Good day, welcome to the Logitech second quarter fiscal 2019 financial results conference call. At this time, all participants are in a listen-only mode. We will be conducting a question and answer session, instructions will follow at that time. If at any time during the conference you need to reach an operator, please press star followed by 0. This call is being recorded for replay purposes and may not be reproduced in whole or in part without written authorization from Logitech. I would like to introduce your host for today's call, Mr. Benjamin Lu, Head of Investor Relations.
Hi, thank you. Welcome to the Logitech conference call to discuss the company's financial results for the second quarter of fiscal year 2019. The press release, prepared remarks and slides, as well as a live webcast of this call, are available online at the investor relations page of our website, ir.logitech.com. During the course of this call, we may make forward-looking statements, including with respect to future operating results, that are made under the safe harbor of the Private Securities Litigation Reform Act of 1995. The forward-looking statements involve risks and uncertainties, actual results could differ materially, as noted in our quarterly and other filings with the SEC. The company undertakes no obligation to update or revise any forward-looking statements as a result of new developments or otherwise. Please note that today's calls will include results reported on a non-GAAP basis, except as otherwise noted.
Non-GAAP operating is provided to help you better understand our business. However, non-GAAP financial results are not meant to be considered in isolation from or as a substitute for or superior to GAAP results. Non-GAAP measures have inherent limitations and should be used only in conjunction with Logitech's consolidated financial statements prepared in accordance with GAAP. Our press release and slides provide a reconciliation between GAAP and non-GAAP numbers and are posted on our IR website. We encourage listeners to review these items. Unless noted otherwise, comparisons between periods are year-over-year and in constant currency. This call is being recorded and will be available for replay on the investor relations page of our IR website. Joining us today from California are Bracken Darrell, President and Chief Executive Officer, and Vincent Pilette, Chief Financial Officer. I'll now turn the call over to Bracken.
Thanks, Ben, thanks all of you for joining us. Over the past few years, we've built our business as a portfolio of categories across a steadily increasing number of brands. That's the way we've talked about it with you. Today, I want to shine a light on a slightly different aspect of our portfolio, category leadership. Everyone knows category leadership is an advantage, but some might think that category leadership is almost automatic as an advantage, but we know better. If you don't put in place a powerhouse innovation engine, your strength is wasted. We know that very well. When Vincent and I started here, Logitech was a perfect example. We were the leader in about five categories, but our innovation was failing us.
Over the past six years, we've not only gained share in all of those categories we led before, but we've about doubled the number of category-leading franchises we have to 11. Today, those leadership categories represent nearly 70% of our net sales. We did that by deeply understanding consumers and using design as our central approach. This unlocked the power we always had in engineering. For those where we are not a clear leader, we view them all as works in progress. We're working to either innovate and grow toward leadership, like we are in Bluetooth speakers, or redefine the category to create a new subcategory where we believe we can satisfy a true consumer need and lead, like Jaybird. Will we always attain leadership? Maybe not.
You can see by our record, we're having some strong success so far, and we will serially enter new categories that we believe we can lead. Our ambition is to be a vibrant portfolio of category-leading product groups, combined with a strategic set of product groups striving to lead their category. How can you see that in our business today, and how can you see it this quarter? The category leadership ambition and vision is behind our results. Our sales are growing consistently, our gross margins are strong, and our operating income is leveraged with that growth. That's enabled by disproportionate growth in the category over time and strong value creation in the category, reflected by our gross margins. Growing market share and growing gross margins, those are the ultimate measures. Gross margin is the ultimate truth. Subpar innovation sees compression relative to the category in gross margin.
If your innovation is good and you're building your brand and serving your customers' needs, your gross margins improve relative to the category. Is this universally true? No, but it normally is, and it's certainly been for us. In Q2, our overall sales grew 10% to our highest ever for a September quarter, and our gross margin improved strongly. Our operating profits increased much more than sales at a better-than-expected 18%. Our gaming franchise delivered another powerful quarter, with sales up 43%. Today, gaming is our single largest product category. In gaming, you could see an example of our striving for leadership. When I arrived, we were number two in mice. Back then, there were literally four people on our entire gaming team. The tremendous growth we've achieved in gaming since then was through the playbook you started to know us for. It all starts with great products.
