Rolling on the horizon, smooth sailing, he can't be seen. Now she's headed east down the boulevard. Sure that I like the way that I like the way you sail your ship now. Let me be your cargo, I won't weigh you down. No, honey, I won't weigh you down. I don't really know her destination, but I got a feeling I need to be your passenger. Sugar, let me be your passenger. Sure that I like the way that I like the way you sail your ship now. Let me be your cargo, I won't weigh you down. No, honey, I won't weigh you down. Smooth, smooth sailing.
Smooth sailing, yeah.
Smooth. Darling. Sweet pretty baby, won't you be my lady? Sweet honey darling, you know I'm calling. I want you. Sure that I like the way that I like the way you sail your ship now. Let me be your cargo, I won't weigh you down. No, honey, I won't weigh you down. Smooth, smooth sailing.
Smooth sailing, yeah.
Smooth. Darling. Sweet pretty baby, won't you be my lady? Uh-huh. Sweet honey darling, you know I'm calling. I want you. Sure, that I like the way, that I like the way you sail your ship now. Let me be your cargo, I won't weigh you down. No, honey, I won't weigh you down. Finger on that shade, somewhere there's a party. Music never ending, can't remember when it started. Hands around that shade, there'll be plenty enough room in jail. Being wrong for crime, I'm serving forever. Feeling strong for time and I need help to win this cell. Being afraid is crime we had inside. At the swinging party down the line. Pound the berry pavement, losing proposition. Waiting so long, no, I can never go fishing. Water all around, never learned how to swim now. Being wrong for crime, I'm serving forever.
Feeling strong for time and I need help to win this cell. Being afraid is crime we had inside. At the swinging party down the line. At the swinging party down the line. Finger on that shade, somewhere there's a party. Music never ending, can't remember when it started. Hands around that shade, there'll be plenty enough room in jail. Being wrong for crime
Is what you want and I need Help you, is it better? Feeling afraid and running side by side. At the swinging party down the line. At the swinging party down the line. Alright, you know, I don't want to be the one. I guess it's hard to say if you don't want to be in love. Stay tonight, it won't change how things feel. Although it's late, I said I'll give it one more try. Even though it's hard to think, we'll find your keys in the dark. Stay tonight, it won't change anything. Stay tonight, it won't change anything. Stay tonight, it won't change how things feel. Although it's late, I said I'll give it one more try. Even though it's hard to think, we'll find your keys in the dark. Stay tonight, it won't change anything. Stay tonight, it won't change anything.
Stay tonight, it won't change how things feel. Although it's late, I said I'll give it one more try. Even though it's hard to think, we'll find your keys in the dark. Stay tonight, it won't change anything. Stay tonight, it won't change anything. Stay tonight, it won't change how things feel. Although it's late, I said I'll give it one more try. Even though it's hard to think, we'll find your keys in the dark. Stay tonight, it won't change anything.
You can say I told you so. If I ever hurt you. You know I hurt myself as well. Anyway, woman, get on. Do your thing, gotta want my love on loan. If I ever leave you. You can say I told you so. If I ever hurt you. You know I hurt myself as well. Anyway, woman, get on.
Hello, everybody. Thank you all for attending. I'm Ben Lu, Head of Investor Relations here at Logitech, welcome to our annual Analyst and Investor Day here in Zurich. I've been told it's an unseasonably warm day, so it's nice that it's actually quite warm here. I promise to be really fast with our customary forward-looking statements. Otherwise, my legal firms will get really upset at me for not reading this. I'll go through it quickly so we can get on with the show. The press release, as well as the live webcast of this presentation, is available online at the investor relations page of our website, logitech.com. During the course of these presentations, we may make forward-looking statements, including forward-looking statements with respect to future operating results that are being made under the safe harbor of the Securities Litigation Reform Act of 1995.
The forward-looking statements involve risks and uncertainties that could cause actual materials to differ materially from those anticipated in the statements. Factors that could cause actual results to differ materially include those set forth in Logitech's quarterly report on Form 10-Q for the quarter ended December 31st, 2018, and subsequent filings. The company undertakes no obligation to provide or revise any forward-looking statements as a result of new developments or otherwise. Please note that today's presentations will include results reported on both a GAAP and a non-GAAP basis. Non-GAAP reporting itself provided to help you better understand our business. 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 only be used in conjunction with our consolidated financial statements prepared in accordance with GAAP.
Our earnings press release includes a table detailing the non-GAAP measures, together with the corresponding GAAP numbers and reconciliations to GAAP. This information is also provided on our investor relations website. We encourage listeners to review these items unless you really want to hear me repeat these again. Noted otherwise, comparisons between periods are year-over-year and in constant currency, and all reported results and updated outlook are focused on continuing operations and do not include the performance of Lifesize, which is reported under discontinued operations. These presentations are being recorded and will be available for replay on the investor relations page of the Logitech website. Today's agenda, unfortunately, I forgot to bring my presenter remote. If you move on two pages you'll see the agenda. We'll have Bracken, President and CEO, as you all know, start off the event.
We have Alastair, our Chief Design Officer, Scott Wharton, Video Collaboration, Ujesh, whom you guys also know is in charge of gaming. We'll take a short break afterwards, Delphine will come on to talk to you about Creativity & Productivity. Finally, as we always bookend our analysts here, I'm sure you guys are all waiting for Vincent to talk about the financials. With that, let me hand it over to Bracken Darrell.
Thanks a lot. Before we go past this page, I'm going to take a second and just introduce each of these characters briefly. Alastair Curtis is standing in the back here, Alastair grew up as a designer. He's been a designer practically since birth. He went to the Royal College of Art, the same place that Jonathan Ive went. He'll talk a little about that later. He was the head of design for Nokia for many years, he and I have been working together since almost the beginning. Scott Wharton is a great example of a new breed of leader we have in the company, which is a former entrepreneur. Scott is where? Where is Scott? Scott's standing right behind you. Scott runs our video collaboration business.
He actually came out of a startup that he created and sold in video collaboration, again, many years ago, now he's been running this business wonderfully for the last several years, I think you'll love his story. Ujesh Desai. Where is Ujesh? Ujesh also has been as deep in his business, which is gaming. What you won't tell from Ujesh, because he's wearing a long-sleeved shirt, is he's got his tattoos of his favorite game characters from his wrist all the way up to his shoulder, he somehow talked me into a tattoo, which I think Vincent may mention later. Delphine is another completely different character. Delphine has been with the company for a very long time. She's been with me as long as I've been here and before that, Delphine runs our Creativity & Productivity business, which is the original core business.
Delphine has worked all over the world for us. She's French by birth, she's really spent a lot of time in Asia. She's been deep in almost every one of our businesses and doing an amazing job running this business. Finally, I won't even try to introduce Vincent. Everybody in here knows Vincent probably as well or better than you know me, he's been my partner in crime since almost the beginning. We've got one slice of a very seasoned team at Logitech now. This is my seventh time doing this, so almost seven years. We've got a team with very broad shoulders, I would say, maybe oversized for the size company we are by design because we don't intend to be this size for very long. I'm going to walk you through.
I'll try to be very brief in my section because most of you hear from me every quarter, you know a lot about our strategy. I'm going to give you a quick evolution of the kinds of discussions about strategy that you've had if you came here year after year. I'm going to give you a little glimpse at the way that at least I look at the business going forward. Then I want you to hear from the people who really are running the businesses, and of course, from Vincent. Before I start though, I just want to start with one thought, which is this. At the end of the day, if I were an investor, and I am, I would want to invest in two things, great capability and great trend lines. I don't mean business trend lines.
I mean trend lines, secular trends in the world. There are three secular trends in the world. I'm going to mention them now. I want you to look for them in the presentation, and at the end, feel free to ask me questions about them. Here are the three trends. The first trend is if you have kids under the age of 30, or someone in your life under the age of 30, or if, God forbid, there's somebody in this room, and I know there is, under the age of 30, you know that there are only two kinds of calls you make when you're under the age of 30. One is with earphones, moving around, walking somewhere, the other one's on video.
Today, when you go back to your offices, wherever you are, I would guess that almost no one in here works in an office where every closed space is video-enabled. I'll tell you right now, they will be. It's coming. Every single closed space will be enabled that is used for meetings. We're at the very beginning of this, we are the leader in that space right now. Scott's going to talk about video collaboration, but that's the future. That's one big secular trend. The second big secular trend is this one. You know more people watched people play video games online, watched people play video games, didn't play them, watched other people play them, than watched any Formula One event or the Super Bowl? You might not realize that.
If that sounds a little surprising to you, it's because everybody under the age of 30 is thinking playing video games at least some of the time, they're very interested in it's not a temporary trend. It's a long-term secular trend. It's a new experience, a new pastime that is getting bigger and bigger. As that group grows up, it's just going to keep growing. Their kids are going to do it, their kids are going to do it. Gaming is the second massive secular trend. The third one is maybe the most surprising. Ujesh will cover that more. The third one is maybe the most surprising, which is this one.
When most of us grew up, when I grew up, my favorite TV shows were "Gilligan's Island." How many people know "Gilligan's Island?" "Family Affair" or "The Flintstones." I'm trying to find one that everybody in here has seen. Those were created by companies like Paramount or Disney or Columbia Pictures. The content that I watched growing up was created by very large companies that had the scale to produce really high-quality programming and then to broadcast it through the very narrow and very selective pipes that were at first overall broadcast and then became cable. That was the way I got my content, and most of you got your content. That is changing. Today, more people are watching content created by other people. It's as if everybody in this room is creating content for everybody.
You still watch Disney movies, but most of the content you're watching is created by somebody else. It's created by a content creator in a bedroom, in a living room, somewhere. Those content creators, those digital content creators, remember that term, those digital content creators are creating content everywhere. It's the democratization of the creation of content. We're at the very early stages of that age. If they're doing that, much of the time, they're doing it at a desk using a PC, sitting with a keyboard and a mouse and a webcam. That's the reason why somehow our PC business continues to grow very nicely. We've barely scratched the surface in customizing our products for those content creators, but we're going to do that. Three big trends driving our business. Let's go to the strategy.
When I started, when Vincent and I really started, Alastair and others, we were a little shy about saying we were going to be a design company one day. Six or seven years ago, design wasn't talked about as much as it is today. We had this hyper-focus that we knew that we were going to be a design company. We did not mean Armani or Gucci. I always say that because to many people, design is that kind of design. We meant really putting the user at the start and building products around the user and making trade-offs between cost and benefits and unlocking, unleashing the technology that great engineering can have to bring new benefits, but always with the user at the start, not with the technology at the start, or not even with the financials at the start.
Always with the user in the beginning, the user's benefit. If this sounds common to you now, hopefully, it's becoming that way, because that's what we've slowly become. We are becoming a design company. Alastair will give you an update on what we're doing there. The second big change we started, and this took us about a year to get to, was that this company was born a PC company from day one. Within a year of its birth, we found the mouse, and we became a peripherals company for that PC platform. The entire PC, everything you needed to be productive at a desk, was all located right in front of you on top of that desk, the hardware, the software, everything, and we are a peripheral.
We personalize that experience by giving you products that are around that PC that you bought after the fact, but they made it yours, and they made it a little bit better. That was always our goal. We attached to the PC platform. We actually improved the PC platform. In the beginning, we said, when I first came, I listened to what everybody told me. At some point, everybody was saying, "You need to do the same thing for mobile. You need to be the mobile platform. You need to be the Logitech of mobility." Something about that seemed wrong. What was wrong about that, and we figured it out in about a year, was that it wasn't mobile, it was the cloud. What mobile was, what the phone became, was just a way to carry another way to connect to the cloud around with you.
Your phone is just another way to connect to the cloud. A PC now is no longer. You no longer have everything you need sitting in front of you, resident on your PC. That's just another collecting device for cloud services and cloud experiences. Even if you're using Excel or Outlook, you're actually interacting with the cloud. You're really not interacting much with that PC in front of you. You're interacting with the cloud. We had this realization, we need to move not from being a PC peripherals player to a mobile peripherals player. We need to move from being a PC peripherals player to a cloud peripherals player. Once we realized that, it unlocked a whole new world for us.
We said, "Wow, all of our existing businesses are actually cloud peripherals business." All the future businesses we could enter being a cloud peripherals player, there are so many, there's such a scale there, and so much opportunity. This was a big change for us. How? If you don't move resources, if you don't change your investment model, you rarely get a different result. Very early on, we changed our investment model. Some of you will remember that we've talked about every year here, probably, trees, plants, and seeds. The tree was our existing core business, very mature, very full. The plants were new businesses we entered the market right away, like Video Collaboration, like Gaming. The seeds were new business we could create, we could bring in and turn into future plants that could grow fast. That model was dependent on one important thing.
We removed or reduced the investment in our PC peripherals business by 75% in the first year and a half and moved it into these new things. Now you could say, "Ooh," and some people would say, "That's a very risky move because you did it against your core business." The reality is, our competitors did the same thing, and we were much bigger than our competitors in scale in that business. We ended up still having a disproportionate share of investment into our innovation for PC peripherals relative to our competition. As a result, we've gained share every year. Every year during this period. In fact, we've grown our business every year in PC peripherals. We've created new businesses. When I started, mice and keyboards were the majority of our business. Today, they're less than half. They're 37%, 38%.
This has been a very successful model for us. Let me just run through. 2013 to 2016, what happened? We invested in new product categories, the ones you're going to hear about later on today. We attached our peripherals to cloud platforms, and we exited low-margin businesses. We really split the business into growth and profit max. One of the most important things we did was restructured the business very early, and we introduced, and Vincent needs to take lots of credit for this, but it's been true across the whole business. We really improved our financial and cost discipline. We became a company that you could look at and rely on. If we said we're going to deliver a certain cost position, we would do it.
