Logitech Looms Large in Living Room Rumble

The gadget maker may be a cheaper bet than Apple or Microsoft.
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Electronics device maker

Logitech

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has stepped up its chase for the digital wave.

Last Friday, Logitech unveiled a wireless mouse that lets people scroll through their music and video collections stored on their computers by waving the device in the air. This gives people the freedom to switch songs, display digital photo albums or run a movie while lying in bed or sitting in a chair on the other side of the room.

The new device, which sells for $150, underscores Logitech's push into the market for high-end tech goods craved by gadget enthusiasts and affluent consumers whose home entertainment increasingly relies on digital downloads.

Logitech also has a commanding share of the market for high-end television remote controls. The company recently launched the $129 Harmony controller that operates up to 15 devices, including stereos,

Microsoft's

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Xbox and home lighting. "Logitech is leading the charge in connecting people to digital content on the devices they own," says Pacific Crest analyst Andy Hargreaves. "They're at the forefront of the digital living room."

Perhaps more importantly, affluent consumers with high-tech entertainment needs could help prop up sales if a broader slowdown in consumer spending dents sales of Logitech's mass market portable music players, ear pieces and webcams.

Buyers of devices are not just the affluent but also their children who have saved money for big-ticket purchases. Both groups are more insulated from swings in interest rates and energy prices than average consumers, says Trevisani.

"Logitech's very much a play on the whole move toward doing more with PCs, gaming and digitization of entertainment," said Wendy Trevisani, co-manager of the Thornburg International Value Portfolio, which holds Logitech shares. "Some of their products are priced at a premium, but not so high that they require spousal consent."

Logitech isn't alone among tech device makers in pursuing affluent customers who want convenient access to digital music and video files.

Apple's

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$299 television set-top box lets people use their living room television to play music and movies and display photos stored on PCs or to download them from its iTunes Internet site.

Hewlett-Packard

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makes a flat-screen TV that pulls up movies, photos and music files directly from PCs or the Internet.

And Microsoft's $479 Xbox game video console lets users stream music playlists and display digital photos from their PCs to their living room televisions.

Logitech's MX Air Mouse uses a special sensor, a laser and radio frequencies so that people can open computer files or surf the web without resting the mouse on a surface.

In a statement, Logitech touted the devices as the solution for "anyone who has listened to music on their PC and been frustrated by having to return to the desk to change songs or volume."

Earlier air mouse models were the primary growth engine of Logitech's cordless devices business unit in the last fiscal year. Cordless device sales grew 17% to $526 million, accounting for one-quarter of total revenue. Mouse sales, which rose 25%, accounted for the bulk of cordless sales.

Remote control sales -- which made up about 5% of total revenue -- grew 60%.

Logitech's sales are tightly correlated to sales of PCs, high-definition televisions and broadband subscriptions, says Pacific Crest's Hargreaves. He expects cordless sales to grow 13% and remote control sales to grow 35%.

Pacific Crest doesn't perform investment banking services for Logitech.

Thornburg's Trevisani expects Logitech to continue its string of double-digit revenue growth and to protect its margins with low-cost manufacturing in China and Taiwan. The company shoots for gross margins of 32% to 34%, a target range it has hit or exceeded in previous years.

Its stock trades at about 20 times expected earnings per share for 2007. That ratio drops down to 18 next year and 16 in 2009, making Logitech look underappreciated among companies poised to grow from the trend toward digital entertainment. Shares of Apple, for instance, trade at 33 times expected 2008 earnings.

Provided the company maintains its pace of product introductions and reassures investors that it can fend off low-cost competitors, Trevisani says Logitech shares can appreciate 25% to 30% over the next two years.

Shares of Logitech were recently off 26 cents, or 0.9%, to $28.15.