Q3 2023 Logitech International SA Earnings Call
Reminder, during this call we will make forward looking statements, including with respect to future operating results under the Safe Harbor of the private Securities Litigation Reform Act of 1090 fives.
We're making these statements based on our views only as of today, our actual results could differ materially we undertake no obligation to update or revise any of these statements. We will also discuss non-GAAP financial results and you can find a reconciliation between non-GAAP and GAAP results and information about our use of non-GAAP measures and factors that could impact.
Financial results and forward looking statements in our press release and in our filings with the SEC, including our most recent annual report and subsequent filings. These.
These materials as well as our prepared remarks and slides and a webcast of this call will all be available at the Investor Relations page of our website.
We encourage you to review these materials carefully and unless otherwise noted comparisons between periods are year over year and in constant currency and sales our net sales.
And finally this call is being recorded and will be available for replay on our website.
And with that I will now turn the call over to Bracken good morning Bracken.
Morning.
Thanks to all of you for joining us as.
As you saw our credit us with our third quarter results were disappointing.
Enterprise demand deteriorated versus last quarter, and consumer purchases were soft and more concentrated during promotional weeks those typical.
Those factors could pressured our net sales and gross margins and resulted in a revised fiscal year 'twenty three outlook.
I discussed for the past few quarters, the ongoing macroeconomic and geopolitical challenges impacting logistic and the world.
A strong dollar global inflation and low consumer confidence continue.
In the midst of these we focused on what we can control.
Product innovation.
A strong go to market strategy and disciplined P&L management.
So what changed during Q3 with pressured our results.
First our enterprise demand declines RBC, our BC business had delivered consecutive quarters of 7% growth we fell 16% this quarter.
You all have read the headlines Google Amazon, Microsoft banks, and other businesses have announced layoffs and cost containment actions.
Initially resilient in the face of pressured macro conditions businesses are increasingly cautious in their spending given the economic volatility uncertainty and of course that is impacting our enterprise business too.
The second change in this quarter was a shift in our consumer purchasing patterns.
<unk> sales remained weak.
And importantly of those consumers that did buy these purchases were concentrated in talk with higher promotional intensity, resulting in lower sales and pressured margins.
While current macroeconomic conditions and even the variables are changing with third quarter arc going away this quarter.
Don't impact our view of the long term potential of this business.
We remain committed to the long term growth trends strong market strategy the markets and the business models. We have in place over time I fully expect us to return to more predictable less volatile economic conditions and I believe is to support business investments rising consumer confidence sustained growth at logitech.
Because if we if we look beyond the whipsaw of the daily headlines I'm actually struck by what Hasnt changed.
While the pace of return to office remains uneven hybrid work is inevitable.
<unk> approach to return to the office has been different across industries and geographies.
I hear a familiar story from Ceos and customers across industries.
Still working to determine what hybrid model works best for their teams.
<unk> is no different with.
We're relocating and redesigning buildings in the Bay area and across the globe focused on a hybrid work environment.
As companies settle out on their definitions of hybrid work, we should see investment in personal workspaces and collaboration rooms.
This investment will happen.
Just a question of timing.
Product innovation matters more than ever the winners will have great products, that's why we keep investing.
We're also diversifying the asps in our portfolio through innovation across our categories.
Our oldest business supporting devices had asps, 25% higher this quarter than four years ago as we systematically expanded the category in a new segments with differentiated features.
This is obviously by design, making sure we have category defining products across a broad range of base fees as our goal.
Innovation requires investment and R&D investment this quarter was up 50% more than we invested in Q3 2020.
Few companies have the financial resources, and the management discipline to sustained investment in product development during challenging times, while driving efficiency at the same time.
We continue to press that advantage and are enhancing our product portfolio.
The big durable trends, we've been highlighting video everywhere hybrid work the explosion of gaming and content creation continue to move ahead.
People today want to work play anywhere and we believe that our products will be a great enabler of this trend.
Let me provide a little more perspective on this quarter's performance.
I mentioned consumer spending was weak in the quarter and it was with sell through excluding currency and our prior business in Russia, and Ukraine only declined mid single digits.
We grew market share in gaming video collaboration pointing devices and tablet keyboards.
And video collaboration while the number of Comverse can meet its declined year over year, we continued to drive asps per room higher.
The mix of our copper tube sales are skewing to higher end cameras and the attach rate of accessories and services to our competition cap sales is growing which drives our sales revenue per room higher.
Evidenced that our strategy of developing integrated room systems is working.
The innkeepers and MISO continue to gain share in the fast growing high end of the market.