We've reduced our operating expenses, and now we modestly grow our operating expenses relative to our gross margins, which Vincent will show you later. Finally, I won't spend much time on this except to say, the change we've made by introducing design as the primary driver of the business has been dramatic. The starting point for that was bringing all of our design in-house. If you were here, I think two years ago, we talked about this, which we've been using for about four years. These are the five core capabilities that we use to drive our vision, which is to be this large, multi-category, multi-brand company. Those five things, operations, design, engineering, go-to-market, and marketing. We invest in all the time and keep improving our ability to do them, keep upgrading our talent, keep upgrading our processes.
I'm going to suggest you look at them a little bit differently. When you look at this chart, I want you to see gross margin improvement. If you're a numbers person, just look at this and see gross margin improvement, and I'll tell you why. Operations is about managing our cost position and our output and being able to do that efficiently. One of the reasons why we were not terrified about tariffs was that we are really masters at moving from one manufacturing site to another, and we've improved our ability to do that over time, and we'll keep doing it.
We've also, with design for cost, the operations team partners with our design teams and product teams to deliver lower and lower costs at the start of an initiative, which has enabled us to improve our margins within categories, and Vince will talk a little about that as we improve our mix. The margin improvement comes from that. Design, I won't spend much time to say, except that the combination of design and engineering has enabled us to create products from the start that have higher gross margins because they're more attractive to the consumer. That's the fundamental. Then the last one, which is a little harder for you to see so far, is the relationship between go-to-market and marketing. Go-to-market is our global sales organization. Marketing is what it sounds like.
What we're doing now is we're changing our structure behind the scenes, that's enabled us to bring the best-in-the-world processes from all of our regions to every single point of distribution we have, whether it's online or retail, that we can begin to systematically execute better in the marketplace, which again, will enable us to invest more in marketing, less in discounting, and raise our gross margins. When you see this chart, I don't normally describe it this way. I certainly don't describe it this way in the company.
When you see this chart, if you're interested in our financials, I would look at this chart and say, "Well, that is a gross margin machine." This is a way to systematically improve gross margins, this is a core reason why Vincent later on will be able to explain to you why we've raised our long-term gross margin targets. Where are we today as we look forward over the next three years? We now have multiple ways to grow. You're going to see our three largest today, those three alone will deliver ample growth for us for the next three or four years that we don't really need to do anything else of any significance. We will. We're going to keep expanding into new adjacencies.
We're going to keep growing that enterprise expertise, which is critical to Scott's business in video collaboration, we're going to keep investing in this core capability. Our financial discipline, we've had three years of double-digit growth, three years of very strong profit growth. Our gross margin is now bumping up again at the high end of our former range, we're reinvesting profits in the new growth category. This engine is going to keep going now, as we've got the engine rolling, we're going to keep doing this year after year after year. The ultimate mission, make no mistake, is not short-term. It's not about any single year. It's about creating long-term, sustainable, growing, healthy, profitable, attractive businesses. That's the mission. You'll notice that every business you're going to hear today, we're the category leader, we intend to stay the category leader.
We're going to keep investing. Every time we look at a new business to enter, the first question we ask ourselves is: Can we lead that category? If the answer is no, we think very hard. Can we be number 2? If the answer is no to that, we don't go into it. Category leadership is fundamental to our model, so is consistent growth. We're going to become this leading cloud peripherals player that we said in the press release today. We've moved from a leader in the PC platform to really a leader in the cloud peripherals. That gives us a very broad place to play. I'm going to finish my opening here by just saying one thing. When I first came to Logitech, we had just restructured, then we were recruiting.
I was very enthusiastic about attracting talent. Luckily, we managed to attract most of the people in this room if they weren't already here. At the end of the day, I think one of the things that I discovered along the way was something that Guerrino De Luca, our Chairman and the CEO for many years here, said to me before I joined. He said, "One of the things that makes Logitech so magical for people who work there is that we have the power of a large company, but the feeling of a small company." Our goal is to never lose that. That makes us incredibly attractive. In Silicon Valley, there are lots of large companies. Boy, they're impressive, but they don't feel like a small company. They can't feel like a small company. It's true all over the world.
Everywhere we work to attract talent, if you look at our Glassdoor. I encourage you to go in and look at Glassdoor, which is a rating, an objective, anonymous rating from employees and former employees. Look at our ratings, look at what people say, and you'll find that we're a very attractive place to work. Not because of anything except this. We still feel like a small company, and we have so much opportunity ahead of us. With that, I'm going to hand this off next to Alastair, who's somewhere around here. Great.
Thank you. I'd just like to spend some time, first of all, reflecting on where we are as a design team, how we're evolving to increase our influence and impact, then just a little bit about how we're laying down the foundations for the future of Logitech design and how we want to see design grow and Logitech grow as a design-led company. I joined actually a little bit less than six years ago, but give or take, we're six years old as a design organization. When I joined, there was no internal design in Logitech at all. It was all outsourced to agencies all around the world. Good ones, bad ones, but it was a mixed bag of agencies we were working with.
When I joined, for me, it was important that we actually took that design spend and internalized it so I could actually then, along with the team that I started to build, we could actually control the quality of design and could actually start curating and providing, let's say, a creative compass for where we wanted to take the brand and where we wanted to take products. Six years later, we're now 120-plus designers globally, in the U.S., in Europe and in Asia. They are designers from all walks of life, industrial designers, colors, materials, finish designers, user experience designers, consumer insights, the list goes on. Those designers come from some of the best agencies in the world and some of the biggest corporate design teams in the world. It's a testament to exactly what Bracken was saying.
The ambition of what we are, the feeling of what we are, is what is attracting the talent. Probably the one thing that also attracts the talent is, as a design team, we're working across six brands. We're supporting, as a design team, all of the brands within Logitech. With that, over the last six years, we've won 220 design awards, which I believe now is roughly 240-plus. We won another 23, I think, last night. I know that you might say, what's the big deal about design awards? For me, the design awards are a critical need, a sort of measure of where we are as a design team. They're a critical measure to the external design community. More importantly, they are a critical means of attracting talent into the design organization. It's a key part of why people come to Logitech.
You can go to a large company, and you can maybe design a small detail or a small widget or a small element of the UX. Come to Logitech, and you own your product, you're designing that product. That's a huge opportunity and a huge reason for why designers want to come to Logitech and be part of this organization. When Bracken talks about being a design company, fundamentally, it's about bringing design thinking to the core of the company. When we first started as a design team, it was one, and then we grew to 10, and then we grew to 20 and 30. In the early days, we didn't have the scale to actually embed ourselves into the business groups. We as a design team were working across, as one team, we're working across the whole of the design organization.
In the last 12 months, we've actually got the scale within the team to actually now break up the design organization. It's not literally broken up. It still falls within my responsibility, but we've actually taken the design team and embedded it into each of the business groups. We've embedded into the business groups to help drive design thinking at the core of each business. Also to help drive, let's say, a higher degree of creative confidence into each of the businesses. It helps drive co-creation, collaboration, and hopefully, also speeds up the development of products. Fundamentally, it's important because design thinking also is about people. Bracken talked about it. It's about having the obsession with the consumer. You could say it's the customer, you could say it's the consumer, but fundamentally, it's about people.
It's about understanding the people that you're creating products for. For me, innovation starts with people. If you don't truly understand who you're designing for, the motivation, the behaviors, the rituals of those people, you're never going to get the product right and the experience right. This is one of the things we've been driving for the last six years, and it's a constant thing. I don't think you ever can stop putting the accelerator down on the importance of understanding the consumer and really driving innovation around your consumer. The image here is an image, you may have seen them out there, of some models, where we were understanding the issues of carpal tunnel and repetitive strain. Actually getting people in and actually understanding that problem and really dialing into what that problem is has helped us create the MX Vertical.
When we talk about innovation starting with people, I would argue that design excellence and product excellence starts with making sure the consumer loves your product. The only way to do that is to constantly, throughout the process, test, test, and refine, refine from all of those stages of testing with the consumer. This image here, again, is the MX Vertical, where we were making different models. You can see all the models here. Literally, it is like a 40-degree angle, 45-degree angle, 50-degree angle, 60-degree angle. Just trying to make sure that this was exactly the right angle or the optimized angle, which made sure there was a minimum amount of strain in your wrist and arm. The magic number, in case you didn't know, is 57 degrees. That's the optimal angle that came out of this.
It came from testing and testing and testing. I can't stress how much that's become part of our culture. With testing products, but also all the way through for testing packaging. Just making sure the copy on the packaging is optimized, the text on the website is optimized, to make sure that the consumer's getting the best level of understanding of what this is. When they experience the product and they take the product out, the hope is that they love the product and love the experience we've created for them. One of the things that we talk about in the design team is about positive disruption. How can you constantly bring positive disruption to the business, the category, or the portfolio? It's not a negative, it's a positive.
It's a way of saying, okay, how do you bring constantly fresh perspective, fresh thinking, and new mindsets into a business? If you've been living with a product and in product category for several years, you become, not necessarily stayed, but you become sort of sometimes set in what your thinking could be. As a design team, we're constantly looking to rotate designers in or rotate external design agencies in, or even rotate new design leaders in to challenge the business group and to challenge the thinking behind the product. The image here is Rally. What we've done here is, and it may seem a small thing, but it's all part and parcel of how video collaboration's evolving, is we brought in some of the thinking from Ultimate Ears, the use of fabric, and applied fabric into the video collaboration world.
That's not just because we like fabric. It's just a recognition that video collaboration is going from being a pure B2B sort of experience to actually now a more softer, more friendly, more home-based experience. People are working remotely. The offices are becoming less corporatized and are becoming more humanized. We have to recognize how that's going to evolve the design language within the video collaboration business. Next generation. When we talk about positive disruption, the positive disruption starts with ourselves as a design organization. We have to be, as a design organization, looking at disrupting ourselves. How do we bring fresh perspective into the design organization? As Bracken said, I went to the Royal College, it was a long time ago.
What I learned at the Royal College and how I learned to be a designer 20-plus years ago is very different to what students are learning today. Students today are designing using AR and VR. Students today are taking machine learning, AI, and computational design, they're thinking in different ways of designing. We need to tap into those students and bring those students into the design organization so they positively disrupt us. What we signed last year was, we signed a deal with the Royal College. It's a four-year partnership, whereby we're taking students from the college and bring them in as interns and hopefully develop them into full-time members of the team. Also we're running projects with the Royal College, where we're effectively picking high-level opportunities and getting the students to think about it through their eyes and through their perspective.
Next November, we actually get the opportunity to take the whole college, every student within the whole of the college, and actually work on a Logitech project for two to three weeks, which is almost unheard of, to get that level of talent working on your projects. We've got the Royal College. The plan will be to start with the Royal College, but my hope is that we will pick two to three other design colleges around the world, another one in Europe, one in the U.S., and one in Asia. They will become part of a long-term partnership where we will work closely with those colleges, but also then they become a vehicle to bring fresh talent into the design organization. I talked about six years ago, going from zero to a world-class design organization.
I'm amazingly proud of what we've done and how we've managed to achieve that. The goal really doesn't stop there. The goal now is how do we, as a design organization, help Logitech to become a world-class design company? Not just a great design company, but a world-class design company. I think that's my ambition, is how we as a design team now can help by embedding into the business groups, obsess about the consumer more, innovate with the consumer, and actually create even more amazing experiences. I think the element on top of that is how do we now obsess about the consumer not just to make great products, but to actually innovate around new businesses, new categories, and new business models. That's where I think we truly will be a world-class design-led company. Thank you. Scott.
Okay. Good morning, everybody. Thank you. I'd like to talk about a few things, today. One is a little continuation on the story from last year. The second thing I'd like to talk to you about how we're expanding our portfolio. Then the third thing is, what are the implications from a financial point of view. Last year, we talked about the growth in video conferencing overall, as Bracken said, part of the opportunity for us is to attach to cloud services, and the video collaboration space is no different. We picked here a couple of examples. One is Zoom, where you could see the number of minutes that they're using. You could see that clearly the growth rate is just on fire and growing at an exponential growth rate.
The second one is a product called Microsoft Teams, which is the newer version for Microsoft or Skype for Business. Microsoft has said that this is the most successful and fastest-growing application that they've ever had in the history of Microsoft, all around collaboration. These are two of our biggest partners, and we attach to them. As they grow and they're successful, we're able to grow along with them. Another area since last year, we talked about a product called MeetUp as an example of great design and re-imagining the huddle room. Just like Alastair said, there are magic numbers, 57 degrees for a vertical mouse. We found the optimal field of view is 120 degrees for a huddle room.
You want it to be wide enough you get people that you can see in the front, not so wide that the number is ridiculous. We've had incredible success since we launched MeetUp for the huddle rooms. In fact, MeetUp has won a whole bunch of awards, design awards, product of the year awards. MeetUp is now not only in a very short period, it's the number 1 selling VC product, but it's also the number 1 selling product for huddle rooms around the world in a very short period of time. I want to talk about beyond MeetUp, what have we done to expand our portfolio? I said MeetUp is really targeted at huddle rooms or small rooms, which are continuing to grow. As Bracken said, as more people have open space and continue to collaborate, you need more huddle rooms.