With a product portfolio that we were proud of, we were able to align the gaming group with the structural growth of the market that was just starting to accelerate five years ago. Now we're number one in gaming mice. While we worked on products, we also focused on the rise of esports. We were early in positioning our portfolio around the burgeoning esports phenomenon and the rise of mainstream gamers. This is paying off as we are seeing new blockbuster gaming genres like the Battle Royale format of Fortnite popularized, transforming gaming not just into a form of entertainment to play, but also as a type of social expression. More and more gamers are broadcasting themselves, playing their favorite games as a way of expressing who they are and interacting with other gamers on other social platforms. That's unlocking new opportunities for us.
With gaming becoming increasingly pervasive across the mainstream, we're doubling down and investing more to drive for continued momentum in our gaming businesses. Video collaboration is a different example of striving for category leadership. Here we had really no business five years ago, there was no category. We are a leader in a developing category with an annual sales run rate of over $200 million now. Again, for us it all starts with great products. We've serially added products and now machine learning to further improve our offering. In this case, we also had to make investments in building out our direct enterprise sales force. Because our products are outstanding, we've seen tremendous correlation between hiring an enterprise salesperson and a commensurate increase in our revenues.
The limiting factor in growing video collaboration even bigger and faster is hiring the right people, the right salespeople around the world. You can expect us to take the appropriate steps to ensure that we're investing in the right people, products, and capabilities to support our powerful long-term growth outlook for VC. The growth trajectory of the cloud-based video collaboration market continues, unabated. Zoom just hosted its third annual Zoomtopia conference in San Jose nearby two weeks ago, they're seeing over 45 billion minutes a year of meetings conducted over Zoom. This was up 50% from the end of last year. We aren't surprised by that. In Q2, our video collaboration sales grew 25%. There's nothing wrong with 25% sales growth, but don't be deceived by it. The underlying sales out was over 50%. Again, a record high.
How about categories where we have a long and sustained category leadership record? PC peripherals sales grew 8% in Q2, its strongest growth in six quarters. Pointing devices, keyboards, and webcams, all of which we lead, all contributed to growth. We haven't stopped innovating for users with all kinds of needs. There's still many opportunities here. We just released our MX Vertical Mouse, which extends our focus on the importance of ergonomics in the workplace. MX Vertical had the strongest first quarter sales launch in the Americas of any pointing device product it launched in the last three years. Stay tuned, because we'll continue to drive innovations and make every consumer more free to work and create, whether it's at home or in the office. Our tablets and other accessories had another robust quarter, with sales up 20%.
It's even more impressive when you consider that last year, Q2 sales rose 50%. Both new products such as Crayon, our first digital pencil for the 9.7-inch iPad, and POWERED, our wireless charging dock for the iPhone, as well as existing products like our Slim Folio, drove the strong performance in Q2. Now let me update everyone on our mobile speakers business. While sales were still down this quarter, the underlying trends improved versus the prior two quarters. We've made great progress in transitioning out our older products to our newest ones. We updated our BOOM and MEGABOOM mobile speakers and made them better, much better. They have stronger bass, improved sound, and longer Bluetooth range, while still keeping their waterproof and drop-proof features that everybody loves. In fact, they even now float.
Sales of BOOM 3 and MEGABOOM 3 are off to a good start. I can't wait to see how they do over the holidays. We got more attention from the media here than any launch since I've been here, and probably any launch in our history. Audio and wearable sales were flat in Q2. Blue Microphones sales contributed approximately one percentage point to our overall sales growth and offset the decline in desktop speakers and Jaybird. As we've said previously, we're resetting our Jaybird portfolio and focusing the brand even more towards running and the channels that make sense for that focus. We launched two new Jaybird earbuds, X4 and Tarah. Both just came out in late Q2. They retain Jaybird's reputation for ruggedness and comfort while being sweatproof and now, for the first time, even waterproof.
We remain committed to building and positioning Jaybird for the niche sports segment of the market over the medium term. With that, let me turn the call over to Vincent to walk you through our key financial metrics.
Thanks, and good morning, everyone. As Bracken said, our strong momentum continued this past quarter with sales up 10% in constant currency. We had strong growth momentum in Asia Pacific, up 26%, solid growth in the Americas, up 9%, and a stabilizing business in Europe. It was just over a year ago when we acquired ASTRO Gaming. Since then, the ASTRO business more than tripled in size as we leveraged a strong market growth, reached into new channels and regions, and expanded the product portfolio through the launch of new headsets into lower price points. ASTRO is a great example of how we can take an acquired asset and build value by leveraging our core capabilities. This quarter, we closed the acquisition of Blue Microphones, which added roughly one percentage point to our overall growth. We're very optimistic about its future.
