Good morning and welcome to the Logitech third quarter fiscal 2007 earnings conference call. (Operator Instructions) I would now like to turn the call over to Joe Greenhalgh, Vice President Investor Relations. Please go ahead, sir. Joe Greenhalgh: Thank you, Angela. I would like to welcome you to the Logitech conference call to discuss the company's results for the quarter ended December 31, 2006, the third quarter of Logitech's fiscal year 2007. A press release, a live webcast of this call and the accompanying presentation slides are available online at Logitech.com. This conference call will include forward-looking statements that are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996, including forward-looking statements with respect to future operating results. The forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from that anticipated in the statements. Factors that could cause actual results to differ materially include those set forth in Logitech's annual report on Form 20-F dated May 19, 2006 and subsequent filings available online on the SEC EDGAR database, and in the final paragraph of the press release reporting third quarter results issued by Logitech and available at Logitech.com. The press release also contains accompanying financial information for this call. The forward-looking statements made during this call represent the management outlook only as of today, and the company undertakes no obligation to update or revise any forward-looking statements as a result of new developments or otherwise. I would like to remind you this call is being recorded, including the question-and-answer portion, and will be available for replay on the Logitech website. For those of you just joining us, let me repeat that presentation slides accompanying this call are also available on our website. Joining us today are Guerrino De Luca, Logitech's…

(Operator Instructions) Your first question comes from Yves Kissenpfennig - UBS. Yves Kissenpfennig – UBS: Hi, guys. I had two questions. The first one was with respect to your operating cost metrics. It looks like if I strip out the stock option expenses from each OpEx line that you did see a rather significant increase, I would say, as a percentage of sales. I was wondering if you could just guide us, elaborate on what exactly was going on there? My second question refers to your gross profit margin guidance for the full year. If I take the bottom end, 34%, it seems like you are guiding for a pretty strong drop in the fourth quarter. I was wondering if that was just being conservative or whether there were some factors at play that led you to make that guidance? Mark Hawkins: Yves, let me start off on the OpEx side here. First of all, we are actually pretty pleased with the OpEx. I think you are exactly right, if you strip out the 123 R option expense there and you take that away, the OpEx is scaling with our gross margin. A lot of people that track our stock for a long time -- you are certainly one of those -- know that has been one of our key intentions, is to continue to grow the business and make sure that we are stepping up and making the investments that we need to. So it actually is growing at the same rate as the gross margin growth for this particular quarter. Now so that said, I think it's pretty consistent with our plans, our intentions and our expectations. I think the other thing to call out, don't forget is we have $1 million in there for the purchase of…

Your next question comes from Ted Chung - Bear Stearns.

Just on the top line side it looks like your Asian efforts, you highlighted your Japanese efforts. Can you detail more specifically what is going on in Japan as well as some commentary on China and other Asian regions? Guerrino De Luca: Sure, Japan, they is a management transition that happens in every company and we need to improve our performance there. I wouldn't go much further than that. We have a new executive in charge and we are very comfortable and confident that things will improve there. Things are fine in the rest of Asia and China is actually growing pretty nicely I n the past couple of years. Maybe there was some concern there. I think we are in a much better shape than the rest of Asia. So that will be the story. I would say also, I would remind you and I noted not only is 15% a great top line growth but we had a couple of product hiccups during the quarter. We were expecting to certainly sell more of iPod speakers at the high end and we were very late with the product there. We had a spectacular high end remote that didn't ship in Q3. I'm very excited it ships now. We were expecting our OEM growth to be faster because the transition that we expected to go faster -- it didn't -- it is actually accelerating as we speak. So if you look at the picture all together we are actually very happy with the 15% growth.

Okay, great. Thank you.

Your next question comes from Manny Recarey - Kaufman Brothers.

The question I have is that your revenue growth was 16% and your unit growth was only 10%. Could you give a little bit more color on what drove that? Was that you had the higher end products selling more versus the low end? Can you just give a little bit more color on that please? Mark Hawkins: Happy to do so, Manny. A couple of things here. On is that if you step back and look at this with all the different SKUs and what not that we have, I think we push more than 200 main SKUs. One of the things that you see at times in terms of the units versus the revenue growth is that there can be family mix, category mix, these types of things. And so you start to see things shifting around from that standpoint. I think one of the things that you are seeing here, the biggest thing that you are seeing here is just an overall mix of product which is creating and contributing to this effect. I think that is really the main issue. You can see, when we break out some of the categories you can see where we are strong in various areas. I think the biggest, most salient point is it is really family mix of those 200 SKUs. That has impact on a slight ASP increase; but again, one of the things that we always remind people of is the ASP increase is just again totally a function of family mix and it is hard to draw more than that out of it. I can give you a breakdown by category of the revenue and unit growth if you want on any particular question, but I hope that gives you a little higher level view of the situation.