There are also a whole bunch of medium and large size rooms out there. We've now expanded with the product that Alex just talked about, Rally. Now we can go after medium and even the largest rooms, up to boardrooms, which we weren't able to reach before. Let me tell you a little bit about Rally. Rally is really an amazing video conferencing system in a bunch of ways. It has world-class video, it has some of the best audio in the world, and it does a lot of things for IT managers that you may not see, but being able to take all of the cabling that used to be a complex rat's nest of cable and put it over a single ethernet cable.
We can do all that for about $2,000, which is an amazing breakthrough because it used to cost about $20 or $50 or even $100,000 to get, I would argue, not even as good as quality as this. It really is truly revolutionizing the medium and large room in a way that we've done it for the smaller rooms. We can go after now medium-sized rooms. Showing you how it would fit into a room of this size, all the way up to large rooms and boardrooms. One of the innovations we did when you talk about design thinking, when you're doing a video call, one of the strangest things with the older systems is that many of them will have a speakerphone in the middle.
I'm sure some of you have noticed when you're on a video call, the person is talking at the screen, but you're looking down at the desk or the conference room, which is a bit weird. What we decided to do is we questioned that. We said, "Why are people building speaker phones?" The answer was, there was no reason. It was the way it would always been done. We decided to reimagine how people did that, and we put the speakers at the front where the human being is talking. Very human-centric. It also had a great ability to make the audio better. What we realized is that the problem with speaker phones is the audio is going into the same place that it's coming out, which makes it hard to reduce echoes and so on.
By splitting them up, we were able to make the world's best audio for a video conferencing system. This is important, I think as you know, when you're doing a video call, the video, you can have a few problems, but the audio needs to be rock solid, and I'm proud to say that we have world-class audio now, all built in-house, all developed by us. I want to talk to you about another product, but instead of describing it, we'll let you see a video.
It was shown below. I don't even know how to use this thing. Good idea. Got it.
Hey. Yeah, you're back. Now you're gone. I'm sorry.
You get the idea. When you think about video collaboration, most people think about cameras and speakers, audio equipment. If you think about it from a design point of view and a user point of view, one of the most frustrating things about starting video meetings is, how do you start the damn meeting? Usually, there is some crazy remote control. It's got 30 buttons on it. The vendor will tell you it's intuitive, but nobody knows how to use it, you have to get IT to come in and help you out. What we realized is, if we want to make the experience better for video collaboration, we not only needed to improve the audio and the video, but also the experience of how you start it. That's Tap.
What we realized is that there were current solutions today, they really weren't adequate. You have these very high-end proprietary controllers. They're expensive. They're hard to program. Then you have consumer tablets, which are really not designed for IT. I think what we did is we nailed the sweet spot right in the middle that's both friendly for end users and friendly for IT. Jus t since Alex was talking about numbers today, the magic number for the degrees, to not have it be in your face, but have it high enough that you can see it, is 14 degrees. We spent a lot of time obsessing over even the number of degrees that you should have for Tap. Thank you. When we launched Tap, we had a product before that had a touch screen that we worked with Microsoft, called SmartDock.
This product is a universal touch controller. We not only launched it with Microsoft, also at the same time with Zoom and with Google. In fact, we were at a show in Europe that we launched this product last month, and we had 23 partners that were already showing off Tap and using it as their standard for doing touch controlling for meetings. It very rapidly, and in a very short period of time, has become the de facto standard for touch controllers for meetings around the world. If you think about what this does for us, it changes us from being just an audio and video supplier to really providing everything that you need in the room for video.
Audio, video, the cabling, the touch controller, a full systems provider, which puts us in a much different competitive position versus just providing a camera or just a speakerphone. In addition to hardware, we've been spending a lot of time working on software, we announced this software suite last June. We call it RightSense. RightSense is really about three things. One is about fixing the right lighting in a meeting. I'm sure many of you have been on a video call where either the light is coming in in the afternoon and it's completely washed out, or you're at home and you're doing a video call and you look like you're in the witness protection program, where all you have is a black silhouette on you. We said we needed to fix this, it can't be something that you have to manually adjust.
It needs to be automatically adjusting without the end user interfering. We also launched RightSight, which I'll show you more in a minute, and then RightSound. It's the ability to automatically adjust the audio so that you always get the right experience in audio. I'll show you one of the first features that we launched is the one that we call auto framing. It fixes one of the common problems that people either don't like picking up a remote control for video or they don't do it. If I'm on a call with Vincent, sometimes he's sitting way in the back and I want to yell at him, "Hey, Vincent, zoom in." I don't want to disrupt the meeting, so I just let him sit in the back and I can barely see him. With this feature, you don't have to do anything.
You start a meeting, it automatically looks for the number of people and frames. In this example, we have our designer who's walking into the meeting, and again, it just will automatically look for the people and have the right framing and shot. It's an example of not only not adding a feature, but actually taking one away. Nobody wants to use a remote control. Now you don't have to anymore because the system's doing all the work for you. Again, moving from audio and video to complete room solutions, not just for one, but for small and medium and large. Very quickly going from one camera and one room in the huddle room to having systems that can really serve any size room for any business.
All right, you guys are all financial types, you're probably saying, "All right, great technology, but what does this really mean from a financial point of view to the business?" One is just to show you that we've had continued growth in the video business. I've been here about three and a half years now at Logitech, and it's been really gratifying to go from a very small, I guess you would call it a seed, to now we're a pretty significant plant. In fact, one of the top three businesses in the company, and continuing to grow. The second thing is that it should, by adding in these new products, it should significantly add the amount of money that we can get from a customer per room, or the average amount of money per room.
Before we launched these products, we would typically get, I'm using the end user price, about CHF 1,000 per room for a MeetUp or a GROUP. Today, if you take a MeetUp and a Tap for a small room, you could get CHF 2,000 per room. If you add a Rally or bigger system, it could go up to CHF 5,000 per room. Not only is the market growing overall, not only are we adding more rooms, but we also have the ability to get more money per room, per customer, and also leverage the same sales force that we have. Instead of selling in a certain amount of dollars per room at CHF 1,000, the same sales resource can now sell a multiple of revenue using the same sales resource.
From a total addressable market point of view, what's exciting too is that we were going after the huddle room, and as I said, having a lot of success for a market that has very low penetration and a high opportunity. That market is still, while growing very fast, it's still smaller than the traditional video conferencing market. With Rally, we now have the ability to go after all the large rooms where there's still a couple of billion CHF of revenue that is still untapped by us to be able to grow. Now you have the huddle rooms, the large rooms. We can grow in the very exciting huddle space, but we can also take share from the larger rooms.
Kind of summing this up, business is going well, and we think that with the portfolio, we'll be able to continue to show strong momentum in this business. If you pick up on what Bracken said earlier this morning when he talked about the secular trend in video, where not everyone has, or very few companies have video in their offices and everyone, but they will. I really believe that's going to happen, and if you look at the penetration today, it's still in the low single digits. I was asked the question this morning, "Can you continue to grow for this business?" I think if you look at our existing portfolio, even without innovation and new things, there's a huge opportunity to go from that low single digits to putting video in every room.
I'm sure 70 years ago, some people were saying, "Should we really put a telephone in every room? Would everyone want to use it?" Of course, sounds like a ridiculous point, but video is the same way. Video will be everywhere because it just costs the price of a chair. I'm sure none of you have ever gone into a conference room and said, "How come there are four chairs in this room when there's room for six?" Then someone says, "Well, we couldn't do the ROI. You'll just have to sit on the floor." It'll be the same way for cameras. Of course, you'll have a camera in every room. There won't be an ROI, you'll just put one in there. The second thing is we're going to continue to focus on providing new technology.
I was asked the question also this morning, "Scott, is there more room to innovate in this space? I mean, you get a camera, you get some audio, aren't you done?" My answer was, "I think I have enough ideas until I die." My birthday was yesterday. I don't plan on dying anytime soon. If you think about an example, for those of you who like sports, when you watch a sporting event on TV, there are lots of cameras and the director is switching back and forth, and there are statistics and information. In some ways, watching a sporting event can be almost better than being there, right? Well, take that same analogy to video. Think about a room with multiple cameras and AI moving everything around. There is no shortage of technology ideas to make the experience better. We're leveraging our success in huddle rooms.
We're expanding to medium and large rooms. Hopefully you can see that not only is the addressable market growing, but our ability to sell into each of those rooms is growing a lot, too. More exciting than ever being in this space, and thanks a lot.
Good morning, everyone. My name is Ujesh, and I run the gaming business. I've been with Logitech a little over four years now, and during that time, we've seen our gaming business grow nicely. What I want to talk about today is within our gaming business, we're now seeing three distinct businesses that we focus on. I thought it'd be important for everyone to understand what are those three businesses and what are the subtle differences between those three businesses. With that, why don't we get started? Obviously, the first business that we focus on is PC gaming. PC gaming, this is the heart of our business. It's roughly a CHF 3 billion opportunity when you look across keyboards, mice, headsets, the market that we typically play in, right? What is driving growth in this market is obviously the games themselves.
By show of hands here, how many people have heard of "Fortnite"? Okay. How many people's kids are playing "Fortnite" and you want to kill them, right? "Fortnite" is one of those games that's just completely taken off, and there's a reason for that. They've created a new business model. It's called this freemium model, whereby you get to play the game for free. The way they make money is in-app purchases. The beauty of the freemium model is it lowers the barrier of entry, and you can have more and more gamers playing the game because they don't have to pay CHF 60 for the game out front. In fact, how many people are playing "Fortnite"? Last I checked, it was 200 million people playing "Fortnite", right? That's not a flash in the pan. "Apex Legends" just launched last month.
Within one month, they have 50 million people playing that game. Once again, it's this freemium game. These are the types of new business models that we're seeing on the PC that's really driving growth and getting more and more people to play. The other thing we're seeing on the PC is the rise of esports. Esports, if you remember, I talked about this four years ago, and at the time, I think a number of people after the event came up to me and said, "Really? Is this really a sport? Like, are you sure?" I think what we're seeing is it truly is. It is the sport of a new generation. I look at my kids at home. They love playing all these games. As Bracken said, even if they're not playing, they love watching these games.
If you look at the PC, the PC is where esports lives. All of the top leagues, Riot with "League of Legends," it's on the PC. "Overwatch" from Blizzard, "Counter-Strike," "PUBG," all of those games are on the PC, that's going to continue to drive growth for PC. That's the first market that we focus on. The second market that we focus on is the simulation space. This is roughly a $300 million market. These are our steering wheels, our flight sticks. What we're seeing here is this market traditionally used to be driven by the simulation titles like "Gran Turismo," "Forza." We're now starting to see a lot of new games coming here as well. "Formula One" is a new game that's doing extremely well. "NASCAR
The bigger thing that we're seeing here is the rise of esports as well around e-racing, I'll talk a little bit about that today. The interesting thing with simulation and e-racing is we're actually seeing a transition where gamers start in the virtual world, they're able to transition those skills and take it into the real world, I'll give you an example of that today. Finally, the last market is the console. This is roughly a $2.5 billion market around console headsets as well as the game controllers. Just like the PC, it's primarily driven on new titles. However, the console sometimes has different titles from the PC. For example, "Call of Duty" is available on the PC, but it does really well on the console. There's other games that just lend themselves better to a console environment where you're sitting on the couch.
For example, fighting games. A lot of times you invite a friend over, the two of you are playing the fighting game on your big screen TV. Those typically do well on the console or better on the console than the PC. Other games that do better on console than PC are some of the sports games. "FIFA," "Madden NFL Football," "NBA 2K." These are some of the different genres that you see on console that maybe don't do as well on PC, that really drives growth. Speaking of console, our acquisition of ASTRO has proven to do really well for us because it immediately gave us a strong premium brand, a headset brand, in the console space. It gave us that overnight credibility.
With the launch of our brand new ASTRO C40 Controller that we just announced in December, we're going to start shipping this month, we'll be able to now start taking share in the controller space as well. Those are three of the main markets that we focus on: PC, simulation, and console. With that, I want to dive a little bit into esports and talk about why it's such a major trend and some of the new things that we're seeing in esports. I thought I'd first start at the professional space and then work my way down. Those of you that have been here at previous analyst days, you've heard me talk about how we work with some of the players and the teams. For some of you that might be new, I thought I'd go through it really quickly again.
We have a line of products that we call our PRO Series. It's specifically designed for esports players and fans and enthusiasts. In fact, we designed this product with the players themselves. You've heard Bracken talk about this, you've heard Alastair talk about this, Scott talked about it. Same thing for gaming. We sit down with the players, and we give them early prototypes. They give us feedback on the design. They tell us what they like about the sensors we use. They tell us where the best place is for button placement. They give us feedback on things like weight, because just like a Formula One race car that you want to be super light, a lot of esports players prefer a lighter weight mouse. These are some of the things that we do when we work with them.
In fact, our brand-new pro wireless mouse that we just introduced last year, took us over two years to design this product. We worked with 50 different pros, and we had 12 different design prototypes. This is the level of design kind of methodology and input we put into designing our products. The other area that we focus, that's kind of the outside, the physical manifestation of the mouse, but it really is important what's inside the product, especially when you're talking about wireless. This slide is extremely important because it shows why we invest heavily in technology so we can continue to maintain our lead and grow in the gaming space. Let me quickly talk about what are the three areas that we've invested in wireless. First is what we call LIGHTSPEED.