On an accounting note with regard to revenue, I mentioned last quarter that we implemented the new 606 revenue recognition standard. This quarter, our sales were impacted negatively by about one percentage point compared to Q2 last year, which was reported under the old standard. For the full year, we expect an immaterial impact from 606. In Q2, our non-GAAP gross margin improved by 110 basis points to 37.6% due to our continued cost reduction efforts, favorable mix, and currency tailwind, partially offset by investments in customer sales programs to support our growth. It is worth noting that we also benefited from a one-time $7 million tax duty refund, which favorably impacted our gross margin. The net impact of the two one-timers this quarter, the headwind of the 606 accounting standard, and the tailwind from the duty refund, is a favorable half a point benefit on gross margin.
Nonetheless, it was just great execution from our operations team that enabled us to deliver a gross margin slightly above our long-term target and helped to balance investments in our business in the face of various cost headwinds, such as logistics and component costs, exchange rate volatility, and more recently, tariffs. I know there has been a lot of interest and questions in what is going on with tariffs, and more specifically, tariffs on imports into the U.S. from China. As we had mentioned last quarter, the first round of tariffs had no material impact on our business as only a few of our products were on the tariff list. The second round of U.S. tariffs that just went into effect on September 24th impacted more of our products.
Through various mitigation efforts such as product reclassifications, tactical inventory pullings, supply chain or production shifts, and potential pricing adjustments in the future, we believe that we can manage the overall impact of tariffs this year within our previously announced profit guidance range. As some mitigation actions take time to implement, the net impact is estimated to be about half a point of gross margin in the second half, which we can absorb in our full-year outlook. Our non-GAAP operating expenses increased 10% this past quarter. We invested in R&D, up 7%, and sales and marketing expenses were 13% to support the expected strong top-line growth in the year and also impacted by the acquisition of Blue. At the same time, we continued to drive G&A efficiencies with G&A spend down 3% year-over-year.
The one thing you can expect from us, as always, is very tight control of our OpEx, creating efficiencies, but also investing in resources to support long-term growth opportunities, which are funded by gross margin expansion. That discipline and leverage is on display with our Q2 non-GAAP operating income, which increased 18% to $85 million and resulted in a 12.2% operating profit margin. Non-GAAP EPS grew 26% to $0.49. Cash from operations year to date is $97 million, up $30 million or 44% from the same period last year. In the quarter, we spent $134 million in total consideration for the acquisition of Blue Microphones. We also paid $114 million in dividends and $10 million in share buyback, leading to a total cash balance of $426 million at the end of September.
Excluding the non-cash impact of ASC 606, working capital metrics and related balance sheet items, inventory, AR, AP, were all in line to historical trends for September quarter. I'm very excited about how we are positioned for the rest of the year. As Bracken had mentioned earlier, we'll keep applying our methodology of resetting, positioning, and investing in each category, depending on their respective life cycle, in order to build over time a portfolio of category leadership and capture the long-term growth opportunities. With that, Bracken, I'll pass it back to you.
Thanks, Vincent. It's a great start to the year, but there's still so much more to come. I really love this time of year. In most of our categories are those who are looking for gifts, and probably like most of you, for their loved ones or maybe just for themselves. We have more to give this year than ever. Astro headsets, Blue Microphones, Jaybird Tarah earphones, MEGABOOM 3, MX Vertical, I could go on and on. They're really for everyone, whether you're a player at home or at work. Anyone who wants to stay connected, and maybe you can even give a video collaboration equipment with AI built into it to your loved one. Might be an odd gift, but we're promoting that.
I'm even more excited about the other new things that we're working on right now that won't be available for this Christmas, but maybe for the next. Now, tariffs, as Vincent said, are on everyone's mind, but we view it as another reality you should just expect us to adjust to, and we are. We're confirming our outlook for fiscal year 2019 for both net sales growth of 9%-11% and for non-GAAP operating income of $325-$335. With that, Vincent and I are ready to take your questions.
At this time, I would like to remind everyone, in order to ask a question, please press star then the number one on your telephone keypad. Your first question comes from the line of Joern Iffert from UBS. Go ahead.
Thanks for taking my questions. Hi.
Hey, Joern. Sure.