So what can you expect from us in the near term.
You should expect us to operate in a conservative disciplined manner consistent with the last few quarters.
Namely we.
We will focus on decreasing our expenses.
We plan to reduce operating expenses by $150 million.
Our 11% by the end of fiscal year 'twenty three.
We're on track to well exceed that goal.
For Q3, Opex was down 23%.
You've watched us be aggressive on our opex as we saw a market weakened and you can expect us to continue to manage our cost based on market conditions.
We will continue to invest in product development customer.
Customer needs are evolving quickly, we have the engineering and design expertise customer insights with financial flexibility to bring new products to market to meet this demand and to accelerate refresh cycles.
And we will lean into our global operations and go to market capabilities.
One final note before I hand, it over to Nate <unk>.
First regarding our CFO search or search is progressing well, but we don't have an update to share with you today.
Second I am really pleased to announce our current head of global operations and sustainability for cash or <unk> has been appointed Chief operating officer here at Logitech.
For cash has been here for close to seven years and is a frequent presenter at our annual annual analyst and Investor day. So many of you already know in.
In this newly created role for cost will be one of my key partners and making sure we're structured strategically and operationally for the short and long term road ahead.
With that I will hand, it to <unk> to provide some additional color on our results. Thanks Nate.
Thanks, Bracken Hello, everyone. Let me walk you through the quarter in more detail. Our Q3 results were impacted by a challenging macro environment net.
Net sales were down 17% to $1 $2 7 billion.
This reflects consumer purchasing concentrated.
And promotional weeks throughout the quarter and lower enterprise and consumer spending.
Gross margin decreased versus last year to 37, 9%.
Versus the prior year currency was unfavorable three points promotions were also unfavorable three points and cost inflation was unfavorable two points.
These eight points of headwinds were partially offset through our pricing actions and by driving down our use of expedited shipping.
Operating profit was $204 million, reflecting lower demand in gross margin pressure, partially offset by reductions in operating expense.
Cash flow from operations was $280 million in Q3, and cash flow is up $118 million year to date versus last year.
Turning to the results across our product categories gaming was down 10% growth in our stimulation products was essentially flat.
And more than offset by declines in PC and console gaming.
Asia Pacific was down only modestly while Americas and Europe remained pressured <unk>.
Despite these declines we gained market share in nearly all gaming categories.
The largest negative swing in our portfolio versus last quarter wasn't video collaboration which was down 16% after posting consecutive quarters of 7% growth.
Video conference from cameras, and peripherals declined single digits, but we gained share and business oriented webcams were down more than 40%.
Pointing devices were down 8% driven by pressure in the low end of our portfolio, but we grew market share in total pointing devices.
Keyboards, and combos net sales declined 17% with gains in the high end of the market offset by losses in the low end of the market.
In consumer webcams were down nearly 50% year over year.
Turning to expenses.
System with last quarter, we reduced our opex, which was down 23% versus last year.
As Bracken mentioned earlier, we remain committed to investing in product design and development to strengthen our category leadership.
And while R&D was down modestly versus last year, the $63 million, we invested in R&D in Q3 is more than 50% higher than our R&D investment level, just three years ago.
In Q1 of this fiscal year, we communicated our plan to reduce our annual operating expenses by $150 million versus last year.
And we achieved that goal this quarter one quarter ahead of schedule.
Now expect that for the full year, we will reduce operating expenses by approximately $215 million or 15% versus last year.
We will continue to focus on finding efficiencies throughout the organization as we manage our cost based on market conditions.
We ended the quarter with a cash balance of more than $1 billion and continued our strong share buyback program, returning $90 million to shareholders in the quarter.
We revised our financial outlook for FY2023 based on three items.
Softer than expected third quarter results enterprise and consumer demand, which may remain weaker than we previously expected.
And uncertainty in supply availability related to the recent COVID-19 outbreaks in China.
Our outlook calls for full year revenue in FY2023 to be down 13% to 15% in constant currency.
The U S dollar weakened versus last quarter, but currency is still projects to be roughly five point headwind to U S dollar growth for the full year.
Therefore, our outlook for full year revenue in U S dollars would be down 18% to 20%.
Our full year non-GAAP operating income outlook is now between $550 million and $600 million.
Nate we can now open the line for questions.
Great. Thanks, Bracken, Thanks, Nate as a reminder for those on the call. Please raise your virtual hand, and we'll get you in queue for Q&A with Nathan Bracken.
Our first question is from George Brown at Deutsche Bank.
Good afternoon George.