How many people have heard all of the rumors that, oh, you don't want to use a wireless mouse for gaming because it lags and you'll just lose? That is a number 1 concern that gamers bring up. We knew we had to solve that. Otherwise, we would never get gamers to use wireless mice. If you talk to the pros, they don't want to use a wired mouse because it feels like a leash and it's dragging them. They would love the freedom of a wireless mouse, but they worry about lag. We knew we had to solve that. We challenged our engineering team. We told them, "Okay, let's invent a protocol so that our wireless mice are faster than the competition's wired." Just think about that for a second. We succeeded, and we call that LIGHTSPEED.
That is one of the reason we're doing so well in the wireless space. We didn't just stop there, though. We said, "Okay, we solved latency, but now we need to solve battery life." Well, how are you going to do that? Well, one way is you have to attack the part of your product that takes the most battery, and that's the sensor. We decided to invent our own sensor. We call that the HERO Sensor. It's exclusive to Logitech. That sensor is the highest-performing sensor on the market, but it has 10X the battery life of competing sensors on the market. The result is super high performance but amazing battery life. We didn't stop there. We said, "Okay, well, how do we solve battery life completely?" That's why we invented POWERPLAY. POWERPLAY is our charging solution.
You take our mouse, you put it on our POWERPLAY mat, whether it's at rest or whether you're using it's always charging. You never, ever have to worry about battery life ever again. You get infinite battery life. What is the result of these three technologies? Profit, who's one of the top players on the London Spitfire, which is a team that's part of the official Blizzard Overwatch League, he used our mouse. In fact, we gave it to him before we announced it. The week before we announced it, he used it at the finals. Not only did he help his team win, he was named the MVP of the match. The following week, we unveiled that that was the mouse that he was using. You could imagine sales of those mouses are just exploding, right?
The fans, just like you think about someone wants to buy the cleats that Messi uses, right? The fans look at this player, they want to emulate this player, and they want the gear that he uses. That is the partnership, and that's what we do with the players themselves. Speaking of the fans, Bracken mentioned some of these numbers. I'll just show them here again. Esports is exploding, bigger than traditional sports. I'm an NBA fan. I'm a football fan. I know Bracken plays basketball. Game 4 of the NBA finals, our Warriors won last year from the Bay Area, 13 million people watched that game. This year's Super Bowl, granted it wasn't very exciting, wasn't very great of a Super Bowl, but 103 million people watched the Super Bowl. The League of Legends finals, 200 million people watched the League of Legends finals.
This is truly the sport of a new generation, and I can't stress that enough until all of us really understand that. It's a new sport, it's a new hobby, it's a new pastime. It's what people love to do. I think what's really important, though, and really interesting is when you dig deeper into these numbers. This looks at the growth and the predicted growth of esports. If you look here in 2018, 395 million people were watching esports. That's bigger than Formula One. I think Formula One viewership last year was roughly 390 million people. It's bigger than Formula One. That's interesting, I think what's really interesting is the chart that's next to that. Look at the age demographic, 10 to 25-year-olds. Super high awareness of esports, super high engagement on esports.
That is the trend that we're really seeing, and that's going to continue because as Bracken said, these 10 to 25-year-olds, as they get older and older and older, on balance, they're going to continue to play games, they're going to teach their kids how to play games, and the trend just continues. In fact, in certain countries, it's hard to see here, let me pull out my handy spotlight, in China, esports is already surpassing or coming close to surpass soccer. In Germany, if you look at esports, it's bigger than motorsports. It is a new sport. What is this in turn causing? Look at what some of these traditional sports teams are now doing. This is Paris Saint-Germain soccer team. Guess what? They now own an esports team. This is Fernando Alonso. Guess what? He now owns his own esports team, FA Racing.
They realize this is the sport of a new generation. If they want to tap into that new generation, they need to have digital sports as well, in addition to traditional sports. You're going to see more and more of the investments. In fact, in the U.S., almost every single basketball team also owns an esports franchise, and you're just going to see more and more of this. Speaking of these trends and youth esports, because of this, we're seeing a rise in amateur esports. Maybe by show of hands, how many people here grew up playing soccer when they were kids? I played soccer. I played in elementary school, middle school. I wasn't good enough to get a scholarship, but I played. What we're starting to see now is more and more kids are playing video games after school and after-school programs.
That continues into high school. It goes into college. This is the University of California, Irvine, their esports lab. They are not alone. In fact, the chart here on the left shows last year, colleges in the U.S. offered upwards of $15 million for scholarships around esports. It is a new sport. When you think about it, where are these sports starting? This is in the computer science department. Right? Highly smart, highly intelligent individuals. It's no different than a traditional sport because when these teams come together, it's the same things you learn when you're on that soccer team. It's about teamwork. It's about communication. It's about empathy. If you've ever watched a "League of Legends" match, it's like watching a five versus five chess match.
There's a lot of cognitive skills that go into that as well, which is why all of these are being driven out of the engineering and the computer science departments. It's a really interesting trend. To kind of highlight this trend and show how it's even going to grow more, I've invited Ann Hand, the CEO of a company called Super League Gaming. Before I have Ann come up, though, let me tell you really quickly, what is Super League Gaming? Super League Gaming created an after-school program. The founders saw that their kids that were playing Little League baseball had fun, but when they would come home and they would play with their friends, "Minecraft," it was clear they were having a lot more fun.
What one of the founders found out is, my child is probably more into the math and the science side of things than maybe the physical side of things. He started looking, is there a Little League or anything that even exists for my child if they wanted to play after school? It turned out nothing existed. That's how Super League was born. They created after-school programs around "Minecraft." My daughter attended one of them. What was really cool is you go there, you get split up amongst teams, you get to wear jerseys. The boys and the girls play together. It's all co-ed. There isn't this is the boys league, this is the girls league. They all play together. They go and they host these events in movie theaters, so the kids get to see themselves playing on a big screen TV. It's amazing.
Guess what? The parents go and they're cheering, just like it would be a soccer match. We were there cheering for our kids to see who had won, and the kids are really proud of themselves. If you interview and talk to the parents, it's just a pretty amazing opportunity. With that, I'm going to invite Ann to come up and she can tell you a little bit more about what Super League Gaming does.
Thank you, Ujesh.
I thought I'd first start by tell me, what made you get into Super League Gaming? What did you see? Because esports at the time when you guys formed was still growing. What did you see coming?
Sure. Just like some of those other secular trends that Bracken talked about at the beginning, what we saw was really the mainstreaming of not just gaming, but esports in general. Just a few statistics. 30% of gamers these days are female, 50% are married. The average gamer has a higher graduation rate from college and average household income than traditional sports fans. What we also saw as an insight was that 46% of gamers were doing it with their families. It was a way to spend more time together. It was increasingly multigenerational. You just talked about those professional players. Well, that's about 13,000 pros around the world that are paid full-time salaries, no different than FIFA or NBA players. They have coaches, nutritionists, physical therapists.
There's 2.3 billion gamers, and we thought it was inevitable, just like traditional sports, that amateur systems would need to emerge, that people would have an interest in participating in recreational leagues and having that aspirational path to the pros.
Yeah, I think it makes a ton of sense, especially when I look at just what I see with my daughters at home and how they play. It's just all their friends, it's something they do together. Speaking of my kids at home, so both of my daughters played soccer, and I know when I first went to the soccer league, it's like, okay, you get a list. These are the cleats you have to buy, this is the ball you have to buy, these are the shin guards you have to buy. Are you seeing similar requests on Super League? Are parents coming to you and saying, "Okay, what gear should my kids buy if they're going to come and attend these different events?
Absolutely. We looked a little deeper at that 2.3 billion gamers, and we asked the question: who are these competitive amateurs? There were a few things that we noticed about them. They're playing at least eight hours of gameplay a week. They're consuming an additional nine hours of someone else's gameplay. That goes back to that digital content creator class that we spoke about earlier. What that means is, why are they doing that? Well, in some ways, it's entertainment, but it's also, it's the way you learn. When I played tennis as a kid, my parents could give me tennis lessons to help advance my play, and then as I became more competitive, I could join a team. I could learn about teamwork and collaboration. Right now, that competitive amateur gamer doesn't have those things.
Another important trend we saw that's very relevant here is that 48% had already made at least one investment in a peripheral. They're thinking consciously about how to up their competitive play. What we determined we could do with our cloud-based platform is actually provide the tournament book, some of the coaching and training, the league structure, that importance of wrapping yourself around a team structure to get that higher competitive experience, and then the field space. We needed to provide the court, the actual field space for gaming so that you could have that in real-life experience as well.
That's awesome.
Yeah.
I'd say, I guess the last question I have then is: where do you see youth esports going five years from now, 10 years from now?
Yeah. It's really the whole kind of purpose for why we exist. We're at a place now where, because of our cloud-based system, we can transform fast casual locations, movie theaters. We announced a deal with Topgolf recently, Buffalo Wild Wings, we do a lot of work with. We're really trying to think about what's that existing brick and mortar that's sitting out there, looking to turn those spaces into something that feels much more interactive and immersive. Scott mentioned earlier the importance of when you're watching a professional sports experience, you get that experience of all those cameramen and that kind of stadium screen, and you can see with the slide there that that's really the important kind of aspect of what we do with our technology as well.
Is we want not just the players to play differently than they play at home, we want them to have that big stadium screen experience and see themselves on that field. We also want to engage the parents, the fans, and really create something that feels like a high-quality entertainment experience, too.
That's awesome.
Yeah.
Well, Ann, thank you.
Thank you
your time. Ann will be here during the break if anyone has more questions. The last trend I'm going to talk about, I mentioned simulation and how that's big into esports as well. What we're seeing here is this is really unique, and I'm super excited about this area because we're seeing a transition from the virtual world to the physical world. The image you see here is a racer, and it's a simulation racer. He starts training and doing all of his simulation actually on the PC using one of our racing wheels. If you think of our racing wheel, we've invested a lot in having super high-end force feedback technology. We've got hand-stitched leather on the racing wheel itself. We think about the pedals themselves. We've got a built-in clutch.
Everything we do with that racing wheel, it's because we want the highest realism possible. The result is we partner with game developers. If you look at some of these new games that are coming out, the racetracks they have in there are exactly like the physical racetrack you see in the real world. When you train on these using iRacing or Formula One or NASCAR, it's like you're racing on a real racetrack, and you're building those same skills. In fact, to stimulate this, the other thing that's really important about this image that I'm showing here is we've partnered with folks like McLaren to create worldwide e-racing competitions to find these virtual racers that have always wanted to be a race car driver, but they couldn't afford the high cost of going to the racetrack every weekend.
They couldn't afford the cost of buying their own race car. They can afford the cost of one of our steering wheels, maybe a PlayStation or an Xbox or a PC, and a copy of iRacing and Formula One. That's how they train. To encourage this, what we've done is we've created these worldwide racing competitions. We call this the Logitech G Challenge. We host these events all around the world, where these e-racing fans can come and compete in these virtual competitions. In fact, one of the events we had was in Brazil. This gentleman, his name is Igor Fraga. We met him at Brazil, lifelong racing fan. He ended up winning the competition in Brazil. We were so impressed, we flew him to McLaren headquarters to compete in their grand finals.
He ended up winning. Now he has a full-time job. He's part of the McLaren Motorsports family. Talk about this kid's dream coming true, growing up in Brazil. I thought instead of me talking about it, the best thing would be to show a short video so you can see the journey that Igor took. Take a look at this quick video.
My name is Igor Fraga. I'm from Brazil. My objective is to be a real racing driver, not only in the virtual world. I'm trying to do the real competition as well because I realized that could give me opportunity in the real life as well. Gaming means a lot to me. I was three years old, actually. My dad bought me a Logitech steering wheel, PS2, and a Gran Turismo 3. You have to be focused when the other driver is really strong.
Come on, Nico, in Brazil. Yeah, I believe Igor has everything it takes to make it all the way to the grand finale. I just have faith in him.
I'm always getting angry in a situation like this. It's really difficult to control yourself. I will try to just stay focused within my mind and concentrate on what I have to do, and that's my way to recover.
Igor will win for sure. We have faith in him.
I want to finish after the race. I don't want to regret anything. I don't know what to say, actually. It's a big surprise. I want to appreciate my dad and my mom. They've been supporting me my entire life, actually, it's pretty emotional for me because it's big stuff. I shared it with all the fans because it's not only me.
I really love that story because when you think of where he came from and you could see the passion and the joy, and how excited he was. The images there were from our Brazil game show, that was before he won the finals. You can imagine how excited he was now that he won the finals. The other thing that's interesting is at that Brazil game show, I attended myself personally, there were 450,000 gamers there just on a Saturday attending that event. Hopefully you're getting a sense of just how big this market is. I use the word esports, but I think a better way to think of it is your hobby, your passion. Right? When I grew up, I played video games, but also, I grew up watching TV.
After school, you do your homework and you watch cartoons like "The Flintstones," like Bracken said. The interesting thing is, not once did I refer to myself as a TV-er. Right? It was something you did. Well, my daughters at home, they don't call themselves gamers. The only reason they use that term is because they've heard me say it. In their mind, when I talk to them and their friends, they just shrug. They're like, "Yeah, what's the big deal? We play games. Everyone does. That's what you just do." Hopefully the takeaway that you have here is this is really a hobby, a passion, just like you would invest in tennis or basketball or something else. That's what these gamers are investing in. Just to show how much there is and where this is going.
The other reason I think gaming is so big because it's fun. It's playing. Life is more fun when you play, right? The last thing I'll share with you here is partners of ours, Giants Software, they've announced they're getting into esports as well with their game "Farming Simulator." I bet you don't know this, not only do we make a racing wheel, we make a tractor wheel as well. They've standardized on our tractor wheel, I can't wait for this to come out. Watching people virtually farm, I think is going to be hilarious and it's going to make for some amazing, funny YouTube videos. In conclusion, hopefully, you understand how big of an opportunity there is in gaming. There's three main markets we focus on, PC gaming, simulation, and console.
