Have
Logitech (Nasdaq: LOGI) investors lost their
minds?
The Swiss superstar of computer peripherals manufacturing
reported first half results yesterday evening and -- well, I
guess I see
someroom for optimism here. After
badly misreadingthe gravity of
the economic downturn
earlier this year, Logitech has finally moved to slash
inventories and get its free cash flowing again. Inventories
dropped 26% year over year, or almost as fast as sales
plummeted (down 30%.)
The liquidation of unsold merchandise has unleashed a
torrent of tied-up cash, with the result that Logitech
generated nearly $115 million in free cash flow through the
end of the fiscal year's first half, and the company's
warchest now brims with $525 million in cash (versus no
long-term debt).
And yes, all this stands in stark contrast to the report's
"headline numbers," which paint the otherwise bleak-seeming
picture of sales falling fast, and gross margins falling
faster (they gave up 630 basis points to end at 27.9%.)
Call it a hunch, though, but I suspect the real reason
Logitech shares fared so well today is partially thanks to
investor optimism over the release of
Windows 7.
Microsoft 's (Nasdaq: MSFT) new operating
system
doespromise a shot in the arm to computer hardware
sales. Hopes of a large PC upgrade cycle have helped propel
shares of computer "brains" maker
Intel (Nasdaq: INTC), and I wouldn't be
surprised to see PC sales surge at retailers
Best Buy (NYSE: BBY),
Amazon.com (Nasdaq: AMZN) and
hhgregg (NYSE: HGG), now that consumers have
a reason to unleash their pent-up demand.
Illogical optimism
But how much of that enthusiasm will transfer to
Logitech'sproducts? I don't know about you, but when
Ibuy a brand new computer system -- whether ordering
from an established computer marker like
Hewlett-Packard (NYSE: HPQ) online (as I did
this week) or at a big-box retailer like Best Buy (as I did
last year), I tend to buy a unified system assembled by a
single manufacturer. It's only months or years later that,
disillusioned with failing parts, I begin tricking out the
new PC with a few peripheral upgrades.
Foolish takeaway
Granted, when I
dodecide to replace the comp's original keyboard or
mouse, or add on a webcam, Logitech is generally my first
choice for quality and value -- but remember, this is months
or years down the road. In contrast, investors bidding up
Logitech shares 4% today seem to be implicitly betting that a
near-term surgein sales will follow the Windows
release.
Is that
a good bet? Or have investors gotten illogically
exuberant about Logitech? Scroll down, and sound off.
This article was originally published as
Can Microsoft Save Logitech?on
Fool.com
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