Good afternoon.
For taking my questions I have two if I may okay.
Lastly in terms of product launches you released a few products in Q2 and into the holiday season.
Can you provide some detail on how they performed.
And then particularly.
I'm interested in how logistic key cloud.
Has the full name of less manual expectations Soma.
Okay, Yes, I would say overall, we announced 20 new products that we're launching in Q3 or sometime in the next six months.
Three to four months after that and I would say overall, our losses are pretty well on track.
Yes.
G cloud in particular is a very narrow loss. So we launched early in the U S. So far so good we're now expanding it into Europe , and Japan. So I would say so far it's on track, it's a new category for US we're always very conservative on new categories, George because we don't want to get.
Kind of over the tips of our Skus as we say here.
But so far so good and generally speaking I feel really good about our innovation in total we continue to have just really really good insight driven innovation with.
And I would say our performance in all of our new products is pretty well on track.
And then just a second question just in terms of the level of discounting than food.
Clearly some pull forward of demand during the black Friday, and cyber Monday period.
What can we expect going forward into Q4.
And beyond from a promotional perspective.
Given inventory sequentially high level.
Yes, I don't think were not were not in a position right. So we're going to heavily discount because of the inventory levels are channel looks fine and our internal inventories came down quarter over quarter again as you probably saw.
But we're going to make sure we're responsive to the environment. So I wouldn't commit to you exactly where the overall promotion levels will be.
And particularly high as a percentage of our business this quarter, though and I wouldn't expect that again.
Yes, George just to two quick comments on your questions first I think from an MTI standpoint agree with Bracken off to a good start I wouldn't say there was anything in there that was financially really that significant in the quarter.
So.
It's still ramping up there and then on the discounting as Bracken said, we definitely saw consumer preference towards more promoted products. This quarter. I think there is some of that assumed going forward here in Q4 too early to say what that looks like out into next year I would say, but.
That seems to be the environment that we saw during the holiday with certainly the weeks with the higher promotions.
The higher percentage of sales.
Okay. Thanks, guys.
Sure.
Thanks George.
Good morning, <unk> merchant from Citigroup.
Hey asset.
Hey, good to see you guys.
Couple of questions a question on the VC side of thing where.
If you can give us any anecdotes about how your discussions with customers are going now clearly the environment is pretty gloomy out there as far as layoffs, but has there been any change.
They're reported quarter in terms of these conversations with these customers around demand for beef.
And then secondly, I know <unk> mentioned that as well as some supply concerns for in your March quarter that you discussed in the press release with the pre announcement.
Can you tell us how much of that is really affecting the march quarter and when do you expect those to kind of play out or are you still expecting supply issues post. The March plan. Thank you. Okay. I'll take the first one made all of its fixed segment, yes, I would say overall just came back from CES and yes.
I would say generally speaking the the tone was about the same everybody seems very committed to the long term, making sure they've got the right setups in.
I wouldn't say, there's any real change in the secular trend from what I see.
But I do feel I do sense the conservatism.
I think you could hear it in some of our salespeople are saying March March March investor that was the right date, but they are seeing a lot of the companies are really pushing out spending into future quarters. So I think thats, probably still out there and we're certainly assuming that as we go into Q4 and Thats reflected in our guidance that you want to take the China growth.
Rob happy too.
No I think.
Listen I think the thing that we probably all learned over the last few years with Covid is it's a little hard to predict.
So I've made some assumptions.
That there could be some disruptions on supply in the quarter. We're working hard on those things we may have opportunities through expedited freight and so forth to recover some of that but it's still a fluid situation our CSO.
Not really a specific number I would say we call. It out just trying to factor in a range of possibilities in the outlook and so that was one of the things that have caused us to adjust the full year outlook.
I would just add to that I think.
We're in that we're probably in the middle of the most uncertain period right now because.
It's John <unk>.
Just starting all of our factory people went back to their homes.
It's anybody's guess on what thats going to due to COVID-19 rates and whether we will have problems getting people back or some of our suppliers as well. So we're in this kind of uncertain period, now, but but I think it will settle out over the next few extended unlimited risk. So we bracketed pretty well I think in our outlook.
The other thing that we've done certainly over the last couple of years through investment has been increasing amount of automation in the factories. So we can't fully offset the risk of labor disruptions and things like that but we have improved the company's ability to do that versus a couple years ago by by driving up that automation in the factory, which is somewhat reduced the reliance on labor, but still something that we've got.
Really managed tightly.
Great and then just in terms of growth outlook beyond the March quarter.
