterday, you know, they're also clearly trying to sell their own peripherals, with attaching. How do you deal with competition from the PC OEMs? Yeah, I mean- Do you think that may increase, given that they're gonna be struggling with a declining market this year, potentially, in business? Possibly, and we respect all competitors, but, you know, this is our bread and butter. We wake up every morning thinking about mice, keyboards, webcams, video conferencing. It's what we do every day, and for us, you know, I always like to use the example of the left-handed mouse. Mm-hmm ... HP or Dell would never do that. That's a $50 million idea. For us, that's 1 percentage point of growth. We like that. We really segment our audiences and deliver, I think, superior products. Mm-hmm. I have a Logitech mouse, so. Moving over to some... Logitech for business- Mm ... outpaced B2C growth meaningfully in Q3. As you expand further into education and video collaboration, do you increasingly see Logitech evolving toward an enterprise solutions profile, rather than being viewed primarily as a consumer peripherals brand? Yeah. Today, our business splits about 40-60, 40% B2B, 60% B2C. Looking forward, doubling down on B2B is a very important strategic choice, and you're seeing that in our results. B2B is outgrowing B2C, quarter after quarter, so that's great to see. I think in the future, what we're aiming for is more of a 50-50 business, half-half. That's good. We love B2C. You know, our consumer business has great growth, great margins, but we also love B2C. Mm-hmm With also a little greater growth and maybe even better margins. Mm-hmm. That's the mix going forward. The other thing that's, I think, important to remember is there's real synergies between the two. The technology backbone, there's real synergies and the brand. This is a brand, Logitech, with very broad shoulders. You know, we appeal to 15-year-old gamers and to the CIOs of 70% of the Fortune 500. A brand with super broad shoulders, and maybe that CIO used to be a gamer one day, and that's actually an advantage. Mm-hmm. Now, on gaming. Mm-hmm ... gaming, I believe, delivered double-digit growth this quarter. Is that right? No, a little lower than that. Little, little lower. Yeah. Yeah. I believe you had some share gains in China? Yeah. Is that right? Can you talk a little bit about that? Yeah. When I joined Logitech a little over two years ago, our China business was not in great shape. China is the biggest gaming market in the world. It's also the most sophisticated gaming market in the world, so winning there is critically important. We put in place a China for China strategy and team, invested, reallocated resources to build a big team on the ground in Shanghai, multifunctional, with engineers, with designers, with go-to-market experts, and we've really turned that business around, and it's been growing at 20%+ now for four quarters. It's just great to see how when you step up the innovation for that sophisticated Chinese gamer and modernize your go-to market, which we really needed to do, how that business has just taken off and is driving our gaming business globally. Mm-hmm. Mm-hmm. How much of that China momentum came from just localized innovation? Is that transferable to the West? Yeah. I think increasingly so. We call the strategy China for China, but increasingly, it's becoming China for the world as well. What we see is that indeed, you know, we launch our global innovations in China, but on top, we launch a number of China for China innovations. Those have done very well, mechanical keyboards, for example, and we've now taken some of that into the US as well, and it's actually doing well. It's a bit of a virtuous cycle when you start winning in China. You've reduced the share of US-bound products manufactured in China from 40% to under 10%, I believe. Yeah ... less than a year. Mm-hmm. Should we view this China-plus-five approach as your steady state footprint, I mean, obviously, things are changing. It's a very rapidly changing environment with the current administration. Mm. Just how are you currently thinking about that, and are you exploring additional geographical diversification? Yeah. Having a resilient supply chain is a critical strength of Logitech. It helped us through the pandemic, it helped us through tariffs this year. We're still delivering really good results. Going forward, again, having this resilient supply chain will always be a big priority. I think right now we have a good footprint, so we manufacture in China and in five other countries, including Mexico, which is obviously closer to the US. But we're always assessing how do we make it more resilient? And what we look at when we look at new countries or new suppliers is three things. One, is there the supplier ecosystem there? Two is the labor there, and not just low-end labor, but very much the engineering expertise. Mm-hmm. third, obviously cost. Mm. That keeps the footprint always a little dynamic. Mm-hmm. Any thoughts on the recent news about the tariffs being, you know, being overturned by the? Mm ... Supreme Court and new tariffs being implemented? Is that gonna