Earlier this week, the peripherals giant blew away its June quarter estimates, while reporting annual revenue growth accelerated to 23% in dollars from a March quarter clip of 7%. Demand grew for PC keyboards and iPad accessories, and it soared for gaming accessories (up 35%), videoconferencing hardware (up 77%), PC webcams (up 116% in spite of supply shortages) and Logitech’s Blue Microphones unit (up 50% in spite of shortages).
Logitech also raised its fiscal 2021 (ends in March 2021) revenue guidance, albeit a little less than some were hoping in light of its June quarter performance. The company now forecasts 10% to 13% constant-currency revenue growth, up from a prior outlook of mid-single digit growth, while cautioning that it could see demand moderate during the second half of the year due to macro headwinds and some potential pull-forward of gaming product sales.
Following Logitech’s report, I once more talked with CEO Bracken Darrell about near-term demand trends and Logitech’s strategic thinking (a January 2020 interview can be found here, and a July 2019 interview can be found here). Here’s what he shared, slightly edited for clarity.
Which parts of Logitech’s videoconferencing business did well last quarter, and whether recent trends have led it to rethink anything for the business in terms of R&D investments or product strategy.
"All of our products did really well. We really had a strong quarter, from our conference cams like MeetUp, all the way down to our personal video cameras like the one I'm on, which is called BRIO, and even our headset. And so we just across the board had very very strong demand. In terms of really rethinking our product strategy, I would say I think there's nothing...that's happened now that’s really having us rethink something. But it certainly has given us a lot more conviction around the investments we're making so you [will] see us continue to come out and do things...I think what's really happening is it's just accelerated a lot of what we were already working on."
Which gaming products Logitech is seeing particularly strong demand for right now, and how it sees Microsoft and Sony’s upcoming game console refreshes affecting peripherals demand.
“Well I would say in gaming we saw strength in a lot of different areas. Astro, for example, we really sold out of our headsets. We just had trouble keeping up with the demand there. Our wireless devices also sold out...we [now] have better supply. There’s been a lot of strength as to gaming in general.”
“I think when you look ahead to the console upgrade cycle that is coming. Whether it’s Astro or the G29 [racing wheel/pedals]...traditionally, we thought of the console upgrade cycle as a period of slowdown. You know, because ahead of the upgrade, people would not know whether the old thing was going to be compatible with the new thing...the [upgrading] people would slow down, not buy anything related to the peripheral, wait until the new [console] came out, see how the thing that came with it work, then buy something.
“But what's happening now is, at least in the case of Microsoft and it's rumored to be true for Sony, you're going to have forward compatibility. Whatever you buy is going to work, if you buy it now it's going to work with the new console too, not only the old one. So that is probably really helpful, maybe one of the reasons why there's...so much strength on the console side, even going into an upgrade cycle.”
Whether Logitech is potentially seeing demand pulled forward for businesses other than gaming products.
“It’s so hard to judge right now, you know, because it’s not a normal time. So it may be that we’re wrong, there isn’t a pull-forward going on. Maybe there is a pull-forward, it's really hard to say. The most seasonal [businesses] we have are gaming and music, and music certainly doesn’t have any pull-forward, because it's down significantly just because the retail places where it's sold are really closed, so you don't have much there. But in terms of gaming, yeah, that would be the only one I could really think of. There's a little bit of seasonality in the rest of the business, but that's the big one.”
Whether remote work activity has driven a mix shift towards higher-end keyboards and mice.
“You know, I wouldn’t have thought we’d see a big shift to higher-end products in this COVID-19 lockdown period, but we really did, and it was very broad...We saw very broad sales activity. Now, we are seeing big strength on our MX products which are premium -- Keys and Master 3. We're also seeing strength in the Ergo products...which are premium products. So I think what's likely to happen is you're going to have that come into the next wave, where once somebody gets set up with a keyboard and mouse, they're going to look for something better once they realize they're going to be there for a long period of time.”
The strong demand that Logitech is seeing in the Asia-Pac region, where its sales rose 31% last quarter, and whether it will continue growing faster than Logitech overall this quarter.
"I don't know if it'll be above Logitech’s total growth, but I think Asia-Pac will probably have a good quarter. We mentioned on the call we see good demand there, and so far in this quarter we see demand that looks a lot like last quarter’s. That's across the board. In terms of specific products, it's very widespread, and we had a good PC business much like we did the rest of the world, a good gaming because like the rest of the world. Mice did even better in China, I think, than they did in the rest of the world, and keyboards did well. So I think it's very consistent."
Whether Logitech thinks U.S. stimulus benefits provided a sales boost last quarter.
"You know, it's really hard to say. I don't think that was the big driver of our demand. I think it may have had an impact, as you would expect. I think the bigger driver was just the necessity of being home and needing to work from home, that necessity almost gave you no option but to make sure you have the basic products you need...A lot of people still aren't there with having exactly what they think they need, so still that's why the demand is still coming. I think companies are also funding some of this. They're saying. ‘Hey, you know, we want you to be there.’
"I think Google offered some kind of a program, we offer [a] program. A lot of companies are saying, ‘Hey, go spend some money to get yourself set up.’ I don't think that’ll be a one-time thing either....You’ve got to have the tools to trade, to be able to do the job.”
Logitech’s openness to launching new product lines for content creators, to complement Blue Microphones and its Streamlabs game-streaming software/services unit.
“Absolutely. We're always working on new product lines, new categories. A lot of them never make it out of the labs, so to speak. We develop them, we develop with customers...we either launch them, or we acquire something that replaces them. But we're always working on stuff. We certainly would be willing to go into new categories around content creation, digital content creation.”
If Logitech’s sales mix shift towards e-commerce could provide a margin boost going forward, by lowering its promotional spending needs.
"Our margin structure, offline or online, [is] quite similar. It’s not like we get an automatic mix benefit or margin benefit by going online. In terms of [higher e-commerce sales] potentially producing promotion… it could be. You know, promotion is driven more by the intensity of what's happening in the marketplace than it is by the channel. So if there's a lot of competition, there tends to be a little more promotion. If there's a sluggish demand picture because you have to start thinking about the category, then there tends to be more promotion.
“I think so far we have upped promotion because there was so much demand that we didn't have the intensity of competitive dynamics…[But] we were very engaged in our categories. We think as we get into the back half, even into the next quarter, you’ll start to see promotion come back a little bit as our supply gets better. But we'll see....We don't want to promote any more than we have to, so we'll try and keep it as low as we can, but I’m sure it will come back some.”
Whether -- at a time when Apple (AAPL) - Get Report has improved its game controller support for iOS devices and Microsoft (MSFT) - Get Report is initially launching its xCloud gaming service for Android phones and tablets -- Logitech sees an opportunity to develop new peripherals for mobile gamers.
“Yeah...We have experimented a couple times with supporting [mobile] gaming, especially on tablets, and we never really got something that really worked well enough from our standpoint to offer a big benefit...In the early days, even for phones, we had a little controller that was codenamed Mushroom inside of our company. And it kind of mushroomed into nothing. We launched it with the iPhone 5 and it never really caught on, because it didn't offer enough benefit to the user. You put your phone inside of it and then you play with, like, controllers.
“But I think that's an area that we won't ever stop looking at, because I do think more and more people are playing games on more and more platforms. And the iPad or the tablets and Chromebooks for sure are both great, great gaming...platforms. So we'll keep looking at it. We don't have anything yet [for] Apple you can look at. Some of our products work with Chromebooks, though."