The way we plan to lead is everything that Alastair and Bracken talked about, really understanding the user, partnering with the user to understand what their needs are so we're constantly innovating and delivering better experiences and better technology. With that, I want to thank everyone for coming, I think now we go on a short break.
Thanks, Ujess. We'll take a probably about 15, 20-minute break.
Sure.
Standing in the moonlight Like a shadow on a graveyard Lonely after midnight With an arrow through my heart I want to feel nostalgia Sitting stargaze on a hill top I want to climb so high Let my hair blow in the windstraight to your soul. Through a paradise with bright hopes. Want a magic straight to your soul. Your soul. I face the day get washed away. I face your fears and turn my way. I face the day get washed away. I face your fears and turn my way. It's never too late. It's never too late. Underneath the dark clouds. In the drive of celebration. Trying cars to reach us. Of a magic sensation. Running first till the night. Fairies singing of your sorrow. Take me to the bright light. In the land of the tomorrow. I want a magic straight to your soul.
Through a paradise with bright hopes. Want a magic straight to your soul. Your soul. I face the day get washed away. I face your fears and turn my way. I face the day get washed away. I face your fears and turn my way. It's never too late. It's never too late. Been a long time. I gotta find a way. I can shake all the doubting. All of the burning ache of yesterday. Need for loving to flow back into my heart again. I can say been a long time. I gotta find a way. If you ask me how it feels. How it feels. You know me just wanna live not lose. You know me just wanna live not lose. You feel just might live not lose. You know me just wanna live not lose. I need
Smile on my face, let my heart sing. Need some sunshine to find my way into the race. If you ask me how I feel, how it feels. How I feel, how it feels. You know me just wanna let my love. Whoa, me just wanna let my love. Let it free, hey, it's just mine. Let my love go. Whoa, me just wanna let my love. What does it mean? This could be what I need. What does it mean? What does it mean? What does it mean? This could be just what I need. What does it mean? What does it mean? What does it mean? You could be what I need. What does it mean? What does it mean? What does it mean? You could be just what I need. You know me just wanna let my love. Let my love. Me just wanna let my love.
Whoa, if it's mine.
Are you gonna share your secrets? Will you leave me guessing for days? Is it up to me to read you? Figure out a pattern in your ways. Are you just cold to me because you are afraid to be another shipwreck in my way? Maybe. Do we simply have to let it die? All you do is scold me with your silence. All I do is suffer and fight. This bubbling feeling whenever you're appearing. Whenever I'm alone, you. I hide. I think about you day and night, girl. I think about you night and day. I think about you all the time, girl. I can keep my hands off you. If only I would know that you are also having sleepless nights. If I would make a choice now, I would only lose now.
Better keep calm, keep my dreams.
No one has to tell me to love you, I just do. All the stars they shine up above you know it too. Everything you are is everything I need. You're the one who's changed everything I believe. It feels so good to me. It feels so good when you're talking to me. It feels so right sharing the night with. It feels so good. So good, so good. All I ever needed was one love who'd be true. All you ever needed was one girl made for you. You and me alone will only half our heart. We belong together and we'll never part. It feels so good to me. It feels so good when you're talking to me. It feels so right sharing the air with me. It feels so fine to be here alone with you. It feels so good.
So good, so good. Talk about it, dream about it. No, I'll never live without it. Boy, it's you, don't ever doubt it. You're the right guy, are the right kind. Right for me. It feels so good when you're talking to me. It feels so right sharing the air with me. It feels so fine to be here alone with you. And it feels, it feels so good. And it feels, it feels so good. So good, so good. And it feels, it feels so good. So good, so good. So good, so good. It feels so good. So good, so good. I'm so proud to have someone doing me right. You got that loving touch, and the little shy stuff that. Makes a girl get gone all day. It's harder than it seems. When you taste it, you want it again. You think the new love keeps trying.
Trouble comes in your view. You're looking all the time. It's like no one is half of this love sign. Only someone waiting your way. It's more than new. Such a special dance. Try five star romance. And baby hold me. Don't keep me waiting to leave. Such a special dance. Try five star romance. And baby hold me. You got someone doing me right, right, right.
Working? All right. I hope you had a good break. When 10 months ago, Bracken asked me to lead Creativity & Productivity, I was very excited because first, it's a large part of the business. It's a very important part of Logitech history. I was actually really excited because I could see all the opportunities we have ahead of us. Today, I'll talk to you a little bit on where we are and why we think there is a lot ahead of us. Generally, when people after the excitement around video communication and gaming, when we talk about Creativity & Productivity, that are mice, keyboard, presenters, webcams, people tend to associate our performance with the PC shipments. Actually, if you look at the past few years, the PC shipments have been flat or declining.
If you look at the trend line of Logitech PC peripherals in the past few years, we've actually consistently grown. Our business, you probably know from our performance here today, Creativity & Productivity have done pretty well this year. If we look at the past 3 years, we've grown consistently by about 5%. Now we are looking at what record we are going to beat in the next few years. Last week, we actually had a very important milestone. Logitech has now shipped 2 billion mice. That's a pretty big number. What is more interesting in this number is that we've shipped the first billion after 25 years. We've shipped the second billion in only 10 years. If you look at this trend line, you can see how we can evolve.
You would probably ask me, "Why do we think we are disconnected from the PC shipments? What do you think is creating this trend line?" On one side, we can say, well, Logitech is a very well-organized operation machine. We distribute in 100 countries. We have absolutely great manufacturing and supply capabilities that gives us great scalability and cost. We are also able to develop products really fast. Now it takes us between five to four months to develop a mouse and a keyboard from start to finish. We are also continuously delivering very high quality for our products. Is that the only reason? Well, the other reason we can say there is we have a very large portfolio. We have a portfolio that actually cover 100 countries, but we are also able to deliver products for specific countries.
The Chinese millennials is not necessarily having the same amount of money that a millennial in the U.S. would have. At the end, it's very important for us to offer different products for different people and not one size fits all. A mouse will not fit a child versus adult man and a woman. There are different sizes. That applies to a keyboard as well. These two reasons makes us being the number one. We are the number one in all these PC peripheral category, which is a pretty incredible achievement. Is that the only reason that makes us grow? I think Bracken opened this saying that we are moving from being a PC peripheral to a cloud peripheral company. In the case of creativity and productivity, what we focus on is to attach to digital content creation application and services.
You're probably familiar with the type of creation we all do on a regular basis with Excel files and beautiful spreadsheets, we write emails, we write books digitally. All designers more and more create all their content online. You see also millennials, for example, they are creating video content to post on YouTube, Twitch. They all want to become famous and have followers. You have to create that content. That content is all done digitally. I look at my son, he's four years old, doesn't watch TV today. The one thing he loves the most is to look at the video content creation from young kids that are showing how to build a track, a train track, and that's what he loves. It's video content creation you create, but you also communicate.
All these different application serves different hobbies, special profession, and it gives us multiple opportunities to create new need for the mouse, the keyboard, the webcam, the presenters. They create multiple target audience we can reach to, either to come back into the category, find a reason to buy the product again, or to bring them in the category and help them create their content more easily. Our focus is to make it as easy as possible to create that content so consumers can focus on what they are doing. They don't have to worry about any pain. They don't have to worry about the learning curve. We are making it easy for them. Alastair touched on the consumer obsession. More and more, we are looking at all these different target audience, and the more we understand them, the more we discover new opportunities and new innovation.
That's really what helps us innovating every year on every category, because we focus on this target audience, we focus on the different use case, and we constantly can innovate, disrupt ourselves, and create new opportunities. We innovate in the high-end, we innovate at the affordable level, but we also innovate in software. I'll show you today a couple of examples of innovation we have done in the past six months. The first one, you heard about MX Vertical Mouse. The goal of MX Vertical Mouse was to help people feel better so they can work better. More and more people have actually carpal tunnel syndrome pain. More and more people have been using a computer for quite some time. You hear a lot about 35% of consumers in the U.S. have some level of pain in their wrist or their arm when they're working.
For us, it was really important to find a way to help people continue engaging with their content, but remove that pain. I'll show you a little video that shows how the process and what we focused on.
An ergonomic mouse that feels more natural without compromising on pixel-perfect performance. We made dozens of prototypes and fitted them to hundreds of hands until we discovered the optimal ergonomic angle, then we tested. Finally, we brought MX Vertical to life.
What is important to know is that we have entered this new vertical, this vertical mice category in September. We were new in the category. In a very short period of time, we've taken major share within this segment. Still small today, but we've taken major share, and we've led the market growth by 200%. When Logitech gets into the category, we can literally disrupt the category, take share, and grow the market. That's, for us, a great opportunity as we look at this multiple use case and opportunities to create. Now, give you another example of software innovation. We don't always have to launch a new product to stimulate the category. There is a lot we can do as well on software. I talked earlier about video content creation, which everybody has access to.
You don't need a very advanced production company now to create content. Today you can do it with your mobile phone, but there are a lot of things you cannot do, actually, with your mobile phone. If you want to do it at the desk, there are a lot of application you can use to do the capturing of your content, but sometime it's very complex. If you think about young users or people who are just new to the category and they just want to create the content and engage with people, they want to engage with about their hobby and the things they are passionate about, we want to make it really easy for them to do it. Instead of me talking to you about this new software, we launched as a pre-release a beta version in November.
We launched the actual version of Logitech Capture in January. After just three months, this is the most downloaded application that we have within Logitech Creativity and Productivity. The adoption and the feedback we got on this software has been incredible. I'll let an influencer. Her name is Mrs. Mia. She's an influencer. She's actually doing a lot of gaming, streaming, and activities. She has more than 200,000 followers on Facebook. I'll let her introduce a little bit what Logitech Capture does, but that you cannot do within a mobile phone or just a regular video.
The lousy results from most webcams like this. Next time you think about upgrading, try the C920. You can even overlay both webcams and pop a setup like this. Capture allows you to customize your webcam anyway you like. You can add filters to it. If you have a green screen, you can even chroma key things out. You can even add filters to your camera like this. Black and white, old-timey. Oh, this one. Captures are pure beauty. There's also vertical recording with Capture so that you can up your game on every view you want to share. You can download Capture and try it out for yourself over at logitech.com/capture.
This is Mia. She really described what you can do very easily. It's accessible tool, it's compatible with our webcam C920 and C922, and it's literally creating a lot of stimulation for the category. More than ever, I'm confident that the digital creation evolution will lead to many new growth opportunities in the future. Logitech is extremely well-positioned to capture these opportunities and disrupt the markets and grow the markets. We have an obsession about consumers. We can constantly innovate as we target all these new use case and new opportunities that the digital creation application gives us. We have the scale and the breadth of the portfolio because not one person is equal, and we can really go after every single opportunity. I'm sure Vincent will talk about our target.
I may not fully agree with all the targets he will talk about, but more than ever, I'm confident about the future. Thank you.
I have to tell you a quick anecdote. When I joined six years ago, the portfolio was growing at about 2%, Delphine was basically the operational person in Asia, driving the discipline behind the growth agenda that AP was on. The rest of the company wasn't there yet, people were more conservative, prudent. I used Delphine's work and Delphine herself to really drive the growth agenda across the division, across the regions, and say, "Hey, you guys have to lean forward. You're going to fall behind. Here's what they do in Asia. You guys should definitely look after that." They were very disciplined, very data-driven. Then happens what happened. You fast-forward to six years later, Delphine is the head of the biggest business we have, and you know I call that the low-growth business.
Every week, Delphine stop by my desk and say, "Vincent, you really have to look at this data. You're going to fall behind. You have to lean forward. You have to go for the growth." I think she's right, so I told her if next year she can deliver a growth of 8%-10%, I promise her to call her business a high-growth business. Fine. All right. That's rendezvous next year, as we say. Let's start with confirming the fiscal year 2019. This will be the sixth fiscal year that I'm closing with Logitech, with the team. Most of the team joined with Bracken. Every year, we close the fiscal year on a higher number than we started the fiscal year with. Now, don't get used to it. Maybe next year is the right guidance I give you.
Definitely, we've had great momentum behind us, and we're going to have that. This would be the third year of double-digit growth if I use the midpoint of the guidance, 9%-11% constant currency. For those who are modeling here, I look at your models sometimes and remind you that in Q4, we have a currency delta that's bigger than the other quarters. Just want to make sure you look at that. That's for the top line. Bottom line, $340 million-$345 million. I'm tracked to that guidance. We'll use moving forward, the midpoint of the guidance for the next few slides. Overall, it will be a very good year, 9%-11% top line and twice that growth rate for the bottom line. Pretty impressive once again. You remember that chart we put up in 2017?
2016, after a successful turnaround, we turned from a turnaround agenda to a growth agenda, investing into our business, building up our capabilities, and fully leveraging those capabilities to capture the potential in the market. In March 2017, we said, "It will not be growth at any cost. We're going to put a framework into place, until we think we can double the earnings over a three-year period." To my surprise, someone at the last earnings call in January asked me if I was still committed to that CHF 2 EPS for 2020. I think I replied something like, we virtually have achieved it this year. Within a 5%, if that's my margin error, we kind of are within the range. When you look at guidance for next year, we'll be higher than that.