You guys, obviously at the target model out there.
Any indication on when we should expect that growth are we at a point where post the March quarter.
We can return to kind of the growth rates that you guys have outlined just given the macro trends.
So confident time will continue but will certainly we're planning an analyst Investor day, we will have the data out there shortly.
I think it's too early for us to tell you what next year is going to look like.
But hopefully we'll have a clearer picture of that when we come into March.
I don't think I cant imagine that we're going to see a snapback in the macroeconomic picture in a quarter. So I wouldn't expect it to our.
Our fiscal year end, and then things totally get better, but but I think im pretty optimistic about somewhere out there in the next over the next year or so that youll see the market come back, but I think everybody on this call players of opinion on how long this is going to last.
Okay. Thank you.
Yes.
Great next up will be Paul Chung from Jpmorgan. Good morning, Paul Lo Paul Hey, Paul Thanks for taking my question. So just.
Our gross margins as we kind of think about couple of quarters down the line.
How do we think about the pricing increases you've done.
Kind of lapping some FX headwinds.
Lapping some component of inflation and lower shipping costs can we rebound comfortably.
To your kind of targeted a 39%.
44% and a couple of quarters.
I'll go and take that one bracken, yes.
Yes, Paul this quarter, we had eight points of headwinds year over year.
Very similar factors in the sense that we had currency was the largest.
We also did have some headwind this quarter from increased promotional mix.
And then we also had the inflation.
As I mentioned last quarter, I mean, I think we feel good about some of the trends on the inflation side start to see some of the costs come down Ocean freight we continue to make some progress on the rates there.
And currency it looks a little bit more favorable than it did last quarter. So good trends.
But.
We didn't really see any of that really flow through yet this quarter.
And I think next quarter I really don't expect to see a lot of that favorability yet.
It takes a little bit of time with the inventory being a little bit higher we've got to work that down to start seeing some of those benefits come through as well, but yes, I think into next year I think some of these tailings could probably become an excuse me. Some of these headwinds could probably become talent I think I misspoke earlier those are obviously headwinds some of those headwinds.
Headwinds could become tailwind.
I think in terms of the pricing I think it's good that we took action early this year to increase prices across a number of categories that has helped offset some of these pressures.
And we'll see what the promo environment.
Promo environment unfolds over the next few quarters or whether we can hold those are not so lots of moving pieces, Paul but I do think that we've been absorbing a lot of those headwinds this year and I do expect some of those begin to reverse into next year maybe.
And maybe one more piece of perspective.
I think the thing that makes me feel the best about this year is the incredible amount of headwind, we're facing from a gross margin standpoint.
Exactly when that reverses as a little unclear I mean, clearly currency is on its way now we're not seeing any of it.
Cotton hedges.
Industrial hedges.
Et cetera, but super.
Super excited that we have 800 basis points.
Because that's going to come back out again, but what I can see 800 basis points of improvement, but giving us about a range again I would sure hope we do it next year.
So by next year, you mean next fiscal year is now.
<unk>.
That's right.
Okay, and then just to follow up on Opex neoprene material cuts, where do you kind of hit.
Normalizing I assume more aggressive cuts maybe in the near term.
Do we get back to that 25% of sales or where are you seeing.
Are there opportunities to kind of right size costs, while top line is challenged thank you.
Okay.
And that one I think on a full year basis, you'll probably see the opex to be around 25%, which is where it has been and come back to your earlier comment on gross margin.
Those things go hand in hand, so if we get good confidence and line of sight to gross margin expansion that creates more room for investment. If we see good returns are available to us to drive growth. So that strategy remains unchanged moving away from a promotion driven.
<unk> strategy to one that's more pull driven.
Through increased marketing investments certainly we're committed to the investment.
In product innovation.
And do you think.
Key bracket.
<unk> something you'd like to add to that.
No you got it perfect.
Well. Thank you thanks, Paul Thanks, Paul.
Next up for Morgan Stanley Erik Woodring, Good morning, Eric.
Hey, guys. Good morning. Thank you for taking my questions I guess, maybe first if we take a step back and think about kind of your four major end markets.
Where do you think some of those are furthest along in terms of kind of facing the brunt of the challenges the world faces today, meaning we saw Pcs correct earlier, perhaps in consumer electronics, which perhaps is corrected earlier than enterprise and so just curious where you think you could perhaps see.
A rebound first relative to other of your end markets and then I have a follow up.
Those are really good question.
I'm going to hesitate to give you a definitive answer but I'll give you a kind of a field.
Sure.
I think it could be that we see it first in game.
