Good day. Welcome to the Logitech fourth quarter fiscal 2019 financial results conference call. At this time, all participants are in a listen-only mode. We will be conducting a question and answer session, and instructions will follow at that time. If at any time during the conference you need to reach an operator, please press star followed by zero. This call is being recorded for replay purposes and may not be reproduced in whole or in part without written authorization from Logitech. I'd now like to introduce your host for today's call, Ben Lu, Head of Investor Relations. Please go ahead.
Thank you, James. Welcome to the Logitech conference call to discuss the company's financial results for the fourth quarter of fiscal year 2019. The press release and prepared remarks and slides, as well as a live webcast of this call, are available online at the investor relations page of our website, ir.logitech.com. During the course of this call, we may make forward-looking statements, including with respect to future operating results that are made under the safe harbor of the Securities Litigation Reform Act of 1995. The forward-looking statements involve risks and uncertainties, actual results could differ materially as noted in our quarterly and other filings with the SEC. The company undertakes no obligation to update or revise any forward-looking statements as a result of new developments or otherwise. Please note that today's calls will include results reported on a non-GAAP basis, except as otherwise noted.
Non-GAAP reporting is provided to help you better understand our business. However, non-GAAP financial results are not meant to be considered in isolation from, or as a substitute for, or superior to GAAP results. Non-GAAP measures have inherent limitations and should be used only in conjunction with Logitech's consolidated financial results prepared in accordance with GAAP. Our press release and slides provide a reconciliation between GAAP and non-GAAP numbers and are posted on our IR website. We encourage listeners to review these items. Unless noted otherwise, comparisons between periods are year-over-year and in constant currency. This call is being recorded and will be available for replay on the investor relations page of the Logitech website. Joining us today from California are Bracken Darrell, President and CEO, and Vincent Pilette, CFO. I'll now turn the call over to Bracken.
Thank you, Ben. Thanks to all of you for joining us. Logitech delivered another great year. With fiscal year 2019, sales and profits up double digits for the third year in a row. Sales were up 10%. Profits were up 23%. Our three growth businesses, it's kind of fun to call this first one a growth business, creativity and productivity, video collaboration, and gaming, all performed well and will continue to drive growth through this year as well. I'm excited about the secular trends underpinning growth in these large categories. There are three major global trends driving these businesses, they're just a few of the many reasons why we're so excited about being the world's leading cloud peripherals player.
First, the first trend, if you're under 30 or have kids who are, you know that there are only two kinds of calls you make: audio calls when you're moving and video calls when you're stationary. When you look at your offices, you will probably see that most rooms are not video-enabled. The cloud's changing this by making it accessible, affordable, and easy. We're in the very, very early stages, as today only a low single-digit % of those rooms are video-equipped. I believe in the not-so-distant future, every single closed space will be designed for video, and that's why we're so excited about the growth opportunities ahead of us in our Video Collaboration business. Just look at the recent successful IPO of our cloud video partner, Zoom. We're ready to outfit all those cloud video-enabled rooms with our best-in-class solutions.
The second trend is one that you've heard me talk about time and time again. PC gameplay is destined to become one of the biggest, if not the biggest, sport or pastime, if you prefer to call it that, in the world. It's not just a fad. It's a full-blown secular tidal wave. Like VC, the roots of this second massive trend are fueled by the cloud and the social experiences it creates. The social nature not only drives viral adoption by gamers, it also drives viral viewership in casual gamers. Today, more people are watching others play video games than almost any other sporting event, and that viewership is concentrated under 30. Imagine as this generation grows up.
With leading technology and a broad portfolio of peripherals that deliver a fantastic gaming experience, we've delivered six consecutive years of double-digit gaming sales growth, we're not expecting that secular momentum to slow anytime soon. The third trend is the explosion of content creators. Today, more people are watching content created by other people than any time in human history, it's hard to imagine this trend slowing. While we all watch and love big-budget movies like "Avengers: Endgame" or shows on Netflix, there's an ever-growing library of content that people are creating and that audiences are watching. The democratization and instant availability of this content is surging, thanks to Instagram, YouTube, Twitch, Facebook, and LinkedIn, and others.