This was not kind of our driving overall strength, it was kind of a commitment to say, "Hey, it will be within certain boundaries. We're going to drive the course agenda." The biggest benefit would come from growth. Initially planned at high single digits, we delivered double-digit growth through that period. Margin improvements that we had planned for, there too, we've over-delivered. Reinvestments of some of that gross profit into our capabilities. There, too, we invested more than we initially planned. The way we've achieved that CHF 2 also is a high-quality achievement. As I mentioned, double digits over three years. Some businesses did better than others. Others did worse than what we had planned, and that's the life of a portfolio. Overall, the diversifications help us to drive the performance.
We know that over a life of a category, some will be up, some will be down, some will be back up after a few years, as we stay really consistent to our approach of becoming the perfect leader to cloud-based applications. We've improved the margin over three points. 2016, 34% gross margin. We're today at an operational level around 37%. As a result, despite the investment we've done in our capabilities, we have improved our profit at twice the rate of revenue. More importantly, we've done it every year. Operating leverage is a very important concept in our consumer hardware. Every time someone comes through the planning cycle or as we review the financials of our business and tells me they need to lose money first because they'll be profitable later, that's a big red flag, especially in consumer hardware.
I can understand it in software, I can understand in many other areas, not in consumer hardware. I cannot promise you that every product line, every SKU, is always positive from a contribution perspective. I can promise you that we have the principle to always try to drive incremental profit as we sell more. We understand the importance of market share and presence and brand, it has to be at a profitable way. Consistency is also very important. Being able to count on the operating model that has that operating leverage capability. Wherever we go in new categories, adjacent categories, we always look at leverage points. There's nothing that's totally new that requires to build everything from scratch, and therefore invest first before we can get some return.
When we started five years ago, we said, "Hey, you can count on us to not grow OpEx faster than revenue or align our investments to the revenue growth." We quickly changed that into number 1 metrics inside the company was about gross margin or gross profit. Making sure, as Bracken mentioned, that every one of our capabilities translating to a financial metrics, contributing to improving on the gross profit. Whether it's better brands or better innovations, whatever price premium it is, or better operational or lower product cost, it's all about that gross profit. Then we really are investing a portion of that incremental gross profit back into marketing, sales, product innovation as the 3 main categories. Two-thirds of that incremental gross profit flowing into investment, a third to the bottom line seems about the right ratio considering where we are from a profitability perspective.
Where it's coming from, the gross margin improvement. First one is design for cost. Three years ago, as Alastair matured his organizations, we added an element into design, which was the cost element, and floated many of our SKUs to a design for cost program, if you want. Now really is more of a discipline than a specific program. If you think about revenue generated in the year is about 20%-25% from new products. We started three years ago. You would say, oh, already three-quarters of your revenue is run through that program. The program is not always successful. Maybe we have a 60% or 70% success. I would say about half of our revenue is run through. We still have another half as potential. It will continue. The portfolio will evolve, and it's like doing a diet.
You may lose some weight, then if you don't pay attention, you regain a little bit, then you continue discipline to realign. A disciplined promotional environment, definitely moving more from a really promo-driven demand environment to more of a brand demand. We have a line in our P&L that we don't report and therefore you don't see. It's called contra revenue or gross to net is another example. There's over 10 points there of sales and marketing expenses that are really driving the demand. Being more efficient in that environment, aligning that spend to real performance sales out and consumer indexes is pretty important. Gaining more efficiency that we then reinvest, not into the gross margin, but into OpEx, into brand building, to have a brand-driven demand is part of the discipline. Scale and mix is another contributor to our gross margin.
An improved logistic environment, Bracken mentioned a little bit, we've definitely have diversified our supply chain and made it more nimble, which helped lower the cost. Infrastructure cost that we've reduced by a significant amount. G&A is 1 example. When we started five years ago, it's about 5% of revenue. Today, we are at 2.9%. I think we'll continue to go lower. Where did we invest? Obviously, at the core, we are a product company. More R&D, new product building, definitely key. Building new capabilities within that product environment, like the software capabilities, is another one where we continue to invest. Building up the capacity or capability to manage multiple brands to have a better branding environment with its infrastructure processes and also program dollars has been part of that thing. Building a direct sales force in the enterprise.
3 years ago, we said we're going to start to hire a few direct sales force to support the distribution environment, and we've continued to grow that enterprise sales force to support the video collaboration business, which is part of the success that Scott has shared, and we're continuing to do that. Then new capabilities. I would argue with you that the capability of integrating companies we've acquired, as we've done a few now, has been part of building new capabilities we have not talked about, but we're continuing to invest in. When we started, we were about a break-even company. We set a long-term target of 10%, which at the time felt aggressive. After two years, we were at 10% operating profit. As we moved to a growth agenda, we felt we could have a potential of 10%-12% operating profit margin.
There we're slightly above 12% and are within the high end of the range we set for the portfolio. Let's talk about next year financial outlook. I have to tell you, when I look at the market opportunities and the presentation from Scott or Ujesh or even Delphine, frankly, I want to say, "Oh my God, they all can drive double-digit growth. It's fantastic." At the same time, we have to continue to be conservative, disciplined, making sure that we align our investment to something we can deliver. We're going to do that. The opportunity or the potential is there to over-deliver, but at the same time, we have to consider the macro level environment. If I were to give this guidance in October and November, and we're listening to you guys, the world was falling apart.
I still receive today some bank reports that say this year will be a recession year, and it could be. That's not what we see today, but who knows, right? Considering this environment around currencies, tariffs, and other thing, we're going to widen the range a little bit going into FY 2020 and move our growth rate from high single-digit to mid- to high single-digit in constant currency. On the top line, though, we're delivering a great drop-through and a 10%-12% growth feels appropriate today based on the mix we have and the plan that we put together for next year. We're guiding next year $375 million-$385 million, 10%-12% growth. You can read the assumptions, which are similar to prior, supporting this overall guidance.
When you look at the growth rate by market, we put the PC peripheral in this low single-digits. Delphine, I definitely count on you to win for next year. I think at this point in time, feels prudent to be there. Video collaboration, same opportunities. Actually great momentum as you've seen Scott talking exiting the year here with a 45% growth, and we continue to invest both in the portfolio and in our direct sales force. Of course, the law of the big numbers, and we still have five quarters before we deliver these numbers, calls for 25%-30%. Gaming 15%-20%, still supported by a market that has double-digit growth. By lines, whether it's simulation, PC gaming, or the console environment may have different growth rate, but overall, that's the mix we have.
The music is definitely the guidance impacted by the fact that the current mobile speaker market is in slight decline. We see a -5% to a -10% in mobile speaker at this point in time. We'll continue to work on our operations, try to gain share in a declining market, I think calling for a flat to slightly declining set of categories makes sense. Smart home at this point in time is too small to really matter in the overall guidance. Long-term model. Three years ago, we said, "Hey, high single digit is the potential of that current portfolio addressing the five markets that we have." A gross margin that was raised from 33%, 34% to 35%, 37%, and then the operating profit margin 10% to 12%. Now we've over-delivered over the last three years. The mix has changed.
We've improved the profitability of our business structurally of all of the business line and also the mix. As a result, we're putting a new long-term target model and long-term could be five years for the conservative, three years for the aggressive people, and maybe two years for the ambitious one. I let you decide the time, when we look at the long-term model at three-plus years, call it three to five, we see the potential to continue to deliver high single-digit growth rate. When we look at the market themselves, the market share opportunity, the adjacencies that we could penetrate, we feel pretty good about holding that. At the same time, we're widening the gross margin range and raising the high end to a 40% gross margin. The increase of that gross margin is three vectors.
One is a normal cost structure improvement, lowering the cost, higher premium as we invest into design, into branding. That's factor number one. Factor number two is a mix and a positive mix moving more towards the gaming, the Creativity & Productivity, the VC business, which all have better margin than the music categories structurally. The third one is about our desire to change the business model from promo-driven demand to more branding or a better balance between promo and brand, which means that some of the costs that we're hitting, a gross to net or a contra revenue impacting gross margin will be spending marketing OpEx. That's just a different geography on the P&L, and that's about one point. That business model has to be coupled with two other comments.
The first one is that we'll focus on the long-term growth of the business over margin or profit margin expansion in the short term. If we have the opportunity to grow at the high end of 9% or at 12%, like we've done for the last three years CAGR, we may not be at 40% gross margin yet. We'll definitely favor the growth, the grossing dollars over the margin expansion. The second one is we'll continue to relocate some dollars from the promo bucket into the brand, building value in the different brands we have in our portfolio. On the capital allocation, no change. Our priority number one is M&A. When you look at the past acquisitions and the return we've had so far with those acquisitions on a cumulative basis, we feel that's the best return for our capital investments.
The second one is we maintain our growing dividend policy. Then we have the share buyback program open. In FY 2019, we'll have invested or returned over CHF 300 million between the Blue acquisition, the dividends, and the buyback. M&A objective number one. That brings me to the next topic, which is build versus buy. After the rumor that we're looking at Plantronics, which we had confirmed, and after the success of Blue, a lot of people, many of you are asking, "Hey, what's your organic growth? What's the inorganic growth?" Of course, I can always answer, but it's not exactly how we look at the business, organic versus inorganic.
Another question I got was, "How did you find that target?" I was surprised by the question, whether it was Blue or another, because it's not like suddenly we have a banker and come say, "I have a brilliant idea. How about this company?" With all due respect to the bankers, they never bring new ideas. They just get fee on ideas that you already have, but that's a different comment. We have a very broad strategic environment. We know what we want to be. We want to become the leader of the reference for cloud-based applications. We almost look at everything. There's very few companies we have not looked at. Now, there's many we have not engaged with, but we look at everything. When we find a market that we think is attractive to us, we're not waiting for a company to be acquired.
We already put a seed investment in place, or we start to invest organically. That's a great idea. Let's move on. Then sometimes the company comes in, and for many reasons, they would be ready to sell at a reasonable price, and we decide to engage. At that point in time, we say, "Okay, should we continue to build on our own or buy?" One of you, I won't name him to not shame him, but tell me that I don't understand because organic growth is so much more sexy than acquisition. I don't know what he meant by sexy, but I can tell you acquisition is very sexy. I'll explain that in a minute. The case I want to bring to illustrate this is the ASTRO Gaming case. Did Ujesh one day wake up and say, "I have a brilliant idea.
I met the ASTRO guy, and we should enter into console gaming?" Of course not. Was looking at the console gaming market always. Say, okay, maybe in the past, maybe it's too cyclical. As we saw online gaming moving on, say, hey, there's less and less differences between PC gaming and console gaming, and you saw in Fortnite, people can play on all platforms. That's another interesting adjacency we should go into. He already was looking at it and preparing and some investigative dollars went into, okay, what should we do into the console gaming? Where should we start? What's the value of our brand? Then we look at the competitive landscape. ASTRO, for many reasons, became available. We say, okay, what should we do? Continue to build on our own or do the purchase of ASTRO?
Then we look at all the criteria. We say, if we build, we will take longer to get to market. Astro already was at the high end of the pyramid for headset console gaming and was already relevant in that market. We say, okay, we take longer time to profitability for Ujesh to first invest, build this relevance into the market versus being immediately accretive in the case of the P&L of Astro. G was not well known in the console market. We would have to spend some marketing dollars to make sure we build a brand in that console environment, while Astro is a very strong brand for console players. Of course, organically, no need for integration. We have a good brand G, and we have already some marketing R&D dollars.
On the other side, we had to integrate the business, and we had to manage another brand, which brings another complexity, another value, but also another complexity. Of course, we had to purchase the business. We did the simple analysis. We made the decision to purchase ASTRO, which at the time fell maybe on a high end of a purchase price we were willing to pay. For some who think that we're paying too much for acquisition, I was the one here saying, "Yeah, I can get comfortable, but it is on the high end." Looking back a year and a half after, that was really cheap. That's also something to keep in mind. We won't always get it right, but we look at the risk-reward at all the criteria you have here, then we make the decisions to go.
What happened in the ASTRO sales case-We, immediately after we purchased the business, we launched the mid-range product, the headsets A10 and A20, trying to compete with SteelSeries and capture market share in that environment. We leverage our sales distribution environment and started to increase sales internationally. Then, as you've seen recently, launch a controller to expand the portfolio. Basically, all of the dimensions of growth that we've been applying to all of the other businesses, and you've seen here the results. Of course, the market itself grew faster than we thought, and it goes back to if we had decided to go organically, we would have missed maybe the Fortnite effect, or we would have come at the end of it. Right?
In this case, it was the perfect acquisition at the perfect time in what was after the fact, actually a very cheap price. When you ask me organic or inorganic growth, I don't know how to answer that. If I answer inorganic, they only brought to us this baseline. All of this is organically driven by Ujesh, the sales team, and with the true finance support that I provide. Frankly, what's really sexy in the business, it's not whether you acquire or you grow organically. It's once you have something, an asset, you really can develop and grow it, and that's really exciting. Whether the asset was acquired or already existing in Logitech, it's zero difference to me. Once you have it, what can you do with it? Where can you go? How do you invest? How do you prioritize that?
That's really what's exciting. How do you innovate? Those are the exciting piece. Someone, after I talked about Plantronics, was looked at, say, "Okay, that I understand that you'll integrate M&A in your agenda," which we had said for three years, right? That was a bigger potential acquisition. They were more questioning and say, "What are your criterias?" Those have not changed, but let me summarize them again. We look for secular growth trend, and these criterias could apply to our organic selection of projects, right? It's no different. Looking at adjacent opportunities with secular growth, something that helps us continue to be or build upon our leadership for cloud-based peripheral. An acquisition that could enhance some of our capabilities, whether it's operational, design, R&D, distributions, online distributions, always ways to improve from where we are.