potentially change what you're doing? How are you starting to look at alternatives right now? I think it's too early to say. At, you know, 10 to 15% for the next 150 days, that does not materially change things for us versus where we were until last week, and it's too early to say. Mm what happens after. I guess it's better for the products made in China, because now you have a lower tariff. Yeah ... for those products, but we don't know what's gonna happen. I think the beauty of our supply chain is we're able to move things around. Indeed, when we see that one country all of a sudden looks a little better than others... Mm-hmm We can move things around. How quickly can you, how quickly? Yeah can you move supply? Well, I think what we just did in the last year, you know, in April, on Liberation Day, 40% of U.S. products came from China. By December, it was less than 10%. Right. We can move really fast. Right. By the way, just a reminder, questions from the audience. Mm. Feel free to enter any questions. I'm looking to see if there's any pop up. You've described U.S. and European consumers as increasingly choiceful in a K-shaped environment. Are you seeing a structural shift in the peripherals market, where the mid-range is compressing with demand polarizing around both the premium pro gear and the entry-level value tiers? Are you seeing that? right now, it's K-shaped, that's the popular term. But I think for us at Logitech, what's more important as you look at the mid and long term, is we're really focused on consumers across the spectrum with different needs and across the price ranges. We design for all of them, with their very specific needs, including price, and what we're seeing right now, indeed, is that our premium solutions, so the MX Master 4, the MX line, the MX Master 4, which we launched in the holiday quarter, is a huge hit, and it's our most expensive mouse. The Pro line in gaming is outperforming the rest of our business, which, again, is our most expensive line, and we just, two weeks ago, launched the Super Strike, which is a fabulous new piece of gaming gear. It is doing incredibly well. I just. This may be worth talking about a little bit. Yes, that top end of the line is really outperforming the rest at the moment, and that's a good thing for our business. It doesn't mean we forget about the middle and the low end. Another thing that's doing great in China at the moment, actually, is a G316 gaming keyboard, which is more of the entry-level price point. Mm-hmm. That's also doing very well. We want to win across price points and across needs, and that's how we set our organization up. Where do you see the biggest opportunity in the next five years for Logitech? Is it gaming? Is it high-end gaming? Or. No What do you see as the biggest opportunity? It's, this is a beautifully balanced business. We have three big businesses. Gaming is clearly one, and gaming as a segment, as a form of entertainment, continues to grow. With people under 50, globally, they spend more hours gaming than on TV and movies combined. This is entertainment today. Mm. We foresee that market will continue to do very well, and we will gain share in it. Our second business, which we haven't talked about much, is video conferencing. We're the global market leader in video conferencing, that continues to grow fast. Less than 20% of global meeting rooms are video conference-enabled, so a lot of runway on market- Mm ... growth there, and we're the market leader. Finally, the business that you started on, which is our core, that we call personal workspace, you know, the mice, the keyboards that you use for work, and again, we have a great track record there of growing the market with more people using mice and keyboards, of growing share and growing ASP. All three businesses can grow at that mid to high single-digit rate. You mentioned the MX Master 4, and is it Logi AI Prompt Builder, is it? Mm. Just, you know, emphasizing integrating AI. How do you think about integrating AI into existing workflows? Mm rather than standalone separate AI hardware? How do you think about that? Yeah. How does Logitech monetize that? Yeah. AI in our products is a huge tailwind for us. The way we approach it is, "Don't do AI for AI's sake or technology- Mm ... for technology's sake. No one cares. Look for a real user problem and see if AI can solve it better." A great example actually is in our video conferencing lineup. I'm sure you've been in video conferencing where you're on the screen, and there is a table of 16 people on the other side, and you have no idea who's talking. You see these tiny little heads. Right. It's a horrible experience. Right. We used AI in our new Rally AI video conferencing bars to do smart switching. This camera actually knows who's speaking, so it puts who's speaking big on the screen. It knows when you and I are having a conversation, and it puts both of us. It also knows when you're typing, that it shouldn't focus on you, because you're multitasking, and that shouldn't be shown. It knows it can create a digital cocoon, which means if someone's walking by, it's gonna blur that out because that's not part