But it kind of depends because the gaming market is also pretty sensitive to promotion this quarter. So maybe a little less it makes me a little more tentative to savour.
I think the enterprise spending kind of comes in later than starts outlook starts out later in our Haynesville logarithm.
Comes a little later when you go into a soft softening of the economy, that's general overview.
And then our peripheral workloads business, so somewhere between the I reserve the right to completely reverse those.
Okay.
Disabilities, not where we'd like it is really hard for us to see but I think.
The good news on all three as I really feel good about the long term I do think those secular trends are super solid.
Okay. No. That's helpful. And then just just because you mentioned that Brian and I would love to just maybe get some color from you guys on maybe why visibility is different than historically has a different purchasing patterns. I know you mentioned the purchasing during promotional heavy periods in the December quarter, but maybe just taking a step back our our enterprises purchasing at a different cadence than that.
Used to our consumer preferences for purchasing changing with just love love. Some more color on just maybe how that visibility has changed and or when it could improve and why it might improve.
Thank you so much.
Absolutely. Thanks, just flipping that goes to be sold on the consumer side I think you said that.
You said it all of the consumer demand has been weaker.
And in this quarter, we saw it really concentrated in promotion.
I hope that.
They were saying, we're assuming it could be more promotional as we go through the rest of the year I hope that it would start that starts to fade at some point soon because.
Normally promotion is heavier during the holiday quarter.
Now we may see that in Q4, but we will see but.
We're prepared for that but I hope that it will start to get better for approaching standpoint.
And that is not that would not be normal to have heavy promotion go on.
All the way through outside of the holiday quarter forward through the year. So we'll see.
The b to B side.
It just comes down to I think there is there is such.
Turmoil, maybe too strong a term, but theres a low settling that's happening I can't remember.
Since I've been in this job anyway, when we've had the kind of layoff announcements that we've had over the last 90 days.
I think theres, just a lot of constriction of spending happening and I think that automatically drops your visibility of what you think you have in visibility suddenly.
<unk> seems like speak pushed out a quarter or two or something so I think thats reduced it I think.
I like I like the fact that it's actually a sharp reduction right now from a business standpoint, because I think that means that might be faster exit back out again.
My optimism booking et cetera.
But I would rather see that then see people kind of gradually easing into something so some sort of feeling good that there's all this discussion of our constriction and I'll talk about our business. So it can be wrong, but I feel good about the restrictions I think suggest that people are making the right steps and the clarity will come as we go into next year.
And if I could add just a little bit to that area.
I think we've of course, you asked what causes it to be different I think we're transitioning out of obviously a unique period globally.
From shutdowns and so the diversification that we have again I'll come back to this in the portfolio by product by category by geography are all things that I love, having in a time like this because that transition is obviously different in those in those categories and in those geographies that we still see places.
That are doing better that are growing a little bit maybe went into lockdown in a different time that come out of it differently.
So that diversification continues to be I think a really really important thing obviously this quarter, we're disappointed with volumes, but the shape of the P&L held up pretty well and I think we continue to manage well in this environment. We continue to do well from a market share standpoint, we continue to invest in our long term priorities.
And continue to manage Opex, I think very well and do a good job of cash generation. So lots of things haven't changed and again I think the diversification in our business.
Is really key to us being able to deliver a good strong quarter and was the challenging macro environment.
Okay.
Super Helpful. I was just the last one very quick follow up with.
When you mentioned enterprise demand weakness did it spill over into any other segments. Besides VC or was it mostly concentrated in basically just what that showed that clarification thats. It for me.
<unk>.
So we see it also in G&P mice, and keyboards, and mice and keyboards and traditional mice and keyboards and video collaboration are two biggest areas.
And <unk> <unk>.
He is a good proxy for it because it's pretty much all <unk>, but we also see it in mice and keyboards. Okay. Thank you by.
By the way I should say, it's not like people are buying any comfort scans. They were so we didnt suddenly go terribly negative down mid single digits, so with those after being up double digits before alright.
Thank you guys.
Thank you your thanks, Eric next step will be Adam Angela from Bank of America.
Adam.
Hi, there.
So just wanted to check on the channel inventory situation. So maybe.
Maybe if we could go by division So I think gaming was.
Was positive sell through in the quarter is that.
Sign that the inventory levels, there are kind of at reasonable levels and perhaps the cell and can match the sell through going forward and maybe if there is any other specifics by by different division. If you could add that Toby that'd be great.
And then second one so on 2023 calendar year.
Are you thinking about further price increases and maybe if you could just share your thought process on.