Something that brings scales, and we scale synergies. It's a fantastic suddenly platform to invest more, accelerate, double R&D. As we look at tuck-in acquisition, initially, it's by design because like with the financial result, we felt we had to build credibility that we could acquire assets, put capital at work, get the return, and build the muscles. Initially, even started the first year where we knew we're not going to do an acquisitions. Bracken and I said, "Hey, everything that comes our way, let's put a term sheet, non-binding, in place so we can really learn on how to look at an asset." Right? We did a lot of that, then we did a few acquisitions and Jaybird and ASTRO and Blue. Now size is not anymore the main factor.
The primary factors are what you see above, then, of course, we need to be able to finance it. Otherwise, we look at almost everything that's in these criterias when they come available. I was in Zurich, early February. Some of you were smart enough to understand that a CHF 2 EPS would kind of be delivered and asked, "Oh, given, then what's next?" In March, are you going to say CHF 4? What are you going to do? I didn't want to answer that. I didn't want to put a CHF 4 EPS, but I say that's interesting because we look at the business slightly differently. We look at the business, at least for the main businesses we have, at their full potential.
Someone asked me, "Hey, can you do a CHF 3 or CHF 4 EPS as a next step?" That's not even a question for me. The way we look at it say, "Okay, the Creativity & Productivity, what's the full potential of that business?" Right? They are at CHF 1.2 billion. If you look at market opportunity, market share gain, adjacencies, and I'm not even integrating content creation or broadcasting. We just look at that business alone, could easily be in the midterm, call it three-year, CHF 1.5 billion. They operate at 40% plus gross margin. The investments leverage a lot of what we've already done, the IP we've accumulated and everything we already have. That's how we discuss with Delphine. We go into Ujesh.
Ujesh, and little story you've heard, when we started five years ago, we're trying to lean forward on a growth agenda as we were coming out of the turnaround then. In one of our business meeting in the evening, all the GMs are out there and Bracken and many is trying to mobilize the mindsets towards growth. Someone, like Yashesh, makes a bet with Bracken and say, "Hey, if we double gaming and we drive it to at least $500 million business, you'll get a tattoo." You've heard the story. I don't have a picture of his tattoo, but I can tell you we're $600 million business today, so you can ask him where it is. That business has a gross margin of 36%-40%. As we grow double digits, I could argue with you it could be higher gross margin if we grow less.
For now, I think there's a lot of gross potential in all three areas, the market, the market share, and the adjacencies. That's where we've been driving that business. Over $1 billion, absolutely reasonable at 36%-40% business. Scott business, video collaboration. You've seen him growing at 45%. If it grows at a very reasonable rate of 30% for three years, it'll be already at $1 billion. I'm not talking about adjacencies, potential acquisitions, and then everything else you can do I've not talked about. $1 billion, absolutely not unreasonable. You know the gross margin in the enterprise world well above the high end of our corporate gross margin range. If you do the math, sum up everything here, I'm already at $3.
We're not looking at the total portfolio and the total, but we really are developing those business at their full potential. That's how we prioritize investment. Then I'm already well above $3. I have not talked yet about all the other businesses or business opportunities we have, existing businesses, seed investments, other applications we have never discussed, and all in a context that we look of course at building, but also acquiring, right? That's in none of them all. I don't have to give you a one-number or one thing like we did the $2 EPS because it has a very good function. It's giving you the credibility that when we're going to embark on a growth agenda, it wouldn't be growth at all cost. That discipline is integrated and will continue.
Now we're really looking at building the full potential for our three main businesses while we continue to explore many other opportunities. That's whether we, again, do it in-house or acquire and then do it in-house. Again, we don't separate it fully on that spectrum. Okay? With that, Bracken?
Take that slide off.
Yep.
I'll just wrap this up real quickly, and then we'll take questions. It's a good chart, actually, and I wasn't planning to use it. Before I do that, let me just talk about Vincent. Vincent and I have been together for six years. Vincent and I don't go out to dinner together. Our families don't go on vacations together. We're not best friends outside of the company. We're partners. We're really partners. It's true. We're really partners, and he is a great CFO, but he's so much more than that, and he plays a much bigger role. I really feel like in this business that I have a partner here. I also feel like I have a partner in everybody else you've seen present today. Every single one of them feels like my partner. I'll go beyond that.
There are a couple people, Chris Staton and Brian Coe, two more members of my leadership team, I feel partnership there. Guido De Luca, our chairman, we've literally been with each other since before I started the company. The reason I'm using the word partner is because I mean it. I have a broad-shouldered team of great partners. This is a partnership. We have the capacity to do much more than we're doing, but nobody's taking the eye off the ball. The reason I'm setting that up is because if you go through these existing businesses one at a time, I started today, and I hope you track right through it, on the secular trends that are driving these businesses. The one that is very difficult to communicate, I think Delphine did a really good job.
It's really difficult to communicate what an opportunity, actually, the original Creativity & Productivity business is. Surprising to everyone, including me when I got here. What's happening is this digital content creation, the democratization of putting things out for other people to see, which used to be the domain of Walt Disney and Paramount, it's now the domain of anyone who can sit at a desk or walk around and film themselves. This is driving this business today, and it's going to drive this business tomorrow and for the next 5-10 years.
If you weren't blown away by Ujesh's presentation on gaming, then boy, you must have a house full of gamers because no matter how many times I go through this, I'm still a little awed by the numbers of people under the age of 30 or under the age of 25, how much they're watching and how much they're playing. This is not a trend. I mean, this is not a fad. This is a long-term trend. This business will grow for a very long time. The last one, which this is just almost undeniable at this point. I'm now getting to the point where I spoke to an investor during the break, he said, "Yeah, the video collaboration piece no longer surprises me." If you're not already experiencing a day full of video calls, you're not at the front of the curve. It will come.
It saves money on flights. It gives you better video connection. If you're under the age of 35, you only make two kinds of calls. You're either on earphones or you're on video. There is nothing else. Video is going to sweep through every office everywhere in the world, every enclosed space. Those three things are your safe bet. Those are the safe bet. If you're looking to invest in us to play it safe, that's a great bet. We're not going to stop there. The reason why number four is out there is because we're not here to only do the safe bet. We're going to go beyond that. We're not going to take unnecessary risk.
One of the things we do extremely well that I rarely ever talk about, but I'm the most proud of, and it's absolutely not sexy, to use your words, Vincent, is risk management. If we take on something, we risk manage extremely well. If we take on something small, trust me, we are thinking risk management. If we're launching a new category, we are thinking risk management. If we look at something big, believe me, we're thinking, "How do we risk manage this?" Risk management is the formula underneath our engine that you must rely on, and we must always do well. I'll close by saying I'm super excited about the business. I'm super excited about the team. The number of opportunities and the size of the opportunities we have is certainly unparalleled in Logitech's history, but unparalleled for a lot of companies. We're in a luxurious place.
The pressure's on us to keep building this capability, to keep the ambition high, and to keep risk managing. We'll stop there, and we can open up for questions. Missy, you want to cover it, too? Yeah, absolutely. Asya.
Do I need a mic?
Probably, yeah, I think so, because I think we're broadcast.
Hey, great presentation to everyone. Just a very quick question, Bracken. As you think about diversification, how do you balance the enterprise and the consumer side? I get that question a lot from investors who are kicking the tires or already invested in Logitech shares. There's enterprise, the opportunities there, and there's the consumer side. The diversification is great, but then the investment, the go-to -market. Maybe you can anecdotally talk about how do you balance that. Then as a follow-up, as you look into 2020 and 2021, where's the bulk of your R&D or go-to-market investments flowing into? Thank you.
If you think about the enterprise, Actually, I'll go back even further in history. We're just following users. Every business we're looking at, we're following the user. The safest thing you can do in our business is follow the user where they're going and then build a great experience for them. We don't tell users where to go. We don't dictate. We don't try to create trends. We follow trends, and we create an amazing experience. That's the goal that we're trying to create. Years ago, when Apple started, or when BlackBerry started showing up in businesses around the world, it became an enterprise play. What we've done with our original PC business, Delphine's business, it started as a PC business. What happened next? People started using it for gaming. What did we do? We followed them into the gaming experience.
We upgraded the capability of our products. We took engineering way up, as you just showed you, and we created much higher-performing gaming peripherals. As a result, we're leading in game peripherals. Let's just go through all the other business that we talked about today. We could go through more. Scott's business. What did we do? Somebody took a webcam. When I first got here, I'd see people, I'd go to a small company, they'd have a webcam on top of a TV, they'd have their PC in front of them, and they'd have a video call with me. What did we do? We said, "We know we can do better than a webcam for that call. We can create a better field of view. We can create better mics." We created a product for that.
We followed them right in. A few years later, we had a full-scale business. Now we can sell it into anybody. It starts with the enterprise. You asked the question, how do you balance the enterprise versus the consumer business? Is that too much diversification? We're just following what's happening. The consumerization of enterprise experiences is there with or without us. We're just taking advantage of it. In terms of the technology required to invest in it, the same investments we're making for a Bluetooth speaker, as Scott said, or actually didn't mention it, are now being used in our video collaboration equipment. It's actually leveraging our engineering capability. In terms of go-to-market, you're right. We have to build a go-to-market, and we are aggressively doing that.
We've been investing now month after month after month on building a new go-to-market to make sure we can serve the enterprise. In the past, I think you could have said, gosh, is that too much diversification? I hope you do. I feel super comfortable that we can play across those two fields very well. Your second question was? Okay.
Investment. Anecdotally, if you could talk about where the bulk of your investments are going, even near term, specifically what kind of projects. I know AR and VR and gaming comes up quite a bit as well.
We're always investing in the engineering and technology capabilities of the business. We have a lot of investment in Scott's business, a lot of investments in Ujesh's business, continue to invest in Delphine's business. There. On the edges, we have a long-term. The only seed we talk about externally is AR and VR. We're not investing a ton in there, but we're staying highly engaged in it because we believe that a few years from now, as the especially mixed reality starts to form, we want to make sure we're there with a lot of not only the know-how, but even helping drive some of the specification for what is relevant from a user interface experience in a VR mixed reality world. That's there. Beyond that, in terms of new products, we don't usually talk about them publicly.
We're always investing in a few more things, usually between five and 10. Yes, Michael.
Thank you. Mike for Bank Vontobel. Just one question on the software side. In the past, you talked about hardware being tip of the iceberg and so, more and more software content in your product. My question would be, how has this software content actually developed over the last, let's say, three years?
Yeah.
How is that affecting your gross margin and the change in your gross margin guidance? That would be the first question. Second one would be, obviously, you've increased your gross margin corridor long term, my question would be, do you think you could actually, if you invested more of that money, actually grow faster? Would that be an alternative for you? In the past, you've always said that you would favor growth.
We'll go back and forth. I'll answer the first, I'll let Vince answer the second one. On the first one, how has our software capability developed over the past three years? When Vince and I started, we had, I think, 59 software engineers, which were really firmware engineers. The difference between software and firmware is a kind of software, is firmware is embedded software. It's really embedded in a physical piece of hardware. Today, about one out of every three of our engineers working our product lines is a software engineer, and we're hiring probably at the rate of two to one software to hardware. We continue to grow our software engineering capability. On top of that, we're using a lot of contract, in some cases, contract engineering talent outside for software. Software has become a bigger and bigger part of our business.
Do I think it's affecting our gross margins in these targets? No. I think that's an upside. As time develops, if we develop capabilities to add services and other things that software could enable, I think there's potentially ability to add to gross margin. That's not really embedded in this assumption. It is embedded in our outlook. Over the long term, I envision we will continue to add software that can do a lot more than just enable hardware.
Yeah. Again, focus on gross and gross margin be 35%-37%. Half of you were thinking, "Oh my God, you can deliver better gross margin." Over the last four quarters, we're running at 37%, so everybody says, "Ah, it should be at least 40%." We go to our plan. We knew we were going to raise it at one point in time. You raise it and now people are saying, "Oh, does that mean there is no more gross opportunity?" That you're putting in gross margin? Of course, the answer, Michael, I understand the question, but it's no. When you look at a purely theoretical potential and look at everything we can do on the whiteboard, we definitely can grow faster. How fast can you get to that full potential, that blue sky scenario or that hypothetical case?
It maybe with very low probability, you need to be able to execute and et cetera. At this point where we stand, we don't feel we have the confidence, although we have the potential, the confidence to raise a long-term gross rate for our portfolio to a double-digit gross rate. That's the first answer. If we deliver more than that's different, and we've delivered the last two as a double-digit, then who knows? It will deliver next year if it will be double-digit again or not. For now, I think it's very reasonable and prudent to guide that mid to high single-digit. On the gross margin side, two points of the improvement is coming from one mix.
When you look at the long-term potential of the VC business, you've seen over CHF 1 billion of Gaming, of C&P, there's a mix flow through that will come in. We already operate at 37% today. We have more cost-saving opportunity about one point, we'll redirect the business model for more brand driven, right? Some of that will be reinvested. Then you look at all of our investment opportunities, say, what can we really reasonably execute on? That's the discussions we have with Bracken, with the management team, that's how we determine the bottom line target. As you've seen, we raised the gross margin three points, two points for the bottom line only. We need to increase the investment at least one point. We'll continue to invest going on high single digits.
It's not that we're not investing, but we're also realizing our capability to absorb that incremental flow through of gross profits. Again, I think the corridor, as you call it, is wide enough for us to entertain a lot of investment opportunities and favoring growth over margin expansion as we progress towards that long-term model. Charles?