Content is being created by someone in a bedroom, in a living room, in a dorm room, in an open office, in a Starbucks, or outdoors right now, all the time, all over the world. An employee recently told me his five-year-old niece is infatuated with watching this seven-year-old boy named Ryan unbox and play with toys. Here's a little-known fact. That seven-year-old boy, YouTube Ryan's show, is called "ToysRView" and was the highest worldwide earner on YouTube last year, pulling in CHF 22 million, according to Forbes. No, I'm not kidding. Content creators edit, stage, and format at a desk using a PC, using a keyboard, a mouse, a webcam, and sometimes a microphone. This is one of the reasons why our PC peripherals business has consistently been growing ever since fiscal year 2015.
Frankly, we've not been specifically designing for that user. While new PC shipments may lag or even decline, we expect continued low single-digit growth for this large business going forward. Three big secular trends driving our business. Now let's talk about the track record we built driving into these trends. We delivered another year of exciting growth in gaming, with fiscal 2019 sales up 33%, gaining market share, and improving profitability. Our core PC gaming group grew double digits across all three regions, while ASTRO Gaming expanded our presence into the console headset space and, most recently, into console controllers. This offset an expected decline in our simulation group, mainly racing wheels, since most of the major racing titles were updated in fall of 2017. Gaming, and particularly the simulation part of the business, is seasonal and title-driven.
What's most impressive, though, is that our gaming business still managed to grow double digits in Q4, despite being well into the tough Fortnite growth comparisons from last year. That said, growth in ASTRO in fiscal year 2020 will be tough to predict, given the unprecedented growth we saw last year. That's why we expect 15%-20% growth in total gaming sales for fiscal year 2020 versus the 33% we just posted. While growth in gaming will sometimes be more lumpy, especially by product line, we expect this e-sports phenomenon to continue to fuel the long-term growth of our gaming business for many years to come. Video collaboration sales grew 44% in fiscal year 2019. Sales in this category were practically zero a mere six years ago. Since then, our VC sales have put up a six-year sales compound, CAGR, compound average growth rate of over 50%.
While we're looking for VC sales growth of 25%-30% for this coming year, you can be sure that I'm pushing the team to outperform that. As you've heard us say before, we're continuing to grow and invest in our direct sales force. On top of that, we're also innovating in our product portfolio. Sales of our Huddle Room MeetUp product more than doubled year-over-year. We showed at our March Analyst Day, our VC product portfolio can now address both small huddle rooms and all the way up to large conference rooms. What's that mean? It means that our previous average customer hardware price point of around CHF 1,000 for MeetUp can now potentially go to CHF 2,000 or CHF 3,000 using our new Rally camera system, all the while expanding our addressable market into those larger rooms.
In fact, Rally has shown early signs of success after its initial launch this past quarter. One of our newest products, the universal meeting rooms control panel Tap, has already created a lot of excitement with customers and will be shipping shortly. I strongly encourage you to go see the commercial for that. It's incredibly good and funny. It's still early days for companies to adopt lower-cost, cloud-based video collaboration solutions, and we see years of strong runway ahead of us. PC peripheral sales increased 7% in fiscal year 2019, representing the fourth consecutive year of growth, with all three product lines, pointing devices, keyboards, and webcams, delivering growth. We've demonstrated that as long as we keep innovating for all different use cases, whether you're a creative designer, a social content creator, a student, an investment analyst, or somebody else, we can achieve consistent growth.
Our MX Vertical has become a hit, and it's not only taken share in the vertical mouse market, but it's also actually dramatically expanded the size of that market. Our China team also developed the slim, inexpensive Pebble Mouse that strongly resonated with millennials in China, and it's off to a great start. Staying close to users and using design to unlock the power of our engineering has been one of our hallmark capabilities for the last five or six years, and we're not letting up. Tablet and other accessories sales grew for the second straight year, up 20%. While we saw a decline in Q4, this was due to the timing of our introduction of the new Logitech Slim Folio for the latest generation of the iPad Pro, which just launched this month. As long as the iPad market remains healthy, we'll continue to introduce new products and drive growth.