Price increases versus potentially.
Prolonged promotion periods, obviously as you mentioned already.
But I'll, let you take first of all yes.
Yes.
I think channel is in good shape.
It's down year over year, which.
Consistent with the overall trends in the business I mean I think.
We continue to see our customers I think being pretty cautious and conservative around restocking.
Same sorts of visibility challenges that we were talking about a moment ago, I think probably apply to them as well so being a little cautious on reordering, but channel is in good shape.
As Bracken mentioned gaming was one of those areas that would seem to be more promotional this holiday period, and so we did make some progress in reducing some of the inventory levels there.
I will just quickly say on the pricing side and I'll, let you jump in there too <unk>, it's really a function of a lot of things Adam.
What happens with currency what happens with inflation, so lots of elements there for us to consider but bracken something you'd want to add on that.
I'll be albeit with a more definitive.
If something doesn't change I can't imagine us raising price further I think those 900 basis points or 800 basis points of headwinds.
<unk>.
We're going to eventually drop.
Would suggest that we will need to if something radical change to getting those but I don't think we've always correctly here it keeps moving in the direction. It is.
Inflation keeps heading in the direction. We all think it is going to go I don't think we would need to raise prices again.
And then on the inventory side. So you asked about channel again, Bracken mentioned I think in his remarks third consecutive quarter, where we've reduced our.
Distribution Center, if you will inventory sequentially and we made good progress I think there this quarter, we'll be able to reduce that more into the fourth quarter.
And continue to normalize those levels not in a big hurry to do so it's all good fresh inventory that I expect will sell.
That continues to be a focus for us.
Alright. Thank you thanks Adam.
Next on the line will be yarn from UBS. Good afternoon, Yes, hi, good morning, Thanks for taking my questions.
The first one would be please on your implied Q4 outlook Mitch.
Targeting guiding plus sales being down around 25%.
Can you really Catherine rough indication is one set of stairs destocking months or it's consumer demand weakness on one side, China is obviously I think about it because it seems that youre, saying it looks like through key categories ex Russia was only down mid single digit in Q3, it seems quite sharp deceleration. So she can provide somewhat.
Hello, Yes.
But we definitely appreciate that.
And the second question would be please just focusing on the freight cost, which they came down to pre COVID-19 levels.
A couple of areas.
<unk>.
Do you see that this will be a very strong contribute as soon as possible to your earnings growth in 2024.
Maybe just start with these two questions. Thanks.
Yes, and then I can hit the second one too I mean, the outlook for Q4 really implies typical seasonality Q3 to Q4, so Q3 was weaker than expected.
And off of that you would get sort of a normal mid 20% decline sequentially into Q4. It so thats, what so with the guidance really implies we've got one quarter left but the full year guidance basically implies that for the fourth quarter.
And then on the freight costs.
<unk>, we got this quarter was that we didn't use air freight to the same level.
Long ways versus last year, we were chasing a lot of supply last year.
It's not the case this year.
So we were able to reduce our airfreight. So we've got some year over year benefit there.
And ocean rates are getting are coming down, but they are still higher than what they were pre pandemic they've come down month on month, starting to do that.
Look more positive there, but still have a ways to go before we get back to pre pandemic levels.
Okay and then maybe the last question if I may on your Opex.
When we look in 2020 full I mean after you take 200.
250 million Opex in.
23 <unk>.
Now enough is done are you leaning a fight to call. This a flattish 2024.
You forget about is there more to come now in the next couple of quarters regarding your plans.
Yes.
I want to clarify real quick I'm not sure. If you said 250, but I said 215, one $5 15.
Hey, Thanks, I wanted to make sure that you heard that clearly the Bracken sorry did you have a kind of and I'll just add.
Yes 250.
And we're going to keep.
We're going to keep up with the Opex.
We're not letting up we look at the topline we feel like we need to take we're going to continue to take more out.
So you can count on that will keep the growth we've taken it out we're going to respond to market conditions and you see what they are so you can imagine how we feel about our costs.
Okay. Thank you.
Okay. Our next question is from Andreas Mueller, Ed Z K B.
Got it.
Yes, hi, everybody.
I hope you're all well.
Two questions Romney really can you say something about the Chinese sales in the quarter currently expected impact from the leaf.
<unk>.
Restrictions going forward.
<unk> does not.
Property also the state to something you mentioned something in your own production facilities.
Facility.
You are completely 100% operational right now.
Well it is.
What's there to stay for space.
Personally.
Chinese China sales I mean.
