Introduction
The firm from Apples in Switzerland provides PC peripheral products, including stand-alone products (e.g. keyboards, mouses, webcams, audio-equipment (including headsets and speakers), gaming devices and remote controls for various purposes) and supplementary components for various high-tech uses. Logitech products are sold worldwide through a well maintained distribution network. With the introduction of tablets, tactile screens and the slowdown in PC sales, Logitech is exposed to numerous challenges.
Furthermore, their product design no longer corresponds to fast changing consumer requirements. It’s been several years since Logitech has launched a new blockbuster product which would increase its sales and reinforce its market recognition.
Strengths and weaknesses analysis / Fundamental analysis
Strengths:
- Logitech maintains a well-defined and broad retail distribution network which gives the firm a competitive edge over rivals when introducing new products as it can do so in a fast and efficient manner,
- Logitech has around USD 300M in net cash, which the company could use for the development and launch of a new product,
- This net cash amount (about 40% of its present market valuation) offers investors a conditional guarantee that the share price will not slip further. Hence, based on the present share price, Logitech could be considered by investors as a “Deep-Value” stock,
- Logitech has a gross margin of 33% , this ratio has been fairly stable since 2009,
- Logitech produces peripherals for Tablets and Fablets; a niche-market, which Samsung and Sony have given up and Apple never entered.
Weaknesses:
- Logitech is engaged in a market in which a deep restructuring process is about to start. The company no longer has any star-products to show-off and impress the competition and public. Hence it is becoming a take-over target and due to lacking product penetration the take-over price will be below the estimated fair-value,
- While the sector has recovered well from the 2007/2008 slowdown and increased sales and profits, the sales of Logitech have remained flat over the last 5 years and its EBIT margins have come down to 3%. This figure is far too low for an IT company,
- Whatever Logitech does, the product cycles are now shorter than ever; which makes it more difficult to properly amortize any development and reach the profitability threshold in time. The most recent mobile products offer built-in webcams, keyboard and if still required, mouses can be delivered for free. Therefore, the products of Logitech are no longer part of the initial product chain.
Investment opportunity / Portfolio management:
Operational risks: Very high with little short and long-term visibility
Expected growth: Very low
Investment orientation: « Best-in-Class », Deep-Value