Mobile speakers were down 26% for the full year, with Q4 sales up 81%. Don't get too excited about our strong Q4 growth. We had a very weak fourth quarter for mobile speakers last year, so I wouldn't view this Q4 performance as a trend. As we have stated before, the overall mobile speaker market remains soft, so we've taken measures to better align our investments, our resources, and our channel inventory. We'll continue to innovate and come out with new products and experiences. Audio and wearable sales were up 11% for the year, due largely to our recent acquisition of Blue, which contributed roughly two percentage points to our overall growth in 2019. We love Blue, and we love the Blue team, which delivered another strong double-digit quarter. Excluding Blue, audio and wearables was down single digits.
We remain excited about the opportunities in the wireless earbud market. Jabra is taking a disciplined approach to carving out its own unique niche, building out great products targeted at athletes. Now let me talk about the news we announced regarding Vincent Pilette, our CFO and my partner. He and I are actually, much to your surprise, both wearing our jackets today in honor of his last earnings call at Logitech. I can't end this call without thanking Vincent. For the last six years, he's dedicated to Logitech as our CFO and is one of my closest partners. He was here in the early stages of Logitech's turnaround, as were many of you, and played a critical role driving the company's transformation, which is the Logitech you know today, the multi-category, multi-brand design company, the growth company.
More important than the work Vincent did in helping us get back to a growth company is the team he built and the rigor he's brought to the way we work. We now have a strong, seasoned finance team across every area, and that's the most important legacy he'll leave. We've named Nate Olmstead, who's sitting down the table from me, as our interim CFO while we search for the new CFO. Nate joined us earlier this year from Hewlett Packard Enterprise and brings over 16 years of deep financial management expertise, most recently as the Vice President of Finance for Global Operations at HP. Vincent and Nate will spend the coming weeks together working on a transition plan and meeting with each of you. Now let me turn the call over to Vincent to walk you through our financial metrics.
Thanks, Bracken. For the record, I'm wearing a jacket, but no tie.
Me too.
As Bracken mentioned, we delivered another year of strong financial performance, the sixth one to be exact. Fiscal year 2019 sales reached CHF 2.8 billion, up 10% in constant currency, while our non-GAAP operating profit rose 23% to CHF 352 million, better than we expected. Non-GAAP EPS was CHF 2.01, a significant milestone for us, because three years ago, we had laid out the roadmap towards doubling EPS to CHF 2, and we did it a year earlier. From here, we will focus on driving continued top-line growth, diversifying the portfolio, and delivering operating leverage, as we recently raised our long-term operating margin target to 14% on the high end of our range, versus 12.6% in fiscal 2019. Our fiscal 2019 gross margin reached 37.8%, up 190 basis points at the midpoint of our recently raised long-term range of 36%-40%.
As you recall from our recent Analyst Day in Zurich, we took up the high end of the gross margin target range to 40%. That is due to three factors. One is normal cost structure improvements, which we will continue to drive for, as you can tell from our margin increases in the past few years, we have a pretty good track record of reducing cost faster than natural product price decline. The second factor is better product mix, as we shift more into video collaboration, gaming, and PC peripherals, which all generally have better gross margin than the other categories. Finally, the third factor is our desire to transition the business model to more branding and marketing-led activities from more promo-led demand generation that we have mainly used in the past.
In essence, we will be balancing how much we spend in gross-to-net promotions versus what we will spend on marketing OpEx. As we continue to build our multi-brand, multi-category portfolio, you can be sure that we will look to expand our capabilities around marketing and branding. Our non-GAAP operating expenses increased 10% in fiscal 2019 to just over CHF 700 million, or up about 8% excluding Blue. This demonstrates our continued discipline in driving operating leverage through balancing our spend with both top-line growth and gross margin expansion, while continuing to invest to capture our best growth opportunities. Our approach is pretty simple. We continuously look to optimize infrastructure spend to invest more in building and selling great products.
Our CS& marketing and R&D spend were both up 12% for the year to support the strong top-line growth, while we kept our G&A spending flat for the year at a record low 2.9% of sales. As a result, we delivered better-than-expected profits for both Q4 and fiscal 2019. Now let me talk briefly about our cash flows. Cash flow from operations was CHF 305 million for the full year, down from CHF 346 million in fiscal 2018. Although cash flow continues to be very strong for the company, the decline in cash flows year-over-year was mainly a result of the strategic pulling of inventory ahead of tariffs and a more back-end loaded sales in Q4. Overall, though, we continue to expect our cash flow from operation to generally approximate one-time non-GAAP operating income, as shown by the average of the last five years.