China. Unfortunately was natively impacted this quarter from a sales standpoint due to the infections.
Horizon infections.
I think we probably had about a one point headwind this quarter Andreas.
And sales in December that didn't occur.
I think longer term I mean, I think it's a positive.
It's potentially a positive but like I mentioned earlier I think COVID-19 is just unpredictable and.
Hopefully.
This was a sort of a onetime event, but I think that's not for me to.
To know with certainty so, but I think it's a positive to see more open.
Physician by the government I do.
Bit of a headwind this quarter.
I do think I think growth in China opening its positive.
And I think you asked about our production facility related but right now our production our scope is close to lunar new year. So that's one of the things that.
Given that gave us a little pause was what happens during lunar new year, everybody can Paul I'm going to come back in.
I'd say, we'll see I mean, I think we will manage whatever it is but.
It is what it is.
Actually.
I hear so many negative headlines about China I feel like good.
The optimist in the room on that for sure I feel good about China, I think as China opens it's going to be good for us. It's our second biggest market. It's always been a good market as long as I've been here it's been good.
Very few times, we have a long period of slow growth there. So.
I am excited about China, we've got great market shares we've got a great brand that brand there.
And we're really learning a lot about the Chinese consumer there so I'm optimistic.
Thanks Andreas Okay.
Another question about.
Youll priorities when you go through your portfolio do you see a need.
For changing some priorities for some categories.
Downturn, maybe to earmark also.
Our category as non strategic one more besides.
Mobile speaker, Andy here, perhaps for itself.
Yes, we kind of we've kind of done that we always redo it or we do it on a very regular basis. So.
As you mentioned, we picked out a couple of categories that we serve were nonstrategic, which means we're reducing our investment in <unk>.
<unk> heard about.
I don't see any immediate changes in our current.
Last time, we updated view, but we will you will update you again at the Investor day.
I think our portfolio I'm really excited about that.
Of our portfolio that we have.
Angle, Florida put our investment into.
We're gaining market share across those where we are.
We're investing aggressively from an engineering standpoint into them.
And yet we are managing costs really well across the company in the middle of this because this current economic kind of storm and so I think that bodes well for the future.
But we'll update you again regularly we will keep you updated on where we are deemphasizing categories.
Okay. Thank you very much.
Our next question is from George Wang at Barclays, Hey, George George.
Hey, Brian Yeah first question is.
Maybe you can give more color just in terms of the latest <unk> consolidation in terms of the go to market kind of Salesforce and <unk>.
Hi, you guys applied learnings from the consumer vertical within the innovation there to apply to the <unk> vertical.
Okay, well first I would say, we're trying to unlearn, our consumer vertical into.
Because I think our strength in.
And consumer is something that really doesn't lend itself to much to the <unk> side right now we've taken we leverages much of that as we possibly could have during the first five or six years in the business and now we're building new muscle, which is how it would be a BBB company.
I am excited about our potential there we are a long way to go to really be I think first class in.
In that space, but I think thats the upside here, how do we become a great execution engine that would be to be so.
I think it's still early days on that.
In the past, we've got the right resources in place we've got great capacity.
We're putting step by step process by process compensation plans everything into place to really become stronger in <unk>. So.
I keep asking us about that I think it's worth a little hotspots of our business and one of the areas where as we improve I think we can we can improve our performance.
Maybe you could unpack a little bit in terms of the installed base of refresh slash the kind of upgrade cycle.
Kind of our game plan is if the macro econ.
Economy was also further how do you think.
Installed base refresh going to play out do you think thats going to be delayed or do you think.
Just a more temporal kind of headwind that you're talking about on the other.
The desktop side the excuse.
Just across the portfolio, mostly on the PC install based also on the EPS I think if there is if there is a dramatic slowdown that goes over long term. It certainly is going to delay the installed base refresh across almost every category you can think of in the world, including probably hours, but but I think ours are if you look at our products, whether it's personal workspaces a video of a kind of.
Our required for the new World were in so I'm not sure that you can.
In the office for example video collaboration while there may be a delay and it feels like there is short term, it's really hard to imagine that lasting a really long time because of the hybrid world where you're doing so much video like we are all right now it's really hard to imagine that the enablement of room, So I think thats.
I think.
Pretty positive on that yes, it could be there could be some kind of a delay of that looks like there was this quarter, but I don't know how long that could go on and we'll see on the on the workspace side.
This is so central to what we do know everybody in this call sitting in front of the desktop with some stuff in front of them and I would guess, 90% of you don't have really exactly what you need even if you don't realize quite yet so.