of the video conference. Mm-hmm. All of these smart features, that's all AI, and we built that into our video conferencing cameras. Same on headsets. Our headsets have so improved, thanks to AI features like two-way noise cancellations in the last year. It solves a real problem. When I am at the airport, you don't want to hear all those announcements. Mm. Only AI and machine learning can learn that those should be blocked, but my voice should not be. Those are two examples, headsets and video conferencing, where AI products are making our lineup more superior, and we are well past point, you know proofs of concepts. Right and experiments. Mm-hmm. These are products that are shipping globally at scale and are doing really well. That's how we're approaching it: solve real user problems but use the technology that's available now. Given all these amazing functionalities you're talking about- Mm ... presumably, I mean, the apps that we do video conferencing- Mm ... these are not Logitech apps. These are like Microsoft Teams, Zoom- Yeah ..., et cetera. Mm-hmm. Do you have to collaborate with these? Oh, yeah, no. ... companies, and how does that... So we're- Yeah ... deeply integrated with Microsoft, with Google, and with Zoom. Those are huge partners to us. They can't do what they do with the apps without us, and we can't do what we do with the software-enabled hardware without them, but the software is deeply integrated. Is there any risk that they can do with more simpler hardware with using software? Oh, there, you, there's always a risk, but, you know, as they say here in the Valley, "Hardware is hard." They're quite happy to work with us. Any questions from the audience? Mm, mm. Any questions? Mm. There's no hands up right now. I don't see any questions here. Oh, there's one right there, I think. Yeah, Mike, go ahead. Do you still have a business where you. Oh, I think you're getting a mic. Yeah. You used to have a business where you focused on home theater, remote controls, and, I think you abandoned that business a few years ago, and I'm just curious, is your focus now still back to the core PC, or can you see yourself identifying, you know, consumer markets or other, you know, beyond the scope of PC peripherals? Yeah. Great question. The way we define our strategy is we do design-led, software-enabled hardware in work and play. Work and play are the two markets we're really focused on, people at work, people at play, gaming. You know, when you look at that TAM, that's a TAM of about $25 billion. Our business is a little under $5 billion, there's just so much room for us to grow in work and play, that that's the focus, and those are also very attractive from a margin point of view. I don't see us going into home theaters anytime soon. Thanks for that. Oh, I've got another one back there. Yeah, go ahead, over here. Thanks. I just had a question about your product pipeline, R&D efforts. How do you guys source, you know, ideas for new products, just in general? Uh. How do you cut that threshold? Yeah ... to make sure that you're constantly innovating. Yeah giving people what they want? Yeah. Thanks. Great question, and this is the core of what we do. First of all, we invest a lot in R&D and design, over 6% of sales, which is a very high number in our industry, and it's really important. I was actually quite surprised. I came from consumer goods two and a half years ago into Logitech, and to find more than 300 in-house designers, you know, Procter & Gamble doesn't have that many. That's a far larger company. We start from design. We start from understanding the user, understanding the trends around in the world, and what are their needs. You know, the video conferencing example I just gave, or the new Superstrike gaming mouse, really understanding what that competitive gamer needs. We use our engineering teams, and we have engineering teams in 6 locations around the world, which also, I think, is a real competitive advantage. We have them here, obviously, in the Silicon Valley. We have them in Switzerland on campus at EPFL, which is like the MIT of Europe, and then we have them in Shanghai, China for China, Taipei, Chennai, and also in Ireland. Our engineers take over, and they build great products, and we end up launching between 35 and 40 new products every year in those 3 areas: gaming, video conferencing, and personal workspace. I think both the quality and the superiority of those products, as well as the pace that we're able to move at, really is unmatched in our industry, and it's the bread and butter of how we win. I do want to actually touch on Superstrike because it's a great illustration of how we do this. The Superstrike mouse, if you say... I don't know how many of you are gamers, probably not very many. For gamers, you know what Nike and Adidas are to runners, our gear, especially the mouse, but also the headset and the keyboards, that's to competitive gamers, that is absolutely critical. Our designers work with competitive gamers. They come, and they do boot camps at our R&D sites to learn what is needed to go faster and then kill more people in FPS games. We built a whole new Haptic