Good morning, everyone. Welcome. I have the pleasure of hosting Logitech, and from Logitech, Hanneke Faber, who's the CEO of the company. Thank you, Hanneke, for making it to the conference. We are starting off with a few questions to the companies to just get their views. Given your seat at the table, talking to a lot of customers, your views on sort of what the macro is telling you at this point. For investors we talk to, the biggest question at this time seems to be, are we at the risk of a significant slowdown, particularly in the U.S. in the back half of the year? I mean, slowdown including a recession. Where are your thoughts on that, particularly given the feedback you're getting from customers?
Yeah. Yeah. I would say so far, so good. Certainly on the consumer side, we're seeing a lot of resilience around the world, but also in the U.S. I'd say in the U.S., that is an average of a number of different consumer behaviors that we're seeing. There are some consumers who are watching their spend more carefully. There are some consumers who are pulling things forward in anticipation of what might come. There are also some consumers who are really YOLO. You only live once. I'm going to keep spending. The total of that just gets you to a pretty good number, both in the market and then in our share growth. I mean, you saw our gaming share growth in the last quarter. We were up more than four percentage points in the U.S. Really good momentum there in the business.
I would say on the B2B side, and B2B is about 40% of our Logitech business, a little bit more caution in the March quarter. I can't say too much about the current quarter, but if anything, I'm optimistic in the current quarter that things are a little bit better. A lot of companies saying we should be cost-conscious at this time, which means less travel. If you're going to travel less, you need to make sure that you have great video conferencing. Again, actually looking pretty good. Overall, so far, so good, but there's many unknowns going forward. What will inflation do? What will interest rates do? What will consumer and business confidence be in the second half of the year? What will geopolitics do? A lot of unknowns, but so far, so good.
One of the unknowns is just tariffs. How are you navigating it? I mean, it changes practically every day, but maybe you can touch on it on two aspects. One, the kind of current status in terms of how you're thinking about the headwinds, but also how does it disrupt your own planning when you're sitting in your seat? How does it really change what you're doing on a day-to-day basis versus maybe what your ideal normal day would have been spent in terms of the product focus?
Yeah. With pleasure. We obviously had some changes again yesterday in terms of trade policy. I am happy to speak to that. Let me start from saying, though, we are built for this as Logitech, which sounds funny, but we are a global company. Only 1/3 of our business is in the U.S. Two-thirds is not in the U.S. and is not affected by tariffs. In the U.S., only 40% of what we sell originates in China. By the end of this calendar year, that will be down to only 10% from China. We have a really strong brand, far stronger than any of our competitors, which gives us loyalty and pricing power. We have a pristine balance sheet, gives us some financial flexibility, and a great team. This is not our first rodeo when it comes to tariffs or other supply chain disturbances.
We feel pretty confident that we can deal with the current situation. Now, the situation is a moving feast, and we talked about this at earnings. We have products in four different categories. There is China exempt, China non-exempt, rest of world exempt, rest of world non-exempt, which means we deal with different rates from 0% tariffs for part of the portfolio, large part of the portfolio, to 10% to 20%, to until yesterday, 145%. Now, that 145% box, and this is new news, is now down to 30%-ish, which obviously is a benefit to us. If I just walk you through what we said at earnings and what will change, for Q1, our Q1, the June quarter, we do not see a material change to what we guided.
We guided 0%-5% on the top line and a 200 basis points gross margin impact of the tariffs at the time. We do not actually see that change because of inventory effects. Stuff that we make now and would bring in now will not get sold till the next quarter. The 200 basis points for the first quarter is about right. For the remainder of the fiscal year, though, if things stay the way they are today, which, by the way, is not a given, but if they stay the way they are today, the 500 basis points gross margin impact that you could extrapolate from what we said for Q1, and we are not guiding the rest of the year, but you could extrapolate to 500 basis points, that comes down to 300 basis points for the remainder of the year.
What happened yesterday is a benefit for us, and that's good news.