The first one would be, please, on the tariffs. You stated there will be a negative impact on the gross profit margin of 50 basis points in the second half. Can you help me to re-engineer the math? What percentage of revenues is impacted by the list? How many products are on the list? Second question would be, please, again, to clarify the gross profit margin. You stated there is a net 50 basis points benefit from the duty refund and the accounting changes. Can you also please highlight what was the benefit of the OpEx? As a third question, please, your supply chain set up, how are you reacting to the tariff risk? Are you already considering to diversify your whole supply chain in the next two to three years? If yes, what do you think will be the cost in the P&L and the CapEx?
Thanks.
Great. Joern, let me take first the number question out of the way, then Bracken will address some of the risk and how we see the diversification of our risk here. In terms of overall tariff, I'd say that for the second half, we're going to have about half a point of unmitigated impact. Obviously, over the long term, we have mitigation plan, but some takes a little bit longer to implement than others. We do not quantify per each product. There's a bunch of codes that are impacted, some that are not. As you know, it goes below the category. It's not one full category that's impacted. Half a point, you can easily, if you want, play a reverse engineer. I wouldn't focus on that.
I would just say that for the second half, built into our guidance, we have half a point built from tariff. That will continue to go down as we progress with our mitigation effort. That's number 1. Secondly, on the gross margin impact from the one-timer this quarter, as you mentioned, and I'll repeat, we have about half a point of a mix of unfavorable and favorable. This quarter, if you take the euro, we traded four, which is a main exchange rate, which we traded at about where it was last year. It's a little bit of a tailwind still. As you know, we commit to a growth in constant currency. That's how we focus developing the business. Everything below into our P&L, we manage in US dollars.
When we have a little bit of favorable tailwind from currency, then we may use it in various ways as long as we meet our profit commitment, which is in US dollars. That currency effect, as you know, if it stays at 115 for the EUR exchange rate, as one example, may move into a tailwind by Q4, but one quarter at a time.
Vincent already talked about some of the short-term impacts, but you also asked about the longer-term impacts over the next two or three years of the effect of a new world of where there are tariffs coming from China. We have a manufacturing strategy in place, and we're always updating that. As we view tariffs as just another impact on our manufacturing strategy. Certainly, we are looking at the supply chain changes in the context of where we are today and where we might be tomorrow. Do I expect that to have a big impact on OpEx? No.
All right. Thanks very much.
Thank you.
Vincent, just to follow up here, to follow up on the gross profit margin, 50 basis points, was this including the FX benefits, or was it excluding the FX benefits? The +50 basis points you were saying for Q2.
Yep. For Q2, excluding the currency benefit, we do not isolate or report the specific currency benefit on the gross margin. As you know, we manage differently, and some of that benefit may be capitalized in our inventory. There's hedging, there's many different dimensions, if you want, that really lead us to drive the gross margin on U.S. dollars. To answer your question, it was excluding the currency benefit.
Shall we think about the gross profit margin as you also indicated this to be one of the key KPIs? Should we expect this to fall back to the midpoint of your guidance between 35%-37% for the second half, or can it stay around 37% for the next two quarters? How should we think about it?
That's a very good question. We manage the business in the long term, still in the long term range of 35%-37%. Operationally, in the first half, we've been on the high end of that range. As you know, normally in Q3 and Q4, your margin tends historically a little bit lower. It would be prudent if you model at the midpoint of that gross margin. Of course, we don't guide a gross margin per se. We manage the business on the bottom line and top line perspective.
All right. Thank you.
Thank you.
Your next question comes from the line of Alexander Duval from Goldman Sachs. Please go ahead. Your line is open.
Yes. Hi, everyone. Many thanks for the question. Alex from Goldman Sachs. Just a couple of quick ones. First of all, on the music side of things, it seemed in sort of the recent or the last quarter as if there'd been potentially need to reset the channel a bit, given some lower price offerings from digital assistants players. You actually stated today that you're seeing some underlying improvements in trends. I wondered if you could give a bit more color on what you're seeing and how confident you are that growth could return. Secondly, just on this China tariffs point, you did obviously mention that you're able to manage these impacts within your prior full year guidance range. I wondered if you could just clarify to what extent you're confident that you're baking in all the potential impacts.
Obviously, there's a lot of complex moving parts, so just trying to understand to what degree you've been conservative on that. Many thanks.