In summary, we feel very good about this past year, and the business is well-positioned to deliver another great year in fiscal year 2020. Finally, as Bracken mentioned, I've decided to leave Logitech full of mixed emotions, of course, but with tremendous optimism for Logitech and its future. We've just delivered our sixth year of growth. The company is well-positioned to deliver on the long-term model we laid out in March, and so there was no better timing for me to pass the CFO's responsibilities to Nate and pursue a new challenge. I was a shareholder before I joined, and I will stay a passionate shareholder and a big supporter of the team moving forward. Before I get emotional, let me pass it back to Bracken.
If you believe Vincent ever gets emotional, you don't know him well enough. Fiscal year 2019 marks another great year for us. We're well-positioned to drive continued growth in fiscal year 2020, as we continue down our path of being the largest cloud peripherals player. I'm energized by our plans, and I'm energized by our people. We just gave our outlook for fiscal year 2020 in March, and today we're confirming that outlook, sales of mid-to-high single digits in constant currency, and non-GAAP operating income of CHF 375 million-CHF 385 million. With that, Vincent and I are ready to take your questions. Ben, why don't you queue them up?
At this time, I'd like to advise everyone who would like to ask a question to please press star, followed by the number one on your telephone keypad. Again, if you'd like to ask a question, please press star one on your touch tone keypad. Your first question comes from the line of Ananda Baruah from Loop Capital. Go ahead, please. Your line is open.
Hi, Ananda.
Hi, Ananda.
Hi. Good morning, guys. Hey, Vincent. Yeah, we'll miss working with you, and congrats on a job well done.
Thank you.
Look forward to seeing where you land, and maybe with any luck, we can make it three for three. Would love to. Just with regards to the business, congrats on solid top line, solid results.
Look, this was a solid op margin beat. Just sort of philosophically, are you guys starting fiscal year 2020 from perhaps a little bit of a higher floor than you thought you might be at the Analyst Day? How should we think about that cadence in the context of the fiscal year 2020 guide? I have a couple of follow-ups. Thanks.
Hey, Ananda. In terms of guidance at this point, it's way too early to change our guidance. I think the business overall is performing well. As we always said, we're operating a little bit higher in our gross margin. We would like to have the capability to reinvest and continue to invest for the future. I would say it's all built in. Going into fiscal 2020, we still have many variables like either tariffs or currency that we don't control, we like to have a lot of variability in our P&L to be able to always deliver on our commitments.
Okay, great. Bracken, on gaming, could you just point out if there's any specific catalyst for the year? Fortnite has been a really tremendous catalyst for a while now. What do you see as being catalyst post-Fortnite? Maybe that's not the right way to think about it.
Got it
Whatever those dynamics are. Yeah. Secondarily, to what extent, if any, do you consider Fortnite to still be a catalyst? I have one more after that. Thanks.
Okay. Yeah. Well, first of all, I think the primary catalyst is the underlying secular trend that's just happening. The growth of esports, the excitement around esports. As you said, the launch of new games is always going to be a big deal, but remember, the underlying continued growth of the existing games still continues to be really exciting. I'm not sure you could point, at this point in the year, to a single catalyst that will drive the short term, but the long-term secular trend seems almost inevitable to me. New games are coming out all the time. The game publishers don't sit on their hands.
Fortnite came out and created such a wave, Activision Blizzard and Electronic Arts and so many others have been doubling down on creating new games, and you're starting to see them come out. I think we'll have all kinds of surprises in the gaming business, but even if we don't, the secular trend will just continue.
Okay, great. We see more gaming services enter the market, some of them are also now not surprisingly targeting increasingly some of the larger phones from a couple of different service providers. Is there an opportunity long term or even in the medium term for you guys to come out with product that might serve as an interesting alternative to just sort of the normal earbuds for folks for that market?
Well, we try not to comment about specific categories that we might not be playing in. What I would say is, you referenced something else that I do want to jump on, which is the creation of new services like cloud-based services that enable you to essentially have a mega PC experience without the PC on your desk are another growth enabler for us because you continue to need a headset, a keyboard and a mouse. This is a super exciting thing for us, and we've seen this coming. It started with some startups, and now it's gone to Microsoft and Apple and others. I think that's going to be exciting. In terms of mobile gaming in general, mobile gaming continues to be huge and growing and we certainly think there are interesting places to play in there. Obviously headsets is one part of it.
