The other day I heard a sports commentator on the radio discussing with another commentator the useful nature of the Slingbox when covering one sporting event while another one is simultaneously happening somewhere else. The beauty of this product is you can watch the second event on your cell phone or other portable wireless device as long as the location you are at has internet access. Since I’m not a techie, my best explanation for how it works is it allows you to send a signal from your television to the internet where you are able to freely access the television station the event is being shown on. I welcome a comment from anyone who has a better explanation to set readers including myself straight.
What does Slingbox have to do with Logitech? Two things: Slingbox is a type of hardware peripheral, a market Logitech ably competes. Second, my associates over at the Gizmo Café put the bug in my ear that Logitech would acquire the handy product and its company, Sling Media. Although yet to materialize, the idea does have merit. Stay tuned.
Logitech(LOGI) itself is a Swiss-based money machine most people know because of the mouse we use for our computers but they are much more than that. Other products include internet video cameras, gaming devices, telephony, keyboards, and 3D controllers. Currently, the company has over 50 percent market share in wireless keyboards and mice. The number is impressive until you consider only 15 percent of the potential market currently owns a wireless product. The future is enormous in this area alone.
How big a cash cow is Logitech? The five-year average annual growth rate for sales is 17.2 percent and 25.8 percent for earnings per share. The most recent quarter, its third, ended Dec. 31, 2007, brought sales growth of 14.8 percent and earnings per share growth of 44 percent. Although sales were slightly less than the historical average, earnings were significantly higher than normal. This is typically a sign of a well-managed operation. Even though sales are slowing, the company is still building cost savings into the bottom line. Further, free cash flow is $203 million or 10 percent of revenues. It’s nearest competitor in terms of market share, Creative Technology Ltd.(CREAF) has free cash flow to revenue of approximately 5 percent or half that of Logitech. The company has cash to spend when warranted and the recent $20 million acquisition of Slim Devices is evidence of that indeed.
Thursday, the company announces its fourth quarter and year-end earnings. Analysts estimate the quarter will produce $0.29 in earnings per share, growth of 21 percent from the previous year. That worries Kris Tuttle of Research 2.0, who in his March 9 blog entry reasons that the company in recent weeks has been less open with its earnings guidance, a sign the latest numbers will be weaker than expected. Given the iffy situation it wouldn’t be prudent for me to recommend one way or another whether you should be long or short prior to Thursday’s announcement.
One thing I will say – Logitech is a buy long-term and hopefully Slingbox will be a part of their future.