Okay. Let me take the music question, and Vincent will take the tariff question. Yeah, I would say that, you've seen, I think we were pretty clear over the last two quarters, we've been pretty aggressively selling out the old product out of the channel to make sure it's very clean or it's clean as we can make it as we bring in the new product, and that's traditional for us. We did that, as we've done that, now we've started to ship in the new product, and it's a little too early to say exactly what that will do, but we're confident that the new products are very compelling. They're priced well. They're good value, and the feedback has been tremendous. I think this is one of the big quarters for Bluetooth speakers.
Q4 is also pretty big because we go into the summer season when the waterproof speaker is really valuable. I'd say so far so good. I think certainly you'll see improvement versus the last two quarters. Will it go back to growth or strong growth? We don't know yet. We're not banking on that, but we certainly expect a significant improvement.
Good. On tariffs, we started very early actually, Alex. We've been working at it since May and working on the first list and the second one. At this point in time, we know all of the SKUs that are being impacted in our portfolio. We also know the tariff increase in September 24th by about 10%, moving January 1st at 25%. All of that is known. For that, we have our forecast at the SKU level. I can say we have a certain degree of variability there that could impact the number. Then we have our mitigation plan, that's pretty well known. The two things that are less known is, A, the forecast, and secondly, whether or not we're going to act on increased price. We have a forecast that's based on what we know and that always try to leave room for the unknown.
We have a good track record of meeting our forecast. Doesn't mean that it's 100% guaranteed, but we feel pretty good about the model and all of the moving parts in that. The last point I would want to add, you may have heard, at times, that politicians say that maybe the whole imports from China into the U.S. would be under tariff. Of course, that is not currently our working assumption. We work on what we know from an overall score perspective.
Very helpful, many thanks.
Thanks, Alex.
Your next question comes to line of Asiya Merchant from Citigroup. Please go ahead. Your line is open.
Asiya.
Hi, everyone. Hi, congratulations on the results. Quick question. As you think about seasonality into the back half of your fiscal year or into even the holiday season ahead, how do you think about that relative to seasonal norms that you've had? Secondly, EMEA still seems like it's stabilizing but not really growing. When should we expect that region to also post growth? Lastly, related to the seasonal question, macro within China, lots of demand indicators coming through. Clearly, you had a very strong sell-through in Asia Pac. As you look ahead into the quarter, and into the back half of the fiscal 2019, how are you thinking about the demand indicators in China? Thank you.
Asiya, let me first take the modeling linearity kind of question out of the way. Bracken will take the second two questions. In terms of sequential seasonality, which I'm assuming is what you're looking at right now, historically, we've been growing about 20% up from Q2 going into our Q3, calendar Q4. When you look at our forecast for the rest of the year, we are somewhat in line with that seasonality. The two things you need to keep in mind is last year, in Q2, we had bought Astro. This time in Q2 again, we bought Blue Microphones. Those two may skew your historical seasonality. Historical seasonality plus the acquisition of Blue this time is what make our guidance going forward.
The two regional questions, as you mentioned, EMEA is stabilizing and I feel really good about the moves we're making there. We've made a lot of changes structurally, and we're changing some process, and we're also really moving to a lower promotion, higher marketing spending environment, which we're super excited about. Very similar to what we've done in Asia Pacific. It'll probably take a year or two to really fully implement, but I feel very good about it. I think you'll see improvement there. We don't guide on the quarter, so I wouldn't want to say, but I think you'll certainly see improvement there, and we're excited about it. China, everybody's talking about the macro environment in China, and we have a great China business. We had a great China business this quarter. We're very excited about the team we have there, the approach we're executing there.
Our indicators in China continue to be good. I would say it's true that overall the currency is weakened in China. We all know that. We read the same things you do. I guess I'd just say I'm super excited about the team and the operating excellence that we have in China. I think we're going to get the most out of China you could possibly get. So far, so good. We don't see any doom and gloom on the horizon.
For those of you who are modeling here listening to Bracken, China sales is about 10% of our overall sales. That gives you also a magnitude.
I would just add one of the things that you asked, a regional question. Like we're a portfolio of categories with different categories performing at different levels, different times, same thing for the regions. We are very aware of that. We actually like that because as we're resetting EMEA, we've got a really strong AP. AMR is doing fine. I think you'll see the mix does change from time to time. I imagine we'll have a period where EMEA will come back stronger and Asia Pacific will be a little softer than it is, although it's probably still very strong.