If we take a hypothetical scenario and say tariffs go back to, let's say, a minimal amount or zero, does it change your planning in terms of moving the supply chain, or would you still go ahead and make that change from a long-term basis?
It's a great question, and the answer is an empathetic no. It would not change our plans. We started back in 2018. In 2018, almost all of our products came from China, and we started diversifying to be more resilient. In today's day and age, it's just not smart to put all your eggs in one basket. We are now at China plus five. We make in five other countries, and that's a huge benefit as we speak because, again, this moving feast I talked about with the different tariff categories, we can change things around, and we are changing things around pretty damn quickly between China and Vietnam, Mexico, Thailand, Malaysia, and Taiwan. We intend to have that resilient larger supply chain going forward as well, no matter what happens to tariffs.
Okay. Got it. One of the questions I had for you just on the fiscal 2026 guide, which you've withdrawn at this point, just given the uncertainty, but what do you need to see to get more comfortable to a point where you would say, "Okay, we can give the investor a basic guide"? Does it necessarily have to be then sort of saying, "Okay, for 90 days, we don't hear anything more on tariffs"? Is that what's required? Or we've made the migration to 10% coming from China, and that gives you enough visibility to come back with a guide?
Yeah. It's hard to say for me, but I think we need a modicum of stability on tariff policy. Yesterday's announcement is good news, but it's a truce. It's a 90-day truce. It's not a, "This is what we're going to do going forward." We would need a little bit more stability than that to get us to a place where we can guide more than a quarter ahead.
Okay. Got it. Maybe just walk us through the changes that you're making in terms of moving the footprint from China, which is 40% sort of leverage for the U.S. supply revenue today, to 10%. How are you sort of overall moving the manufacturing footprint around? What are the costs associated with it? Just give us a lay of the land of what are the things you're working through.
Yeah. So again, the great thing is that this is not like a panic reaction for us. We've been doing this since 2018. We work with strategic partners in China and five other countries who manufacture for us. That makes it a little easier. We do not have to kind of go to Thailand and figure out who's who and get started. All of that is in place. They manufacture for us today. It is a matter of moving more product, different product in or out. I'm not saying that's easy, but we're doing it literally on a weekly basis as we speak, and the team is really very good at that. I think that's the other advantage we have. This team has been in place. They've gone through the previous two administrations' tariffs and COVID. They're really quite good at it, but really hard work.
I got photos in my phone from giant trucks with production lines moving from Malaysia to Vietnam, getting on planes to fly to Mexico. I mean, it's a lot of work, but we're really set up to do it well. In terms of cost, there's always a little bit of startup cost when you start with a new strategic partner, but again, most of that is behind us. The going costs are in the same ranges as what we get from China.
Is the underlying cost once you move that footprint to the new location pretty much the same as the current?
Yeah. Similar.
Okay. Got it.
You've seen that in our gross margins. Even last year, our gross margins were up 170 basis points, and we were diversifying throughout the last year.
Yeah. Yeah. That's fair. Just a follow-up on the 10% that you referred to. Now, I'm just asking from the perspective that we see certain companies and their products being tougher to move out of China because China itself has started restricting shipments of rare earth metals, etc. When you think about the 10% that will remain China-based for U.S., is that more a diversification still, or is that product that cannot be moved because of certain restrictions?
There is, again, a really small amount of product that's hard to move for now. If we had to do it later, we could. We've just chosen the biggest ones for now because, again, it is work to move things, so we've focused on the most important ones. If we had to get all of the U.S. products out of China, we could do that next year as well if we needed to.
Okay. Got it. Switching gears, and you talked about this a bit as pricing power for the brands, right? I mean, you've been investing in the brand for a while, and I would think this is the time it pays off, right? Maybe talk about the price increases or the ability to sort of pass that price through to the consumer and the customer on the B2B side. Have you seen any pushback at all at this point from consumers or customers on that front?