Some of our products are probably already used for some of the mobile gaming, we haven't directly targeted that yet, it is an interesting area.
Okay, great. That's helpful. Last one for me. Video collaboration. Did I hear you accurately, Bracken? You said you guys are targeting 25%-30% growth for the year. Is this the first time you've disclosed that, if I heard that right, the fiscal year 2020, or was that actually the target, or was that actually at the Analyst Day as well?
No, we disclosed it at the Analyst & Investor Day, that's not a new number.
Okay.
The real point I was making there was, at this point in the year, it's a little hard to get too specific on it, we're excited about video collaboration. I think we're the only building I ever go into that's as video enabled as the future will be in every building.
Your next question comes from-
By the way, Ananda, before you jump off. I went to this really cool company whose average age is probably 28, that has a lot of employees, not too long ago, and I won't mention who it was. It blew my mind that I walked through that building and there were so many enclosed spaces. They looked like ours in that regard as an open office, and so few, in fact, I didn't see any video-enabled spaces except the boardroom or maybe one or two other large rooms. The opportunity is so big. Thanks, Ananda.
Your next question comes from the line of Asiya Merchant from Citigroup. Go ahead, please. Your line is open.
Hi.
Hi, Asiya.
Good morning, everyone, and thank you. Vincent, we'll miss you as well. Good luck on your next venture.
Thank you.
A quick question. Now with probably the CFO search underway, and I know you have an interim CFO here, how should we think about acquisitions? In the past couple of years, you guys have done smaller acquisitions and they've obviously contributed to the top line. Should we assume there's a little bit of a step back from these little acquisitions that you might have considered prior to Vincent's departure?
No, I wouldn't assume that at all. We're always looking, and we'll keep looking. I think it'd be crazy for us to stop doing what we do well. Vincent's leaving, but Vincent's left a great team behind him, and Nate's going to be terrific, and we're not letting up on anything at all.
If I can add, especially in acquisition, but it's actually true in every discipline, it's really a teamwork between the business development team, the strategic team, Bracken's involvement, mine, the general managers. Especially in M&A, it's really a broad effort. The CFO is definitely part of that but not the only player.
I would say, when we've done acquisitions, and they get more focused for all the right reasons. We're really an organic growth company.
Yep.
We're first and foremost an organic growth company. If you look at VC and gaming and PC peripherals, really underneath all that is an innovation engine that is the key to this business. We're going to continue to do acquisitions.
Okay. Just a couple of follow-ups.
Sure.
There was some commentary in the prepared remarks that there was some linearity in the intra-quarter that suggested it was back-end loaded. Was this a surprise there? Then as a follow-up to that, at your Analyst Day, you talked about mid to high single digits, keeping in mind some of the macro factors that were out there, perhaps the Fortnite factor as well. Has anything evolved from that time? Anything that has surprised you to the upside or to the downside?
Hey, quickly on linearity. No, it was not a surprise since we talked last, which was at AID. If you remember back in the last calendar quarter, Q4 Christmas quarter, there was a lot of volatility in January, the business of the quarter started slow and then ramped up faster than last year and finished strongly in March. I think that caused some of the AR and cash collection to be delayed into the next quarter. That's what we were referencing to.
Yeah, in terms of is there anything we've seen since then, it's so early in the year, it's really too early for us to comment on it, the economic environment or any of that stuff. It's just too early. We got 11 months to go.
Okay, great. Cash conversion cycle as we revert back to perhaps more linear quarters, should we expect that to revert back to what has been a historic norm ex the ASC 606 impact?
Yeah. Absolutely. Yep.
Okay. All right. Thank you, gentlemen.
Thank you, Asiya.
Your next question comes from the line of Andreas Mueller from ZKB. Go ahead, please. Your line is open.
Hi, Andreas.
Hi, Andreas.
Hello. Thanks for taking my question. Good luck, Vincent. We're going to miss you. A question on the inventories. How do you see the progression of the inventories in the next quarter? Are we on the level now that is good enough to protect from the tariffs?
