Logitech Bends to Economy's Ill Winds

Logitech (Nasdaq: LOGI) is retreating from its fiscal 2009 forecast and preparing to trim about 15 percent of its global workforce in preparation for what is looking to be a grim retail year.

The Switzerland-based company employs 9,000 workers and manufactures mice, webcams and other computer peripherals. Demand for such devices has taken a nosedive as both companies and consumers have retrenched on nondiscretionary spending.

In October, Logitech's forecast for the year called for sales growth of 6 percent to 8 percent and operating income growth of 3 percent to 5 percent. Any hopes of meeting those goals were dashed in December, when the retail environment significantly deteriorated. The company is expecting it to worsen even further in the coming months and is taking steps to recalibrate its cost structure to survive an extended downturn.

Logitech will release its revised targets during its Q3 earnings briefing, scheduled for Jan. 20.

The restructuring charge for the reduction in staff will be announced in the third quarter and booked in fiscal Q4. By fiscal 2010, the company expects that savings from the job cuts will begin to show. Meanwhile, it has a strong cash position and no debt, and it is maintaining its market share, according to CEO Gerard Quindlen.

Harder Times

Logitech's moves come as no surprise. "I think that most every PC and peripheral maker and vendor that makes computer products -- for the consumer industry, in particular -- is preparing for hard times this year," Charles King, principal with Pund-IT, told the E-Commerce Times.

The holiday season just passed will likely prove to have been the tipping point for many of these companies, he continued. "Retail sales were dreadful, and the first six months of this year I would expect economic turmoil to continue."

"So companies that are heavily exposed to these trends are looking for ways to save money -- and, unfortunately, layoffs like this will be common over the next few weeks or months."

Trouble in the Sector

Indeed, Logitech is not the only tech company pulling back. Sony (NYSE: SNE) and Motorola (NYSE: MOT) also recently indicated that 2009 will be a challenging year, noted Frederic Ruffy, senior options strategist at WhatsTrading.com, told the E-Commerce Times.

Yet it doesn't appear as though investors are down on the entire computer hardware and equipment industry. "Computer stocks are trading mostly higher," said Ruffy, "with companies like EMC (NYSE: EMC), Qualcomm (Nasdaq: QCOM) and Dell (Nasdaq: DELL) trading higher Tuesday."

Logitech, however, fell by US$1.71 to $14.40 after the company's announcement. It might have been worse though, Ruffy said. On Monday, there was a flurry of suspicious trading in the company's options -- nine times average daily levels -- suggesting that the news might have been leaked in advance.