Yeah. Thanks. First of all, we believe it was a responsible thing to do to increase prices early. We went after all the announcement came out. We announced a price increase for mid-April, which is being implemented as we speak. On the B2B side, it is pretty much fully implemented now, and that has gone off very smoothly. On the B2C side, implementing price increases always takes a little longer before Walmart, Amazon reflect that on the shelf. It tends to take four to eight weeks. That is not yet fully reflected, but we are in the process of starting to see that on shelf. As you go do your store checks, you will probably see it. It is a little early to say what the consumer reaction is because on the shelves, you do not see the whole thing reflected yet. What we have tried to do, though, is be extremely surgical.
It has been on average a 9%-10% price increase that we took mid-April, but some SKUs are up double digits, some are not up at all, and some fall somewhere in the middle. We have looked at the price points or role of the SKU in the portfolio to make sure that it is as swallowable for the consumer as possible.
Yeah. Taking just I know you won't probably share exact numbers on this, but taking a step sort of back, you outlined a roughly 500 basis points headwind on margin. How much were you looking to recover through pricing? How much were you looking to absorb in that sort of ballpark?
Yeah. What we said for Q1, the current quarter, where, again, the pricing will probably affect only about half the quarter given when we announced it and how long it takes to implement it. We said in the current quarter, we'd have a benefit of about 100 basis points from pricing. If you were to extrapolate that, and again, I'm not guiding, but if you were to extrapolate that, it would be 200 basis points a quarter going forward.
Okay. To the extent that the gross margin headwind is now 300 under the current rules, the headwind is net 100 basis points.
That is pretty good math.
Okay. Maybe just more about what you've seen the product portfolio trend or performance being like in different economic periods. If you go back to any other periods of economic slowdown, how should you think about the part, how do you think about the parts of the portfolio that are maybe a bit more immune to the macro?
Yeah. Yeah. I think there's three parts of our, it's the beauty of a diversified portfolio, by the way, but there's three big parts of the portfolio that are less affected over time. Gaming is the first one. There's what I call the lipstick effect in gaming, which is when people have a little bit less cash, they actually game more because things like going out to eat, traveling, those become too expensive. You are home more, you are gaming more. What we've seen in China, for example, in the last few years where consumers were cash-strapped, the gaming market has been on fire in China. Gaming is very resilient. Second, video conferencing because of the travel dynamic that I described earlier. When companies want people to travel less, you need video conferencing. Again, a little bit of a natural hedge there.
The last thing would be the premium parts of our portfolio. Those consumers who buy MX, who buy the Gaming PRO Series, are a little bit less cash-conscious than the people who buy the more affordable parts of our portfolio.
I'll say that lipstick effect term that you've coined is becoming widely used. I see my team using it sometimes in they write reports. I don't know whether you coined it or somebody else, but I've seen it.
It's a beauty term. When times are tough, people can still buy lipsticks, but that's true for gaming as well.
Maybe let's dive into gaming. Just firstly, in terms of impact of tariffs, I mean, one thing that's not very clear to us still is in some of the exemptions that were outlined under the tariffs, did gaming get included as part of it? I would think, again, that's an area where pricing power is quite significant to be able to pass through that entire headwind. Correct me if I'm wrong in thinking on those terms for gaming.
Yeah. We decided not to bore you with the details of what is exempt and what is not exempt because it is just too complicated. We decided to give you the outcome of all the math. Some gaming is exempt and some is not. Honestly, even on a day-to-day basis, sometimes we get surprised. Part is exempt, part is not exempt. What I would say in gaming is we're super bullish on gaming. We grew 10% last year in gaming. We had big share gains in North America towards the end of the fiscal year. Our China business, and China is the biggest gaming market in the world, is really improving. Good results, great momentum. I think that's driven by three things. The first one is a really great consumer understanding and segmentation. We play at pro where we really win.
We work with pros. We play in simulation, which is also premium end of the portfolio. Just announced a bigger partnership with McLaren, which is super exciting on the gaming wheels. Then we also have the 5 Series and the 3 Series for new gamers, more affordable. A really great portfolio. Second, innovation, exciting stuff coming out. Some of the things I've done really well in the last year, again, simulation and all the new simulation accessories that came out over the holidays, the PRO X SUPERLIGHT mouse, which continues to be the number one mouse in the world and is just a piece of art, and the A40 headsets that you can use on the different consoles with a single click of a button. Some very, very well. Super innovation and more exciting stuff to come in the year ahead. Get ready for the holidays.