Yep. I think, as you know, we mentioned in our prepared remarks that we've pulled in some inventories to protect against tariffs. It's not clear yet what tariffs will be in the future, under current assumptions, I think we are stabilized, if you want, and we'll burn all of that inventory that we pulled in in advance. It was the right economic decision using our balance sheet as a strength for that.
Okay.
Luckily we did that.
Right. Then on the operating cash flow, can you give us the absolute size of the operating cash flow that was impacted by this back-end loaded quarter?
Overall, about CHF 40 million impact, and about half of it from inventory pull-in and half from linearity.
Then my last question, can you dissect a bit the gross margin uplift of this 160 basis points into the factor currency, product mix, cost savings, China tariffs? Also, could you indicate how these single factors are going to progress into Q1?
Yeah. No, Andreas, I'm not going to go into my long, very detailed spreadsheet analysis here on the call to give all of the drivers. We always said we have multiple drivers on the gross margin. We've been trending above 37% for the full year, and Q4 is slightly above that, but in line with everything we said there. All three factors were favorable to gross margin, which was cost reduction, mix overall, and the reduction of promo and more marketing expenses. Those trends will continue going into fiscal year 2020. You should expect the gross margin in the first quarter here to be a little bit weaker, considering that there is more currency impact at this point in time with the euro being at around 112 in exchange rate.
Overall for the year, we'll be on a solid footing and the three factors I've mentioned will continue to drive gross margin up.
Okay, great. Thanks a lot, and good luck, Vincent.
Thank you.
Thanks, Andreas.
Your next question comes from the line of Juergen Wagner from MainFirst Bank. Go ahead, please. Your line is open.
Hello, Juergen.
Yeah. Hi.
Hey, Juergen.
Thank you for taking my question. Actually, I have two. Sell-through weakness in Europe, is that going to reverse? You had some volatility in the past. Is it just normal fluctuation? The second question would be, you talked a lot about Video in your prepared remarks, now that the market is evolving and you are broadening your footprint, we hear from others that they might see growth there. How do you see your positioning and the competitive environment developing going forward, also because it's a high gross margin business for you? Is it staying amongst the highest gross margin products for you? Thank you.
Yeah, let me take the last one first. I'll let Vincent take the first one last. I think the Video, as I mentioned, I think the Video opportunity is so big. We're going to see strong growth, in spite of what happens from a competitive standpoint. From a gross margin standpoint, I don't think there's any reason to think that the gross margin will be impacted by the competitive environment. I think, from what I can see, the gross margin profiles of the competitors we have look a lot like ours. At least they're in the same vein, I doubt it. I think the opportunity is really, really big for many companies, and competition's great. Competition drives growth. It'll drive more awareness in the market, and I think you'll see those other 95% of rooms come into Video faster.
I will address the channel inventory, and thanks for your question because there's a few analysts writing about that based on the reports we had put on our website. Overall, the selling gross rate or the net sales gross rate, as you know, is 5% in U.S. dollars. The sell-through that you mentioned on a global basis is 4% excluding Blue and 6% including Blue. Overall, the business channel inventory is well-positioned, slightly less than revenue growth, so we feel good, and weeks on end, slightly down. Well-positioned going into the first quarter of the next fiscal year. As you have seen on the report, it's aligned in both Americas. It's actually even more favorable in Asia Pacific. In Europe, we have a little bit higher sales in than sell-through.
The thing to consider is really this reduction of promotions into marketing effects that's impacting the net sales in, but not reflecting in the sell-through. On a constant currency basis, sell-through in Europe was around 6%-7% growth, and we feel pretty good about where we are in the channel there.
Okay. Clear. Thank you.
Thanks, Juergen.
Your next question comes from the line of Paul Chung from JP Morgan. Go ahead, please. Your line is open.
Hi, Paul.
Hey, Bracken. Thanks for taking my question. Thanks, Vincent. You will be missed for sure. First up on video collaboration, are you starting to see more competition on the huddle room side? Secondly, how's your progress been on kind of attacking the larger conference rooms? Are you gaining share there? What's your kind of go-to-market strategy? Any sense of revenue potential there would be great.