Inductive Trigger System for the new Superstrike mouse. It was launched 2 weeks ago. Competitive gamers don't change gear in general. They're super conservative because they know what works for them. In two weeks, more than 100 pro gamers are using the Superstrike, which is unheard of. Of course, once pros use it, consumers are desperate to get their hands on it. It's going on eBay right now for much higher prices than in retail. That's a great example of how we innovate with pro gamers, then taking it to our engineers around the world, then launch it with excellence, and I'm very excited about the Superstrike, as you can tell. What's the price of that? I think it's the regular price, Nate, you have to keep me honest. $120, might be $129 or something. Yeah, right now, hard to find. There's a question over here. Yeah. Thank you for your perspective. Mm-hmm. How do you think about the rise of the Chinese producers, the new fees, the low fees? Are they eroding any of your market share, or are they representing a competitive force to you? The Chinese competitive environment is fierce. There are more than 500 manufacturers of gaming mice and keyboards in China. There's less than 10 in the rest of the world. It is why it's so important that we win in China. As I said, you know, when I came on board, we were losing market share to those kinds of players in China. I'm very happy to say that we have stabilized, and now in the last quarter, we're growing share again in China. That is just critical. If we cannot win in China, it's gonna be like the car industry. If you can't win there, eventually, it's also gonna be difficult to win around the world because you provide an opening for them to sell on Amazon, in Europe, and the US as well. China for China is a critical part of our strategy. It's also never done because again, very dynamic environment, but it is, it's... You know, I heard someone say it's like a gym for us. Yes, it is like a gym for us. It keeps us on our toes, and when we win there, we know we're onto something. ... Actually, I had a follow-up question on hardware versus software. You mentioned your products are software-enabled hardware. Mm-hmm. software products typically have much faster refresh cycles than... Mm-hmm ... hardware. How do you deal with that? How do you manage that? How do you benefit from that? Any thoughts on- Yeah ... refresh cycle and how that impacts. Yeah, it's a little different. In your business. I would say, on the personal workspace and the gaming side, or the average, you know, person keeps our products three to four years, let's say, a gaming mouse or a gaming keyboard. The way we refresh there is innovation. What I just talked about, when that Superstrike comes out... Mm-hmm ... you don't need it. Your old mouse might not have run out of, you know, steam, but you want it. Innovation's critical. On the video- That's hardware, that's a hardware example, right, the SUPERSTRIKE? Well, it's hardware and software. Hardware and software. Yeah, it's hardware because there's a lot of software inside. It connects to G Hub. Again, it's software-enabled hardware, but you want that new mouse, innovation's the key driver there. On video conferencing, which is, of course, a different business, it's B2B, the average selling price is much higher, into thousands of dollars. The life span is longer, it's 5 to 7 years. There, what we do is we do upgrade the software inside, about 20 x over the life cycle of that product. That's really important for B2B buyers because they're not just looking at the buying price, they're looking at how long will this last them. They don't wanna have to change out all their meeting rooms around the world, you know, every couple of years. There, the software improves over time, and those can be security fixes, those can be upgrades that go along with Microsoft Teams and Zoom, and many other things that make it better over time. Just going back to the, I think where I started off on PCs, you were talking about how Logitech is more immune to a declining PC market because of your... basically, the selling to the installed base, right? Yeah, exactly. However, I mean, I would assume there's some portion of your business is impacted by a weak PC market. How do we think about what portion of your sales are directly related to? Mm-hmm ... what portion of your sales is directly tied to new PC sales. Mm-hmm versus the installed base? Very small portion. Yeah, again, over time, I would say it is not a factor. What we're driving is, you know, you as a user, you have a PC. If you're not using a mouse or an external keyboard, or if you're a gamer, well, if you're a gamer and you're not using a mouse, you're not a very serious gamer. We drive awareness, we innovate so that we convince you that you'll be more productive, you'll be having a higher gaming performance, and you'll be more ergonomically sound. Not using a mouse or keyboard also really can screw up your arms and your shoulders. Mm-hmm. We do that. We do that with marketing, we do that with innovation. Again, we have a track record over 10 years that really kind of makes us immune to however many new