Great. Thank you. Then one, if I may follow up, like looking longer term into your fiscal 2020, I know you guys have a $2 EPS out there that you put out at your Analyst Day earlier this year. Things sounded really good. How do you guys think about whether it's China, whether it's just tariffs, GDP growth forecasting lowered, all that, yet you guys continue to execute really well. How do you think about all that as it relates to kind of like a guidance that you've provided for $2 in EPS for 2020? Any changes there?
No, I think there is no change. Every time we deliver a good quarter, Q2 is another one, I'm having many of you asking, can we deliver $2 EPS a little bit earlier? As you know, we're very conservative. We have an operating plan. We march towards that, and we feel after all the good quarters we've had, very strong in terms of delivering the long-term value. They may be in and out, that may change, and some assumption will change, but that's part of the portfolio with so many levers that we have in that.
Yeah, I would also add, as we've talked about many times, and we talked about in the opening today, we're a portfolio of businesses, portfolio of countries around the world, of course, and we have a lot of tools to play. I don't believe we are really hypersensitive to modest changes in the economic environments around the world. We're much more in control of our own destiny, especially with our growth plan, where we can serially enter new categories when we have opportunities. We do have opportunities to do that. Of course, if there's a massive slowdown around the world, that'll affect everybody. Generally speaking, we control our own destiny.
Great. Thank you. Congratulations again.
Thank you.
Our next question comes from the line of Thomas Forte from D.A. Davidson. Please go ahead. Your line is open.
Hey, Thomas.
Great. Thanks. Wanted to ask two questions, one on tariffs and one on esports M&A.
Sure.
On the tariff front, given your leadership position in the categories that you operate in, we would imagine you'd have the ability to adjust price if necessary, use that as one of the levers to offset potential pressure. On esports, definitely seems like it's becoming more mainstream. You can see Ninja on Samsung ads on Sunday Night Football, you've made two, what we think are excellent acquisitions with Astro and Blue Microphones. How should we think about your M&A strategy going forward for gaming?
Okay. I'll try to answer both those. You're right. I opened with category leadership, if you're a category leader, you should have the opportunity to have some pricing leverage, we think we do. Now, we're not going to be irresponsible with that either. We're about creating value for consumers. We'll do that in the right way. We have experience driving pricing around the world. We've priced many times, repriced, raised price in both Asia-Pacific and EMEA, not as often in the U.S. Yeah, we should have pricing leverage where we need to. From an esports standpoint, thank you for the comments on the two acquisitions. We're obviously super excited about both of those. We completely believe in the rise of esports and feel it's really at the very beginning.
Our M&A plans, we of course, don't share anything, but we're always looking at many things, and we're looking at many things right now.
Great. Thank you for taking my questions.
Thank you.
Your next question comes from the line of Michael Foeth from Vontobel. Please go ahead. Your line is open.
Hey, Michael.
Hey, Michael.
Yes. Hi. How are you? Just two questions on, smart home is obviously a small category, but you've been talking about category leadership, I was wondering, the sharp decline there, what is the source of that, possibly the Circle cameras. How do you react to a situation where you sort of are losing out and maybe not the leader in the category? That would be the first question.
Sure.
The second question is regarding EMEA again, if you can be more specific what is really behind the relative weakness or which categories are behind relative weakness, that would be helpful. If you're seeing any changes in consumer behavior in the large European countries. Thank you.
Okay. On the smart home, there are two different things going on there. You mentioned Circle camera. It's tiny for us. As I opened, I said, we want to be either the leader in the category at large, or we want to be a leader in a thing that we think of as the category at small, which is a subset of the category that we feel like we can really lead. We're working on that, and I can't disclose more than that except to say that we'll see. It's really small, so I wouldn't get too excited about whatever Circle is. From a Harmony standpoint, which is the remote control business, that one is a good example of what you do in a category leadership context when the category itself, it continues to go down. What are we doing there? We're consolidating.
We're really reducing the number of SKUs that we have. We're reducing our overall OpEx spend there so we can reallocate to where we think there's growth, and we'll have a good profitable business there for whatever it is. It'll be resized by the time we get to the other end. You may remember when Vincent and I first started working together, we did this a couple different times, and this is part of the deal here. It's part of our strategy. In EMEA, I wouldn't point to a single category. I think this is really across the board. We are really changing our approach to Europe, looking ahead two or three years.