I have one follow up on the video segment. Can you give a little bit more color on the outlook there where Microsoft entered the market and I think you lost some share at the beginning of the quarter, but you gained it? Is the market more rationalized now than at the beginning of the quarter? Guerrino De Luca: I think you used the right word by talking about to rationalizing. What happens when a major player that will be taken by the retailers comes into a category, you see a lot of volatility. The volatility is driven by two things. The first thing is that the major player -- in this case Microsoft -- has to prove to the channel that the product moved. When that happens it takes a substantial amount of promotions and very aggressive actions to actually show velocity; it's a classic. Now the other concern is that the smaller players out there are afraid of being delisted because there is only room for a certain number of players there and certainly Logitech is the number one and Microsoft will certainly be carried. So there is a lot of promotional activities by every player to try to prove to the channel that they can actually survive. We have seen that. In fact we have taken deliberately a very moderate attitude with this kind of crazy situation in the channel and I'm very pleased it. We didn't want to leave any money on the table. We continue to have an extremely solid gross margin in our webcams. We will see how the picture evolves. My expectation is that this will take maybe another quarter or two before things get more sane. Eventually it is possible that the category will shape itself very much as other categories in…

Okay, thank you.

Your next question comes from Matthew Yates - Merrill Lynch.

Good afternoon. I just wanted to dig into a couple a points that Mark raised in the presentation. In the first half of the fiscal year you appeared to have bounced back from some of the problems you had in the cordless desktop business in fiscal '06. But in Q3 that revenue growth seems to have slowed back down to only 1% year over year. So is there anything you are planning to address there? Secondly, Mark, you previously highlighted the things you felt you could do with the payables at Logitech. Would you go as far at this point to set some sort of formal target on that? The third question for Guerrino, you said you regained some market share in the webcams in December. Was there anything in particular that the company did in that month? Thank you. Guerrino De Luca: I will take the cordless desktop and keyboards and then of course the webcam, and I will leave Mark to cover the DPO and general working capital. If you look at every one of our categories, the ones that seem to be today the big growth drivers and the ones that seem to be a little bit slowing down, they have fluctuated over the course of our history systematically. I don't believe there is anything structural in what is happening with cordless desktop and keyboard. I'm actually very, very bullish on the outlook of what we are doing around the notebook and that will certainly help growth. I see very strong double-digit growth at the mid-range and high end of cordless desktop. That is obviously shown by the fact that our unit growth is actually stronger than our revenue growth in this particular line. It is great, it is nice to see it. It shows that some…

Yes, that is great. Can I just follow up on the cordless desktop side? When you say you are very bullish on the outlook, is that a function of forthcoming product introductions or is it related to perhaps some marketing or pricing action you may take on the existing lineup? Guerrino De Luca: As with many cases at Logitech, products make a lot of difference and so certainly there are products that are coming, particularly in the notebook area, that make me feel comfortable with that. But I wouldn't comment much further.

Okay, thank you, guys.