The last thing is partnerships. We are so embedded in the gaming ecosystem. We're not dependent on any one game. We play with all the studios. We have many partnerships with pro teams. McLaren just announced a new bigger partnership, Bubba Wallace and NASCAR, and NVIDIA now with streaming and streaming agents, which we're building with NVIDIA, which is super exciting if you're gaming and streaming at the same time. AI really makes your life better.
Okay. Got it. No, great. Maybe let's switch gears to the enterprise side and talk about the opportunity you see in the enterprise. Obviously, that was a big part of the presentation at the Investor Day as well. Maybe I'll sort of hand the forum to you to talk about how are you thinking about the enterprise opportunity. What do you call, what would you call sort of success for you in the B2B segment as such?
Yeah. B2B right now is about 40% of our business. It's grown a lot, more than doubled since pre-COVID. There are two distinct opportunities. There is the enterprise segment. That's about a $10 billion serviceable market for us. There is about $5 billion in new verticals where we barely play at all. In that enterprise market, we have the leading shares in video conferencing, the leading shares in PWS. The market is much bigger than what we have today. That's exciting, and we'll continue to drive the momentum we have. In that $5 billion of new verticals, we've chosen to focus on education, healthcare, and government. We're very small there today, but we can play with similar products that play just as well in classrooms, in hospitals, and in government offices. We're seeing some really good momentum. We started with education a couple of years ago.
That grew more than 20% last year. I am very optimistic that we can continue to grow those new verticals as well. Exciting stuff.
Got it. In terms of then products and driving, because you already have a leading position in video collaboration, for example. The products that will drive the expansion into the enterprise is going to be video collaboration, or do you see other parts of the portfolio getting pushed?
It's really four things. Video collaboration, PWS, mice, keyboards, webcams, services, which we didn't really have until two years ago, but clearly that's an add-on to the video collaboration business, huge gross margins, and a very, very fast growth rate. We love services. Finally, new products and adjacencies. A good example is the Rally Board 65, which we launched a couple of months ago. That's a portable giant. It looks like a whiteboard, but it's movable. It's a video conferencing tool that you can use in any open space. You could stick it here in the middle of the room. It's AI-enabled. It's movable. It creates a digital cocoon. If we were to set it here and we'd set the cocoon to us and everyone would be walking behind us, it would only see us and not the people walking behind us.
It's off to a great start, $8,000 product, very popular and very promising. Completely new products and accessories are also a driver for the future.
Got it. Okay. We've gone through a significant amount of time without talking about AI in the product. Maybe flesh out the strategy on that front. Where are you seeing it make tangible, drive a tangible benefit for the customer, the consumer?
Yeah. Certainly that's our priority, AI in product. I just saw an article. Hardware is sexy again in the age of AI because humanizing AI, making it tangible is a big opportunity. Clearly, that's what we're good at. AI at the edge, AI in our hardware. We have already launched a number of exciting things. I just mentioned that digital cocoon. That's an AI feature. Smart switching in our video conferencing tools is another really cool AI feature. The product knows where to focus. It's like having a producer in the room. Daisy chaining is another one where the AI connects different cameras in a really smart way. Of course, two-way noise cancellation in headphones is another AI-enabled benefit. All of these things make our products more superior, and that's super cool going forward. Again, a lot more to follow in the year ahead.
That's all AI at the edge. The second thing is AI agents. The first one we've launched with NVIDIA is the AI streaming agent for gamers. I don't know if there's any gamers in the room who stream as well, but it's really hard to do when you're trying to win that game and you have to stream at the same time. The streaming agent, which comes in six different tones of voice from serious to snarky, actually streams for you. You can have great commentary on what you're doing, make money, get tips, all of that, thanks to an AI agent that you deploy. That's through our Streamlabs and Logitech G collaboration, again, with NVIDIA. More to follow there on agents that help you work and play. Finally, internally, we're really starting to see productivity benefits.