We're really taking a lot of the playbook that we took from Asia-Pacific, which moved very strongly online and is a good combination of great online marketing and good offline marketing, and we're applying the same model into EMEA. I think it's going to take a few years to really see the benefits of that. I think the growth will come back faster than that, but the real benefits, though, will come later. I'm excited about it, so I wouldn't point to a single category, and I'm not concerned about Europe. I feel like we're really doing the right things, and I feel very good about the steps we're taking. I think the results will come relatively soon.
Thanks.
Okay. Thanks.
Your next question comes from the line of Paul Chung from JPMorgan. Please go ahead. Your line is open.
Hey, Paul.
Hey, Paul.
Hey, how's it going? Thanks for taking my question. First up on keyboards, you've been driving pretty impressive growth over the past three quarters. Can you just expand on what's driving the strength there? I assume the MX lines are lifting overall ASP somewhat, but could you talk about unit shipment trends, market share dynamics, channel strategy? That would be helpful.
Sure. The keyboard and combo business for us has been a strength for years, and it continues to be, and we keep innovating there. We launched a new living room keyboard this quarter, as you probably know, and that's a great product. The MX products continue to do well. We've got the signature product at the very high end, which is Craft. I would just say, generally across the board, our innovation is doing well there. We continue to, generally speaking, hold or gain share in the major markets, and we still have opportunities to gain share in all those PC categories, believe it or not. When I look at some of our share trends in some places, especially at the low end here and there, we should be doing better. Yeah, I think our keyboard and combo business will continue to be good.
Okay. Second question is on Blue Microphone. What triggered you to take action in this market, and any details on margins, channel overlap, that would be helpful as well.
One of the things that we've talked about before is that we're always working on categories, and usually secretly. We've got several categories in development all the time. One of those, I was pretty overt about that, I think, in the last call. One of those was a microphone. We were very interested in this category. Now, when we start to work in a category, we have teams working on products and understanding the category and the category dynamics. At the same time, we take a hard look from an M&A standpoint, where we think we can either accelerate something we're doing or differentiate it or even replace it entirely.
Blue Microphone was a wonderful example of being able to really completely replace what we were doing and take a big leap into the category, a category that we already felt like we've started to understand well enough to play. That's the story there. As I said, we're really excited about it.
I would say that the same levers that applied to Astro will be at play here.
Absolutely
From launching new product, expanding into international, new regions, expanding into new distribution channels, and building up the portfolio overall. From a gross margin perspective, we don't talk about gross margin by category, but it's accretive to our overall corporate gross margin.
I guess the point I was trying to make is, we would've gone into this category regardless. Just like.
Yeah
We went into video conferencing or we went into Bluetooth speakers. We would've gone into this category regardless. This acquisition enabled us to go faster. A lot faster.
Okay, great. My last question is, I just want to hear your take on Google Project Stream. I assume Logitech may benefit if this service does take off, if console gamers may migrate to PCs. Curious to hear your take, and then what was Astro's contribution in the quarter? Thank you.
Well, first of all, you could expand that to Google, Amazon, really all the big players. Anybody who's out there providing a platform for streaming or a platform for gaming, or even beyond, just streaming in general, it's good for us because that's our business. We really view ourselves as enabling these large platforms and the users who love them and want to try them. It's great for us. We're super excited about it. Twitch has been fantastic for us, and YouTube is actually fantastic for us, too. I'd say it's just another good one.
On Astro's size, we don't split gaming. Astro, this is the fifth quarter fully in our overall baseline. The only quantifying number I said is we tripled the size of the business. It's a good contributor of the overall gaming growth that we've reported.
Thank you so much.
Thank you, Paul.
Your next question comes from the line of Juergen Wagner from MainFirst Bank. Please go ahead, your line is open.
Hi, Juergen.
Yeah, hi. Thank you for letting me on.
Absolutely.
You mentioned that PC peripherals is a broad-based strength, you also mentioned that explained us why keyboard is doing so well, but do you see any impact from the current processor shortage? In previous calls, you indicated the PC peripheral segment as a whole to be flattish, plus or minus. Now you are well above. Should we then see somewhat a leveling off until year-end? Thank you.
Yeah, I'll respond to the first part. I'll let Vincent respond to the second since it's kind of a modeling question. The processor shortage has been talked about a lot, and I'm just continually amazed by how well our team in operations has done to manage our business in the context of that. I do hear about other companies with big cost problems, and it is costing us more, by the way. With big cost problems coming out of these various shortages of these very small components that never seemed particularly impactful before and suddenly are. We just have a great operations team that's managed that really well and it hasn't been a big impact for us, and I don't think it will be.