On the competition on the huddle room side, yeah, absolutely. We're definitely seeing it. It's been out there, and we've got several really good competitors in the huddle room space now. As I said, as I responded to Juergen's call, I think competition, I don't want to sound too Pollyanna here, but competition's good. If you don't have competition, you don't have nearly the market growth potential because competition drives communication into the market of the opportunity, and it will drive the market growth. I think more players in there is a good thing overall, and it puts pressure on us to innovate and innovate well, and that's what we're up to. I'd say so far, we continue to be excited about the potential there in line with where we were before. I think the market will be interesting to watch over time.
In terms of the large center, it's a little too early. We just launched Rally. We've had something that you could use in a large room, but I'm sure we'll do better than we have been in those large rooms now that we have Rally out there. I wouldn't try to quantify exactly what that is. I think there's just opportunity across the board.
On the Zone wireless headset, seems like a nice cross-sell opportunity in the enterprise space. First, is this going to be classified in VC or audio wearables? Second, what's your strategy to gain market share there and kind of potential you see as well?
That's going to be in audio wearables. It's a first, really, attempt to get some experience into that marketplace. I don't want to overstate its potential. I think it's a terrific product, but it's a first, I would say really small step into exploring what it's like to be in that space. We're going to see how it feels like we did with video conferencing 6 years ago. We got in the front door, it felt kind of warm inside, we continued to walk inside, we're doing the same thing there.
Okay. Lastly, want to get your sense on keyboards and pointing devices still remains a billion-dollar business itself. You continue to exceed expectations in this segment pretty consistently, it's pretty nice. Low mid-single digits there. Can you expand on what's been driving your success there, whether it's ASP, certain regions, your longer-term view of the segment would be very helpful. Thank you.
It's really a global thing, just like the underlying secular driver of that is a global thing. That underlying secular driver is the fact that so many people are using their PC for more than they used to in the past, they're using it for content creation. Again, that might seem like a difficult path to explain how those two are connected, if you just think about the way a lot of people are creating content, if they're not doing it on their phones, they're doing it at a desk. If they're doing it on a desk, they're doing it with a PC, therefore it's an important part of their lives. I think that's really what's happening. As long as we innovate. There are different innovation vectors that we can go after there, and we are.
The vertical mouse we launched 2 quarters ago, or the end of the quarter before last, is another interesting one where people are continuing to use their PC so much that they get competitive use injuries, healthy computing is a big deal. It's a really big deal in the Nordics. It's becoming a big deal in Europe, it's starting to pick up steam here. We've got different things that can drive and will drive and are driving that growth. I think we continue to see that, as we said, I think we continue to see low single-digit growth for the foreseeable future.
Great. Thanks good luck, Vincent.
Thanks, Paul.
Thanks, Paul.
Again, as a reminder, if you'd like to ask a question, please press star followed by one on your telephone keypad. Your next question comes from the line of Joanne Wu from UBS. Go ahead please, your line is open.
Hello, Bracken, hello, Vincent.
Hey, Joanne.
Hi. Vincent, we will for sure miss you. Hopefully, Logitech is not missing you at some point in time. Quickly following up on gaming, please. Your competitor, Turtle Beach, I think is guiding down their sales target by around 20% because they think there is lower demand on the headset side. Are you also seeing similar trends? If not, what is explaining the difference? Bracken, when you said gaming can be sometimes a bit lumpy, does it mean that, for example, Q4 with +30% is kind of lumpy? Can you also mention at some point in time in the quarter, gaming is falling to a flatter or +5% growth in the next one or two years?
I think you could see that in a quarter. I think lumpy in terms of different categories grow at different rates. Sometimes simulation will be down like it was this quarter, sometimes others will offset it. I think gaming could be lumpy like that. I think you could see it drop down and be flat or single digits or low double digits. What Turtle Beach, I think, guided about, I didn't look closely at it, but I would guess they're referencing the Fortnite effect. Remember, they're completely in the Fortnite business and the headset business, we're in a lot of other categories as well. Now will it decline 20%? Will it be flat? Will it grow 10%, the headset business especially related to Who knows?
At the end of the day, I think we've got enough tools in our arsenal that we're going to be able to drive good, solid growth in spite of whatever that is. I think the reality is whatever that happens with the famous Fortnite effect, remember, there are new games coming on that look like they're on track to be as big as Fortnite. There's a lot of stuff coming. I admire their conservatism, and I think they probably were right to do it if they're only in the headset business. We're in mice and keyboards and headsets and simulation. A lot of categories.