On average, our employees are now having 10 AI interactions a day. We've built Logi-IQ, which is all our proprietary data sits there. We pay per use rather than per license. It's built by our own engineers. We're pretty excited about the productivity that is already starting to get us internally.
Okay. Got it. On the first two aspects, like AI in the product, AI agents, and maybe this is a question more for AI in the product, does that drive you to have to change your R&D intensity at all, or is that largely an ongoing investment that goes into the run rate of what your R&D investments are?
We invest 6%+ of sales in R&D, which is high, but that's a good thing. That drives competitive advantage. We intend to continue to do that. I don't necessarily see that going up, but we'll continue to invest at these really robust levels. Within the R&D spend, we are seeing more software versus hardware engineering, which makes sense in an age of AI. Again, we're also seeing productivity benefits in engineering from AI. I'm just telling one of the groups, every week I have one of my leadership team members showcase in their function or team how AI is helping them. Yesterday, actually, we had our Head of Hardware Engineering showing how in hardware engineering, they've downloaded 40 years of proprietary hardware engineering data from Logitech into a data lake that AI can now crawl through.
Instead of a new engineer coming on board, trying to find the right thing when he's doing a brief for a new product, spending weeks probably missing some of what we already knew, in 30 seconds, AI writes this brief based on everything we know. That is the kind of productivity we're driving internally. I'm pretty excited about that.
Got it. Let me just pause briefly and see if there are any questions in the room. Otherwise, we can continue. Any questions in the audience? Okay.
Yeah.
You're currently at 40% of revenue at B2B. Is that kind of where you are targeting for, or do you kind of have a view of the business in the future that has a much larger percent of that revenue coming from that?
Yeah. Our long-term objective is to grow high single digits. If I were a betting woman, I would think that B2B would grow a little faster than B2C, but it would not be miles apart. You might see that 40% become 43% or 44% or something like that. It is a great business for us. Again, we have not been there for as long. B2C is our, that is where we come from. That is how we started. There is just a little bit more widespread opportunity going forward.
Maybe take a second to take a quick step back and just talk briefly about the competitive landscape. I'm kind of new to the story. We own just a little bit of your stock, but who do you compete against and kind of how's that changing? Especially given your ability to invest in AI, maybe is that extending a lead in some way or maybe not?
Yeah. Absolutely. We have three different business groups, and they all have different competitive sets. If I start from Logitech for business and video conferencing, they're really the legacy players, Cisco, HP. We're the market leader coming from nowhere. We've really disrupted that space. We believe that's because our offering is simpler, smarter AI, and more sustainable at really great value. That's video conferencing. If you look at gaming, it's a very bespoke set of competitors, names like Razer, Corsair, SteelSeries, and Chinese brands. Again, we're the market leader and pretty feel like we're very well placed actually going forward in the current environment to extend that leadership. In personal workspace, there's again some of the PC players, HP and Dell, who sell kind of basic mice keyboards. There's a lot of Chinese competitors.
I've said before, there's about 500 manufacturers of mice and keyboards in China and probably between five and 10 in the rest of the world. A lot of local Chinese players. It'll be interesting to see. We compete well in China, and we had a much better year in China last year than the years before. That's good. We need to compete well there because, again, it's such a big and dynamic market. It will be interesting to see what happens to these Chinese players in the West. Many of them are very dependent on the de minimis ruling, which is now dead. We'll see what happens there.
I'm back. We actually talked about this last year outside your session. The question was about the advent of ambient computing coming. I think you said there were some things that you guys were talking about internally. I just didn't know, again, if there's some things that you're starting to think about. It's almost like an autonomous vehicle. We just don't know when it's going to come, but it's going to come at some point.
Yeah.