Your next question comes from John Bright - Avondale Partners. John Bright - Avondale Partners: Good morning, Guerrino, good morning, Mark. Guerrino, from a big picture standpoint it looks that there was a decision to throttle back on the top line growth for gross margin performance. Is that correct? Do you anticipate continuing to do that? Meaning, is this something where you can maintain this 36% gross margin potentially into fiscal year '08? is this something we should be thinking about in changing our long-term model thought process of 32% to 34%? Guerrino De Luca: Well, first of all I wish we had the control of mankind and the world the way you describe it. I wish. We do control some of the variables and I'm actually very pleased that the model lends itself to that. But I would be lying in telling you that it's all scientifically managed. I would say that as we decided, for example, not to participate in some of the bloodbath in the webcam categories this Christmas and just to stay a little bit out obviously it's a conscious decision. But certainly we did not decide to delay Harmony 1000. We did not decide to delay AudioStation. We did not decide to have a management hiccup in Japan. So there is not an intent to drive for profitability at the expense of top line growth. I repeat and this is critical that we all collectively understand this company is driven by growth -- gross profit growth primarily -- and that is what the driver of the engine is and we will seek that that. That will take the form of good margin, better top line, it depends on the quarter and the mix, but the determination is to drive growth because growth will drive profitability and leverage. You've seen an example from this quarter. So when it comes to the gross margin I think the wisest thing to do is to stick to what we said in the past 32% to 34% is a realistic long-term goal for the company. Am I not pleased that we are at 36.3% this quarter? Of course, I'm ecstatic. Will I try to just make sure I bring it down so that it fits into the model? Of course not. But of course, that gives us that flexibility that we may need to use and to push other dials in the business. So you should see it that way. It's a balanced effort it's not a flip-flop decision, today it's top-line growth and tomorrow it's profitability; it is both all the time. Mark Hawkins: John, remember we are on track for 17% top line year-on-year growth which is up from the beginning of the year. Even adding onto Guerrino's point, the OEM product transition with one particular customer is working itself out so we actually feel, all in all, we feel pretty good about things for all the reasons that Guerrino outlined.

Right. To follow up, we talked about Microsoft and the webcam market. Before they came into the market, before their introduction, at your analyst meeting -- I think in London in the spring of last year and then also in New York -- you talked about your expectation of them coming into the market baked into your guidance. Do you think that they acted more aggressively, or less so? Is it what you expected? How would you describe it post their entry? Guerrino De Luca: In the grand scheme of things they acted as expected. It's very hard to give sort of a one-liner comment on the behavior of an important competitor. I would say that you should always keep in mind that Microsoft is our friend. Microsoft is not the enemy. Microsoft is our friend; we are the closest among the closest third-party hardware partners for Vista including an area that cover webcam. So the relationship is a little bit more nuanced than that. In terms of what we had expected, as I said in the grand scheme of things we think it has not been different than what we expected. They have to prove that their products move and they have to do it in any way possible and they have. We also were expecting some nervous reactions from the smaller players because if you are one of them, you would not be happy to see that the category is going away from you. So fundamentally we were not surprised and I will leave it at that.

Okay. And one last one, Mark, on the tax rate, certainly lower in the quarter and I really missed what you were saying on what took place that you were unable to recognize a lower tax rate for the quarter. Mark Hawkins: One of the things that happens at times, there are different drivers each time John, but in this particular case we have certain discrete events. In this particular case you are probably aware of the R&D tax credit and when that was signed into law there was an R&D tax credit catch-up. So that certainly helped us. Secondly, just the overall country mix of business obviously helps us as well. But there are some discrete events, the R&D tax credit catch-up was the biggest one. Guerrino De Luca: We will take one more question.

Your next question comes from Odon de Laporte - Cheuvreux. Odon de Laporte - Cheuvreux: Good morning everyone. I have a question with respect to the MX Revolution. Could you indicate what proportion of sales in unit terms it represents in the cordless segment? Guerrino De Luca: I'm sorry to tell you we don't detail product performance at that level. We are very happy with the performance of the MX Revolution both in Q2 and in Q3. Remember this product was introduced in early Q2 so if you look at the combined growth of cordless mice in the two quarters -- actually stunning year-over-year -- it is more than 25% or 28%. But we do not to go to the detail of providing unit volume for our products. Odon de Laporte - Cheuvreux: Thank you. Guerrino De Luca: All right. Thank you very much and we conclude this call by certainly thanking you for joining us and I want to make a final comment. It is clear to me and I hope to you that our results demonstrate unequivocally two things: the power of innovation and the leverage characteristic of our business model. As I said in an answer to a previous question, make no mistake, our number one priority remains growth. That is because we believe that the opportunities for Logitech abound and I'm thrilled by the combination of our strong financials and the amount of attractive innovation I can see both in our current and in our fiscal 2008 portfolio. We are clearly well on our way to broadening our presence both around the PC and in the digital home. Our mass luxury brand is more and more associated with value and innovation. We have the human and financial resources to make the difference and we are prepared to compete. Thank you very much.

Ladies and gentlemen, this concludes today's conference call.