If I can comment, if you're really thinking about Intel shortages or other big shortages in terms of impacting the PC units being shipped into the market, I want to just remind you that we look at the install base as really the addressable market for us, and I don't think those shortages in the short term will impact the install base to impact the peripheral indirectly. That's the main one. I don't remember if there was another question.
It was PC-
Overall guidance. Absolutely, it's an important one. As you know, we've provided an outlook for our PC peripheral overall to be low single digits. I wouldn't change that. Obviously, every quarter we'll try to do out better. We'll introduce new products, we'll optimize our sales performance. We've delivered the results that you've seen. We'll continue with the prudent and conservative approach of planning this at what we see, which is a low single digit. Hopefully, we'll continue to do better in that environment.
Okay. Thank you.
Thanks, Juergen.
Your next question comes from the line of Ananda Baruah from Loop Capital. Please go ahead, your line is open.
Hey, good morning, guys.
Good morning.
How are you? I appreciate you guys taking the question. Yeah, congrats on solid results.
Thank you.
A couple from me, if I could. Just going back to tariffs, Bracken, it sounded like you were communicating that you don't expect it to be material based on current news. Any further detail you can give. Vincent, you mentioned the plan you guys are looking at. Any detail you can give with regards to how much of that is related to just utilizing current supply chain as it is, versus introducing new things to the supply chain that may not exist today or previously existed, just to get some sense of the structural nature of the impact? I have a follow-up on that, too.
Hey, Ananda. The quantified amount we said is manageable within our current outlook. In the long term, I know you followed us at the time, right? It's like currency movement and other things. In the long term, the structural move will be built into the business model, and we'll be able to absorb it. It does include moving some production location. We don't want to give too much detail. We're still working the plan. We've started in May, and it will continue all the way into the next calendar year. We have multiple activities that would change, structurally, the supply chain and build actually a more diversified supply chain, and therefore making the company more robust.
It does not call, at this point in time, any material change in CapEx in terms of investments. That's the extent of the plan, I guess.
I would just add, Ananda, one of the core capabilities of Logitech from a supply chain perspective has always been the ability to move our manufacturing in and out of our own factory. That includes in and out of other people's factories, if we happen to be contract manufacturing with other people in China. That's exactly what this is about. When and if we need to move a product line out, in this case, out of China entirely, we're more than capable of doing that. We've got the teams to do it, the staffing to do it, and we have lots of experience doing it. We do it, in fact, all the time.
Bracken, this is what I was sort of indirectly teasing at. Is this the advantage of having, I think, what you've referred to in the past as a modularized manufacturing kind of structure in intraplant? Is that sort of at play here as well? Is that part of it?
Well, I do think it's an advantage to have both your own manufacturing and external manufacturing in your past so that you have a lot of experience moving. We do have a lot of experience moving, and even surprises me, and it surprised me the first couple of years I was here, how easily and how quickly we could move a manufacturing line out of our factory or out of somebody's factory and into another one without any glitch at all. I think that is an advantage.
Okay, that's great. Just quick follow-up, I may have missed this earlier, the gaming revenue, it seems like gaming might be getting stronger. It's tough because the compares are so big, and they do move a bit, but I think you put up mid-forties growth off of a mid-forties compare or something like that, which is significantly higher than kind of run rate. Just context around that, do you feel like you're continuing to see the category strengthen? If not the category strengthen, do you think that you're continuing to see your core positioning within the category strengthening so that your sort of normalized growth is accelerating there? Thanks.
Well, I think the category continues to be super strong. I think we're doing well in those categories. The nice thing about our story is, boy, we could be doing better. There are areas in our business, and they're not small, two or three, that I think, gosh, we should be really outperforming where we are. We're really doubling down on the innovation there to see if we can put ourselves in a place to do that. I don't know whether I would say it's accelerating or it's certainly not decelerating, I do think our opportunity there looks big and sustainable.
That's great. Thanks a lot. I'll see you before. Thanks, guys.
Thank you.
Thanks, Ananda.
There are no further questions at this time. I will now turn the call over to Bracken Darrell, CEO, for closing remarks.
Okay, well, I want to thank all of you for joining us. Thanks for the call. Make sure to go out, the holidays are approaching. Buy lots of our stuff. We'll talk to you in January.
Thank you.
This concludes today's conference call. You may now disconnect.