The other one we talked about a little bit last year was that there were some other segments that seemed to be maturing in a way that could be valuable for you, automotive, and I thought healthcare as well too. I did not know if there is anything again there playing there that you could talk about.
Yeah. Great point. I can give you a little bit of an update. Ambience, I think I said it last year, but when I first joined Logitech, I found documents from 25 years ago that said that the mouse will imminently disappear. We must do other things. That is 25 years ago. I do think that paranoia is good. Part of our R&D budgets go to more paranoid spaces of what if there is no mouse, what would we do? One example of something that has come out of that in the last year is we have launched the MX Ink, which is the first stylus for the Meta Quest headset. It really allows you precision. The Meta Quest is actually a big product. They have sold about 20 million of those, maybe a bit more now. You work it with basically a gaming console.
When you want to be precise with that, either in gaming or in work applications especially, you need more precision. We worked with Meta on a stylus that is super precise in virtual reality. That is on the market now, and we have started to sell it. That is one example. You will see a bit more of these. All these are new categories. They are not going to be huge overnight, but it is very important that we innovate in these completely new spaces and learn. In terms of verticals, we have looked at a whole bunch of new verticals in B2B, and we have come to the conclusion that our focus will be on education, on healthcare, and on government. You may think federal government, is that a good idea right now? There is a lot of international governments and state and local governments as well.
We're small in all three, education, health, and government, but our product portfolio is actually very suitable for all three. We're starting to make inroads. That is an exciting new space for us.
Yeah.
[audio distortion] high single digits.
If I just think of whether it's the PC market or the gaming market, I don't think anyone's thinking that they'll grow high single digits. Is it more innovation? Is it share taking? Can you sort of help us with the building blocks of how do we get to whatever call it 7%-9% organic growth, please?
Yeah. The first thing that gives me confidence is we just finished a fiscal year of 7%. In, let's call it, normal circumstances, we can do this. All three of our markets, so video conferencing, gaming, and PWS, we expect to grow between 4% and 6%, gaming probably more towards 6%, PWS more towards 4%. We also have a great track record of growing share in those markets. Organically, we think we can get there. We also have a lot of firepower in the balance sheet to add some additional bolt-ons or tuck-ins to accelerate that growth a little more. I do not think it is unrealistic, but it does require great execution. I am also not saying it is easy.
Maybe I'll just follow up to that. I mean, when we talk about hardware product categories that are mature in some sense, investors tend to think of it as your growth targets are driven by volume expectations. But maybe if you can flesh out, I'm sure you won't have it every year in that same consistency, but how are you embedding in sort of ASP increases, premiumization of the product along with volume growth to get to that sort of 6%-7% range? How should we think about it?
Yeah. There's definitely an ASP component in there, and there has been over time. There was last year. We do not break it out for you guys, but the fact that our PRO line in gaming, our MX and Ergo lines in PWS, and then video conferencing as a whole all outgrew the average really helps because that drives the average ASP and obviously is a great thing for mix. Price will play a role, maybe a little more this year than other years given what we have just announced, but also in normal years, it will play a role. Again, we do not break out the details, but it is not all volume.
Okay. For the last one, just a question on the growth, but comparing it to what your growth targets were before. The recent analyst said your target was 7%-10% revenue growth. Prior to that, you were talking more about mid- single- digits. It is clearly something gave you more confidence. You said one was getting through a fiscal year with high growth, but in terms of the product growth outlooks, where is that higher confidence coming from?
Yeah. Again, that was a longer-term ambition. Confidence from the year, confidence for the market outlooks, confidence from our brand and our innovation pipeline, our investments in R&D, and confidence in terms of execution around the world. Again, we're a global company. Only 1/3 of our revenue is in the United States. We're in 150 markets. In many of those, we're actually relatively small. In India, we're less than $100 million in India. India has more software engineers than there are people in Switzerland who all should be using an MX mouse. Just so much opportunity geographically as well that I think that longer-term ambition is not at all unrealistic.
Got it. Great. I'll wrap it up there. Thank you. Thanks for coming to the conference, and thank you, everyone.