PCs are sold. Yeah. Yeah, personally, I can't stand the trackpad on a PC. Oh, my God, yes! Yeah. My arm starts hurting just thinking about it. I think that's a generational thing, though. My son loves the trackpad. Yeah. I can't stand it. I just taking a bit of a step back, can you talk a bit about capital allocation? Sure. How you think about that? We have a pristine balance sheet, CHF a billion and a half in cash, no debt. How do we allocate that? The first priority is always, again, to the gentleman's question in the back, R&D, and a little bit of CapEx. You know, investing in our own business in organic growth, that is our top priority. Second is an attractive dividend and increasing that dividend every year. We increased it by CHF 0.10 last year, and we plan to increase it again this year. Third is M&A, when the right thing comes along. The fourth, when there's money left over, is share buybacks, and we've been pretty aggressively buying back shares recently. For M&A, what type of target would you potentially be? I know can't talk about specifics. Yeah ... but what kind of, what kind of deal would be potentially interesting to Logitech? Yeah that you'd potentially be benefiting from? Yeah. We have these three attractive businesses: gaming, video conferencing, personal workspace. We're looking for adjacencies in those spaces. Mm-hmm. If you look at, you know, I can give you an example of a past successful piece of M&A, which was the ASTRO headsets, gaming headsets. Gaming is a priority for us. We weren't really in headsets very much, so the ASTRO acquisition was a really good acquisition. Second, verticals, that's more in the B2B space. Again, we wanna grow B2B to about 50% of our business. We mostly play with enterprises, companies today. Mm-hmm. You know, HSBC or Google, those are big customers of ours. We don't really have a business in healthcare, education, and the government, and all three are huge, and they need our kinds of products, too. We don't need to reinvent products for them, but we have a big go-to-market opportunity. That's an area of growth and investment going forward. We're seeing some really good early green shoots in those spaces. Mm-hmm. For M&A, you'd be looking mostly at adjacencies, mostly on the smaller side, as opposed to transforming- Yeah, it will likely be tuck-ins. Yeah. Any more questions from the audience here? No more questions? I guess, you know, longer term, how do you think about the PC market developing of... I know you think you're not so much impacted- Mm-hmm. -by slowing growth. At the moment, what's happening in the PC market is lots of inflationary costs from memory prices going up. The PC makers are having a tough time, as HP just talked about yesterday after market hours, about they can't get enough memory. PC sales are getting impacted. I mean, just, you know, how do you think about the long term in PCs, PC growth, and does it have any impact on Logitech longer term? Yeah. Again, I think we've shown over the last decade that, you know, how I'm sure people will need PCs, and there will be PCs, and there's gonna be a large installed base of PCs, and that's for us, the big prize. We're very bullish on being able to continue to grow because that's just been our track record. Mm-hmm. Mm-hmm. You know, maybe on the, on the memory piece itself, we are fortunate that a very small part of our business uses the chips that are in such high demand... Mm-hmm at the moment, really only video conferencing. Our team is doing a great job getting us what we need. Do you feel any or see any benefit from AI PCs? I think the PC OEMs talk a lot about AI PCs. Are you seeing that? Does it have any impact on your business at all? I don't think it can hurt, but we're also not, you know, it's hard to say. Doesn't have much impact? No. Right. Right. What do you think are the things that investors know least about Logitech? Mm. What are the things you'd like to clarify for us? Mm ... that you think people misunderstand about your company? Yeah. I think many people still don't understand the fantastically balanced business we have. Again, we play in B2B and B2C. Both of those are great. We have these three businesses that are a little different but also have a lot of synergies: gaming, video conferencing, and personal workspace. Mm-hmm. Maybe one quarter, one does better than the other, you know, but it's a very balanced portfolio. Work and play. You know, if you have to believe the Citi GPS report, you know, no one's gonna be working. Well, then gaming is a really great neighborhood to be in. Finally, a really balanced global footprint. We're in, we're in more than 150 countries. Our manufacturing footprint is diversified. I guess all of that to say this is a company for all seasons, and we believe we can execute and deliver quarter after quarter, whatever the world throws at us. Any more questions from the audience? I don't see any hands up currently. Okay, well, any final comments from you, Hanneke, in terms of any final comments to wrap up for us? Get your son a Super Strike. Thanks very much, everyone, for joining us. Thanks very much, Hanneke. Thank you. Appreciate it.