Swiss peripherals maker Logitech has beaten quarterly forecasts, but rising costs and a semiconductor supplier’s factory shutdown are threatening its Christmas trading.
The company reported fiscal second-quarter revenue of $1.22 billion, up three per cent from the previous year, with adjusted earnings of $1.51 per share.
Analysts had expected revenue of $1.21 billion and earnings of approximately $1.31 per share, leaving Logitech comfortably ahead of the cocaine nose job of Wall Street’s predictions.
However, the encouraging figures conceal growing pressure on the business, particularly as the company prepares for its most important selling season.
A serious incident at an unidentified semiconductor supplier in late June forced the temporary closure of a manufacturing facility, disrupting supplies of components needed for Logitech’s products. The factory reopened in September but has not yet returned to full production, leaving Logitech scrambling for alternative supplies.
The company initially warned that the disruption could cost as much as $200 million in third-quarter revenue. It has since reduced that estimate to between $70 million and $80 million, though that still represents substantial lost business.
Logitech chief executive Hanneke Faber said the company had expanded its use of alternative suppliers and redesigned products to accommodate whatever chips were available.
Engineers had to modify products on short notice, while commercial plans adjusted to reflect the components the company could actually obtain. The manufacturer expects the affected supplier to resume full production by the end of the calendar year, with the disruption largely resolved during Logitech’s fiscal fourth quarter.
Meanwhile, the company faces another problem: higher material and transport costs. Logitech expects its third-quarter non-GAAP gross margin to fall to 41-42 per cent, about two percentage points below the same period last year.
Costs are rising despite a relatively healthy second-quarter performance, when non-GAAP gross margin reached 45.2 per cent. The company generated $231 million in adjusted operating income during the quarter, narrowly ahead of the previous year’s figure.
For the holiday quarter, Logitech expects adjusted operating income of $220 million to $255 million, well below the $312 million reported a year earlier. Its revenue forecast of $1.36 billion to $1.43 billion suggests sales could decline by as much as four per cent or rise by just one per cent in US dollar terms.
This is not the sort of Christmas forecast likely to get investors reaching for champagne, especially when the company has spent much of the year celebrating growing demand.
Gaming products remained one of Logitech’s stronger businesses, with sales increasing seven per cent at constant currencies.
Video collaboration equipment performed better, growing 12 per cent as businesses replaced ageing conferencing equipment and expanded their office facilities. Pointing devices and keyboards each grew 4 per cent at constant currencies, despite global PC shipments falling about 20 per cent during the quarter.
Logitech increased its global keyboard market share by an estimated 2.8 percentage points, suggesting its established peripherals business continues to perform reasonably well.
Not everything escaped the downturn. Tablet accessory revenue fell 30 per cent at constant currencies, partly because the previous year’s figures benefited from a substantial education contract in Japan.
Regional results were similarly mixed. Sales in the Americas rose 13 per cent at constant currencies, while Europe, the Middle East and Africa fell 6 per cent and Asia-Pacific fell two per cent.
The company has maintained higher inventory levels to protect supplies, particularly memory components needed for video collaboration equipment. Inventory reached about $557 million at the end of the quarter, tying up more cash in components and finished products.
Logitech chief financial officer Matteo Anversa said higher logistics and material costs would continue to affect the business for the rest of the financial year. Despite these difficulties, the company expects its full-year adjusted operating margin to finish near the upper end of its long-term target range of 15 to 18 per cent.
Investors appeared more concerned about the immediate trading outlook. Logitech shares fell more than five per cent in after-hours trading following the announcement. The company returned approximately $406 million to shareholders during the quarter, including $235 million in dividends and $171 million through share repurchases.