I think that upgrade cycle is coming and.
And it's already started and it will continue for a very long time.
And maybe if you are really about this but I'll stay away from going too far on this but I think you could imagine it's become more central to our our lives as part of our homes and things. So the upgrade cycle could even accelerate but I think regardless I think theres a good strong upgrade cycle ahead of us.
Could it be slowed down a little bit yes.
We stopped.
Yes, I'd like to squeezing my last question if I may.
You can look any more color.
Unpack a little bit in terms of the recent market share gains across key.
Key categories.
Encouraging it.
Sorry largest outgrowing the industry.
My dad used to be leveraged on the kind of differentiation you guys have to sustain the kind of market share gains.
We announced last quarter, we've launched or announced 20, new products, let's cover reflection numbers don't tell the whole story of course, we're actually trying to get fewer bigger, but but I think it's kind of a reflection of our investment we started die or.
10 years ago, really focusing on design, which means putting the user in the middle of the action and we've really matured that approach. Meanwhile, we've kept investing in engineering and over 50% in four years.
And our total spending on engineering.
Certainly the.
Sure.
It's happening across all of our categories. So I.
I feel very very good about the innovation engine here and it's the primary driver of growth, but it's not the only one the go to market with <unk> started as a big opportunity to and we're going to keep investing there.
Great. Thank you.
Just wondering if you started to mention that go to market I mean, I think some of the things the teams have been doing around analytics.
In E tail or on Amazon I think is also continuing to prove obviously impressive.
And how share numbers are really good at Amazon and across the categories. So.
I think it does start with the products and you look at the ratings on the products and you can see those are quite good George but I also think that if youre happy to go to market team with their work they are doing around analytics.
Really agree with us.
Great. Thank you thanks Jordan.
Thanks, George our final question. This morning is from Mike will fit it bumped about good morning, Michael Hi, Michael Yes, Good morning, Hi, Thanks, Michael.
Two questions from my side, if you could give some more color on the on the appointment to.
<unk> CEO CLO positions oriented.
Sorry, what sort of gaps do you think you need to fill their what improvements.
Are you seeing on the operation side.
And the second question would be regarding.
Your thoughts on the creator economy as we go into.
Recession.
Do you see particular dynamics developing there and how you're positioning yourselves to to harness those opportunities. So it's a really interesting question.
<unk> costs for.
Precautious has always been I mean, he's been here for seven years or we recruited right out of the consulting firm and he is just grow and grow and a lot of what you see from a sustainability standpoint, we're doing in this company you can you can point right. If we're cautious leadership he's got a tremendous team and my entire staff.
Right alongside of that have been part of this drive to be better for the world from an environmental standpoint, but no mistake, we are cautious.
From the heart.
Hans and hip.
But I think the next step for him and for US is to give him a larger role not only in the overall operating execution of the company, but also in the structure of the cost of the company.
So this is another this is we're continue we've evolved very quickly structurally.
Very quietly behind the scenes, we've changed our it structure and we're going to keep evolving it going forward.
Keep evolving and he is going to be a real partner for me and for the for the CFO for.
For the whole team and helping think through that so think of him is overseeing the overall operating costs. The company also has responsibility for the overall M&A strategy Corp. Dev. So he has got a big chunk of responsibility that though there are others, who have huge chunk through thoughtful we feel all the while we focus on for cost, but we did announce this move today. So it's a big one.
On the greater economy recession. It had what are our prospects going forward because of greater economies touching so many things so I think.
It's one of the quiet drivers.
Interest in the personal Workspaces, we're not calling the mice keyboards, wolfcamp et cetera.
It's one of the quiet drivers of that business and I think it's here to stay.
Growth.
All of the things, we read about including the.
New world with GPT, and what that kind of loss I think all of these are our fuel for that creator economy. I do think if you go into a deeper recession I think the greater economy will a lot of those people will end up in full time jobs. If they weren't already in them are trying to give fulltime jobs, but theyre going to keep going alongside that of his career at ERCOT.
I mean, I think the other thing about the creator Congo as exciting to me is I think more and more people are going to be selling to their friends directly.
We're experimenting with that lots of companies are I think there will be more and more of that kind of selling its probably not going to be significant in the short term, but I think in the future there will be more and more of a network of activity to drive sales through the grid or economy that will be part of it.
Thank you thanks, Michael very much Michael.
Let me thanks, Michael and thanks, everyone for joining I think that that's a wrap Nate and bracket.
Thank you thanks, everyone.
Great. Thank you.
With us today.
We'll announce shortly.