All right, thanks. Would you say the gaming guides of 15%-20%, is this back-end loaded in fiscal year 2020?
No, it's pretty regular through the year. I just want to add on Bracken's comment. The diversification of our entire portfolio has been definitely a strength for us. We've been growing now double-digit for three years at almost every quarter we had a weakness in one specific category. Within gaming now, which became, as we discussed, like a pretty substantial business by itself, will have its own set of diversification, and any quarter, a subcategory of the gaming business we have could be in a weaker position. When Bracken mentioned choppiness or some variety, maybe we could see one quarter 5%, is really talking about a quarterly basis. We're not managing on a quarterly basis.
No.
We're looking at long-term trends. In the guidance we gave at the March AID, we definitely were cautious on the Fortnite effect and post-Fortnite effect. I won't exactly say what cautious means, we were prudent going into the fiscal year 2020.
I just want to echo a comment that Vincent just made about our portfolio. It's really been such an advantage for us to be in so many different categories. I think by the way that I count them now, we're in either 26 or 27 different categories. Some of those are gaming, some of those are video. It's a nice situation for us. If you combine that with the fact that we're a super global company with lots of market participation too, it does buffer us from the short-term ups and downs of a single category like that.
All right. Many thanks.
Thank you.
Thank you.
Thanks, Joanne.
Your next question comes from the line of Michael Foeth from Vontobel. Go ahead please, your line is open.
Hi, Michael.
Hey, Michael.
Yes, hi. Thanks. Just one last for me, actually. I was just wondering the sort of relative weakness in comparison to past quarters that you reported in Asia, and I think you pointed specifically to Australia, if you can explain again what that is related to, if it's really a general trend or is it related to some particular product category. I'm not sure I understood exactly the difference between the EMEA between the sell-through and the reported sell-in growth. If you can just explain that promotional driver there once again. Thank you.
Let me take the first one, and let Vincent take the second one again. In Asia-Pacific, yeah, we referenced that Australia and New Zealand had a strong slowdown in Q4, and I think they tend to get a sort of a delayed effect on the rest of the world in some of the categories we're in. They're also very large in music, so they're a big music business for us. The combination of being a very large music business and then the delay in the slowdown in the market of Bluetooth speakers, so they sort of saw it this quarter. That was the biggest driver. I do think Asia Pacific will be slower growth than it's been in the past. We have this portfolio of regions too, where we've been growing 20%, 19, 20, 21% in Asia Pacific. I think you'll see that come down for this year.
It will still, I think, be strong double digits, but I think it'll come down, and I think that's sort of what we would expect. The Asia thing was this quarter's issue, and I think that will kind of flow through. I think Asia Pacific in general will be lower as Europe comes up and hopefully Americas comes up.
Michael, let me stay high level on sell-through, and then we can always follow up in our one-on-one. When you look at sell-through report we post on our website versus net sale, there are three factors you need to keep in mind. The first one is the constant currency versus US dollars. Sell-through the way we report it, is reported to us, is in US dollars, so you need to compare that to the right cross rate. The second one is that sell-through does not include Blue yet, as we have not fully integrated that business into that sell-through report, if you want, coming from third party. The third driver is this reduction of contract revenue, all gross to net, and sell-through is on a gross level, and net sales is all inclusive.
I'll be happy to follow on more technical answer when we have our one-on-one.
Sure. Thanks a lot.
Thank you. Thanks, Michael.
There are no further questions at this time. I'd like to turn the call back over to our presenters.
Well, I want to finish on two things. One is, we just finished a great year, we're starting a new one, that's always really exciting, we're excited about the year. I want to congratulate Nate. I think he's been terrific, he happens to be sitting catty-corner to me right now. We didn't put him on the hook today, but we will next quarter. I want to again thank Vincent. It's rare to find a partner who shares your ambition as completely as Vincent did with me. The good news is there are others here who do as well, I don't think he's leaving anything but a company that's just so much stronger than when he arrived. We will continue to double down on what we've already built into the future. Good luck, Vincent.
Thank you.
Thanks, everyone, for the call.
This concludes today's conference. You may now disconnect.