Yes, many thanks. Alex Duval from Goldman Sachs. Couple of quick questions. Firstly, you talked about this exciting opportunity to go upscale in VC, so I wondered if you could give a bit more color on what strategically you might need to do that, also in terms of any tweaks in terms of channel. Second of all, on the Gaming side, I saw in your target for 2020, you talk about 15%-20% guidance for growth, you obviously laid out some very interesting structural drivers, that seems potentially a little bit conservative, particularly in the context of what you've achieved in the last year. Maybe could you help us understand that as well? Thank you.
Sure. On the first one, I think it starts with products. Scott spent time. To repeat the question, the question is, what do we need to do to really go up into the bigger rooms to be successful, both from a product standpoint and from a go-to-market standpoint? On the product side, it does start with products. We feel like we've got really world-class products now. We have a lot more to do, by the way. There's a lot more opportunity there that Scott and team are working on, obviously beyond what we talked to today from a product standpoint. From a go-to-market standpoint, we're building our go-to-market across the board. I would say we're still at a relatively immature level compared to what we will be in terms of go to market, we're doing that across every part of our world.
We've had really incredibly strong performance despite that. It's one of the key focus areas we've had and key investment areas for Scott's business. In terms of gaming, you could look at the gaming story and say, "You had such strong growth last year. You just gave such a great presentation. Why are you decelerating your growth rate?" Look, call us conservative, the Fortnite effect hit this year. The fundamental secular trends are not changing, they're right in line with where they were. We felt like, okay, with that one-time burst of Fortnite, as we look out, we should probably make sure that we're not being too aggressive on that side. On the other hand, there's something like, as you just showed, and I'll bet there's not a person in this room who's played Apex.
There are 50 million people who have in the first month. Who knows? Maybe there is another Fortnite effect. Over time, I expect our growth rates to continue to be super strong in gaming.
Great, many thanks.
Thank you. Yes. We should have gotten the Blue microphone.
No, it works. You haven't talked a lot about music today. How strategic is this business to you? You compared M&A and seed. When should we expect another or new product category coming to your P&L via seed or M&A.
Okay. I'll take it first, we're dividing and conquering it. On music, we love the music business. We've been in music since what year, Bruno? When did we first buy PC speaker business? 18 years ago. We've been in the music business for a long time. When we got into Bluetooth speakers, we really focused on great design, great innovation, great experience. We created a first great product, then we've built later on. Like many of our categories, some of our categories, they grow for a long time, sometimes really spike, slow down, go south, even grow again. Webcams, as I said earlier, had this period where it had incredible growth rate, slowed down, declined, started to grow again. That's grown pretty strongly. Then it transformed into another business called Video Collaboration.
I don't know exactly what will happen with the Bluetooth speaker business. We've taken a conservative view of it, given the market trends around the world for next year, for the next couple of years, and I think that's smart to do. Is it strategic? Yes. From a technology standpoint, we're sharing some of that same technology for music in both our earphone business and our Video Collaboration business. The business is still attractive. It's large. We're a key player in it. Yeah, it's strategic, but we're being conservative on our growth rates. You want to take the acquisition?
Yeah.
Since I know you're ready to announce one.
It was just not on the acquisition. It was the timing of new categories, right? The last two news were console gaming and microphone. We don't plan on talk about timing, and frankly, we don't even internally plan timing of new categories. We work on many projects, organic or inorganic, that are about categories that are not in our portfolio today. We won't make the mistakes of relying on those new categories in our financial models, because it could lead us to deliver maybe a subpar innovation or try to rush to a target. For five years we haven't done it, and we won't do it today.
Yeah. In fact, I'll go back. If you put that last slide up again, those first three things we feel so strongly about, give us such growth potential, that the number 4 there, which would be new categories, there could be new categories inside the others, but there could be the fourth one. We're always looking. We've got a small group of people always talking about it. Vincent and I had a meeting on Monday, where we're working on a new seed that certainly would sit in that space, that we're super excited about. You got to manage your enthusiasm, because new things sometimes come out, sometimes they don't. We have between 5 and 10 new categories in development right now. I can't tell you if or when they will come out. We are always working on them, but this is the visible bet.
Those numbers are basically based on your current portfolio. Right?
Sorry?
Those numbers are basically, or are based on your current portfolio.
Somehow, yes. Meaning these numbers are based on our C&P gaming and video collaboration portfolio. I cannot tell you that under gaming, there will not be another new adjacencies, or under video collaboration, there will not be another application that today's cut does not address.
There could be an acquisition inside one of those that was even within an existing category that gave us new technology or gave us a new extension of a play geographically or something.
Okay. Understood. Thank you.
There is no time here, and there's no limit because it's over a billion, but I didn't say when I stop. Right? It's just to show you, we're very confident about the potential of those three pillars, and that's what we work on. If I used to do like the sum of the parts at one company, I would do the sum of the parts here. Again, I would argue that I can drive a lot more than the value of today's total Logitech portfolio.
Yes, okay.
It's Chris at Credit Suisse now. I have two questions now. The first with respect to video collaboration and all of that now.
Yeah.
The light is hurting.
No.
On video collaboration, I know Scott kind of indicated that he thinks the market is growing 35%. You invested heavily in distribution. You're basically expanding now to the upper end of the market, but yet your guidance is only 25%-30%. Could you discuss some of the headwinds? The second question is actually the ASTRO Gaming C40. When is that available on the Xbox now? I urgently need one for my-
Okay.
Let the record show that Alex called our gaming 20% conservative. Chris calls our video collaboration at 30% conservative as well. Look, you will always, and thank God, because it wasn't the case six years ago, you will always have our GMs so much more excited about all of the opportunities, right? Versus what Bracken and I are planning for the corporations, are committed to the board and to the investors, right? You know our track record, and you know our approach. That's a healthy thing. Normally, companies align, they meet the day before, and they say, "Okay, Scott, don't say more than 25%-30%, because that's what I commit to you." We've been very transparent. We give you full access. Scott definitely has a higher plan, but he's in the higher number. Delphine, again, every week she's at my desk, right?
She has a higher plan. Overall, can I really rely on all of that and put all of the investment behind over one year? That would not be great risk management as we discussed. We look at all the potentials, all of the headwinds. You can come up with 10 headwinds that you and I would discuss, is China, currency, tariffs, on and on, including we have great sales force. We have to run the sales force. We have to train the sales force. We have to build infrastructure for sales force. On a conceptual basis, if it's CHF 2 million quota per sales rep, that's great, but it takes nine months to build. Can we do that?
You have all of those macro level and operational risk, if you want, that lead us to this commit. Again, we won't be shy to say, "Hey, we call it annual guidance. If we beat them, we beat them." That's great, you can count on what we tell you that we're going to deliver when we risk manage a business.
Get to CHF 1 billion in sales. You need to grow fast.
Yeah.
I understand. No timing, and over CHF 1 billion, I said. Don't forget the over.
Okay, next question.
The controller?
Sorry?
The controller?
Yeah.
Oh, the controller.
We did the controller.
When is it going to be available on the Xbox? Oh. Sorry about that. Okay, go ahead. Yeah.
Yes. One question on the gaming side. I see the growth trend, but where I'm a bit skeptical is that people who start gaming now, the younger ones, will continue gaming once they're 30, 40, 50. Is there not a risk that these guys stop gaming so that the growth rates, if you really look long term, is not as big as you think?
I think 30 years from now, there will be somebody standing up here telling a different story, and it might be that one. I have a hunch that there will be somebody standing up here saying, "Wow, gaming's bigger than Logitech in total back 25 or 30 years ago." Who could say what's going to happen over that long a timeframe? I think gaming's here to stay. I think if you look at all the trends underneath it, Ujesh is an interesting example. He plays games with his kids, and my kids were one generation back. I don't play with my kids, but my kids play with all their friends, and when my nephews come in, they're playing with the nephews. I think gaming's here to stay, and I think it will be here for a very long time. Different forms.
Just today, here's an interesting one. Sorry, I'm taking your question and I'm hijacking it to say something else. Just today, if you look at the headline, there's a headline, I don't know if it was today, it was in the last month or so. A guy who's a sim racer, sim racers means using our wheels to learn how to race car drive, beat a former NASCAR driver on a real track, and then beat a Formula One driver on a real track. This just drives more hype, and the storyline is so exciting that I think gaming's going to keep growing.
If I can add, who knows, right? You might be there or you might not be there. I will not be there here in 30 years, but I play less tennis than when I was 10, 100 times less. Guess what? I spend more on new T-shirts and new rackets than when I was 10 years old. In term of the gears and the environment, I'm sure my son, 12 years old today, will play, hopefully less, but will play when he will be 30 or 40. That, unfortunately, I'm sure.
One question more on, you mentioned in the beginning you want to be number one or number two in each category. You have certain category where, I think at least, you're not yet one or two. How long of time do you give these categories, and when do you decide on when to pull out of certain categories? Because we haven't seen you pulling out of certain categories where I would think, okay, maybe smart home. I don't know.
Yeah.
You could decide to stop that.
It's a wonderful question. First of all, there are two kinds of number one, I would say. There's number one where if you look at the category in total, you're number one, period. Keyboards, mice, webcams, we're just outright number one, no matter how you slice it. There are other categories we'd say, the category doesn't actually operate like that. It operates with segments that are very strong, very differentiated based on use case. Like earphones, where you say there's really a set of products that are used for running, and there's another set of products that are used every day, AirPods, you use to communicate. Those are very different. I would say you're right, and we will look at that category and say, that's what we're trying to aspire for example, in the earphone space. How long do we give it?
Every situation is heterogeneous. I heard Jeff Bezos one time say, somebody asked him, how long do you stick with his version of Seeds? He said, and I'll never forget it, "Till the last passionate advocate folds." Folds means you're playing a game of cards and you finally say, "Okay, I'm out." "Till the last passionate advocate folds, and it's usually me." That's true with us. We will stay with something until the last passionate advocate folds, and it's usually me. Sometimes it's Vincent, or Alastair, usually it's me.
It's too early to judge. What I can say is we've acquired great capabilities, an environment, and a methodology, and a playbook to drive the organic growth of the asset we acquire. We've acquired a great discipline on analyzing everything up front and presenting, again, still a conceptual business case to the board when we decide capital allocation.
Thank you.
Thank you. Let us go over here next.
Andreas Müller, Zürcher Kantonalbank. I've got a question on the promos, which you try to de-emphasize. In the past, you used these promos also to clear the shelves, to get new products into the shelves. How do you migrate from old to new products, going forward, given that, promos should end more or less? That's the first question. The other question on gross margin. The lower logistics cost you try to achieve and also the G&A efficiencies. In the past, you did a lot on that field. It's hard to imagine how you can improve there. Can you give some insights into measures you try to get to these targets?
I'll let this take a second. I'll jump in first. We won't go away from promos entirely. We actually promote less with new products than we do with existing products that are already out there. With a new product, you tend to get thanks to Chris Attad, who's corporate communications, and which some extends marketing. We tend to get a lot of attention when we launch new products. Our products tend to be well-differentiated versus whatever else is out there. We don't usually promote new products at all or not much. As they've been out there a while, they tend to need more promotion to get attention. Shifting from promotion to marketing there is valuable because then you're spending something that drives sustained value as opposed to temporary value.
We won't go away from that either completely, but it'll come down over time some. I think the bigger picture story here is we certainly do want to build a marketing engine that's able to build our brands as we sell products and moving to a lower promotion environment is the way to do that. You want to take the other one?
It's not that we're going to drop promo.
No.
We're really talking about like we did in infrastructure or G&A, it's talking about the efficiencies of that promotional environment. If you get for a week into my world, there's a lot of different offers and approach to stimulating the sales at the point of sales and making that or the criteria we use to approve some of those is where we can improve. Giving us the room also to work away from promotions we feel are not addressing the efficiency we want is also part of our strategy. On the infrastructure side, we first started by reducing in CHF the infrastructure spend, right? Standardizing, globalizing, doing a lot of the good sense approach to infrastructure is what we did. We now have an environment that's flexible enough, we feel that has more capacity, including the management team's capacity, to absorb the growth without increasing CHF.
It's much more keeping our infrastructure flat and continue to adjust our environment to absorb the growth versus growing it with the growth.
Back over here.
Maybe.
Yeah.
Maybe.
Sure
addition to that. For next year, the gross margin, what are the drivers for the gross margin?
Yeah. We don't guide in our new business, as you know, both OpEx and gross margin. I'll let you simulate what you want to model. We have a bottom-line number that we have, and we'll give indication as we continue. We'll exit the year at around 37%, right? At this point in time, I don't see a major change to that.
Ruud.
Yes, one more question. When I look on your new operating profit margin targets, you raised the upper end by two points and the lower end only by one. You're already at 12%, the lower end is at 11, so what is the thought process of that? Is there a risk that the margins could decline at some point?
I don't like to call it a risk. We also said we would prioritize growth over margin expansion. I think at this point in time, we continue to be conservative. That's the range we feel good about. If in the short term we see, hey, we're moving more to brand and we build that capability faster because it returns better growth, that's what we'll do. It's giving us the flexibility, if you want. You also have seen that in our next year guidance, when you put it into your model, we're guiding well above 12%.
Any other questions? Well, let me just finish by saying thank you. You devoted a whole half morning, and I know how many company meetings there are right now, so I really appreciate it. If nothing else, I hope you walk away with two things. One is, wow, they have big growth opportunities in those three main business, driven by big secular trends and great capability. Two, they have a really strong team that can handle it. Thank you all very much.
Thank you.