Good morning. My name is Brandy and I will be your conference operator today. At this time, I would like to welcome everyone to the Logitech fourth quarter fiscal 2007 earnings conference call. (Operator Instructions) I would now like to turn the conference over to Gene [sic] Greenhalgh, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Brandy. I would like to welcome you to the Logitech conference call to discuss the company’s results for the quarter ended March 31, 2007, the fourth quarter of Logitech's fiscal year 2007. A press release, a live webcast of this call and the company’s 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 on line on the SEC Edgar database, and the final paragraph of the press release reporting fourth quarter and full fiscal year results issued by Logitech and available at logitech.com. The press release also contains the company’s financial information for this call. 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 that 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, let me repeat; the presentation slides accompanying this call are available on the website. Joining us today from Zurich is Guerrino De Luca, Logitech's President and Chief Executive Officer. Here in Freemont, we have Mark Hawkins, Logitech's Senior Vice President of Finance and Information Technology and Chief Financial Officer. I would now like to turn the call…

Thank you, Mark, and thanks again to all of you for joining us today. I am very pleased with the company’s performance in fiscal ’07 that saw record breaking performance in each of the four quarters. Fiscal ’07 was Logitech's best year ever and our ninth consecutive year of double-digit growth in both sales and profit. In spite of falling short of our upwardly revised sales growth target, our cash performance was outstanding. We delivered the highest gross margin in the company’s history. We increased our operating margins by 100 basis points to 12.1% of sales. We grew our net income by 35%, improved our net margin by 170 basis points, and we delivered against our increased full year profit growth target by achieving a 26% growth in operating income. Let me comment on our Q4 performance, starting with webcams. After six quarters of double-digit growth, we hit a speed bump. Since before Microsoft entered the category in the summer of 2006, our total focus has been to limit the impact of their arrival on our market share. We were largely successful in this, particularly in the U.S., where the share improvement we saw in December and discussed during our January earnings, have been sustained. We had also assumed that the arrival of Microsoft would help fuel the growth of the webcam category. Had that happened, our relatively small loss in market share would have been more than off by the incremental market growth. Unfortunately, that growth did not materialize. While we were focused on defending and improving our market share, our traditional market development activities that have built the category over the years took a back seat and the market growth slowed significantly. Over the next few quarters, we plan to reignite webcam market growth by targeting our marketing…

(Operator Instructions) Your first question comes from Ted Chung with Bear Stearns.

Thank you. I just have a more detailed question regarding the webcam business. It sounds like you actually maintained share in the market but attribute the weakness to the general weakness in the market itself. What type of activity are you specifically looking at in terms of demand generation?

Thank you, Ted. First of all, we lost share year over year. It was inevitable for us to lose some. When a big player like Microsoft comes in, they take some share. We lost some. I would say I would position our loss between 10 and 15 points. We are still by far the largest player in the category -- I’m saying by far; three times, more than three times bigger than the second player. We were focusing on actually limiting that share loss, and in fact we did. In every other category in which we compete with Microsoft, we are head-to-head and we have -- so you can see that as a success. So what happened, as I said in my comments, is that the market that has been growing at a very hot rate throughout the entire calendar 2006 had a significant deceleration of growth. The combination of lost share and that caused our shortfall. You asked what are we going to do. I said that we are going to refocus a marketing approach that has been fundamentally on holding or defending our share for the last six months, which has been unusual for us in webcams since the beginning. From the beginning of the webcam category, we have been the market developers with the webcam. We have told the world what to do with that and we stopped. The reason we stopped is that we thought that the arrival of Microsoft would actually create that element of market development that we were not pursuing ourselves. In fact, it didn’t and we can talk a long time as to why it didn’t but it didn’t. So now we are going back to refocus what we used to spend in promotional share defending point of sales activities into point of sales activities and partnerships that actually promote the category, so everybody will win, including our beloved friends at Microsoft, but we believe that the market leader has this responsibility and we will go forward with that. Going into more detail as to what exactly we will do, with whom we will play, which partnership we will turn on, it is a little bit sensitive at this point and I would prefer not to comment further. Thanks.

A separate question; regarding the issue with AudioStation in the audio category, has that been addressed already?

That has been addressed. It is unfortunate, the product problem. It happens, even to us. Related to the fact that AudioStation contained technologies, particularly in the touch panel, the touch sensitive panels instead of buttons and knobs, that we did not master fully and that as we started to ramp the product, it was actually late in delivery, but as we started to ramp, we figured out that it was not on par and that we decided that was not something that we could pursue. It is actually a fundamental reason for our pick-up in iPod speakers, so we are -- like I say, the problems are fixed. The unfortunate thing is that we missed the big season and that does not come back easy. But we will be back with AudioStation moving forward, so I would look at that as just an accident, unfortunately.

Last question; this is typically the time when you initially show your new products to the retailers. Have you gotten any feedback from them regarding the new products being positioned for launch for the second-half of the year?

Well, in fact our -- what we call our customer showcase time is around the June timeframe, not now.

Right, you initially have some conversation with some of retailers.

As well, we actually try to hold the news to those carriers. These are big extravaganzas that we do, both in the U.S. and in Europe with our European and American customers, as well as in Asia, and they take place in June. So we have not shown much yet.

Great. Thank you.

Your next question comes from Matthew Yates with Merrill Lynch.

Good afternoon. A couple of questions, please. Firstly, I think, Guerrino, you said in your remarks that marketing had taken a bit of a back seat recently in webcams. If pricing has been the main way you have tried to defend your market share so far, how come that did not create more of a price elasticity effect on demand?

Well, the truth is that -- first of all, marketing did not take a back seat. Pricing and promotional activities are marketing. It is not just market development. What I said, maybe I did not say it right but what I said or I meant to say is that our market development activities took a back seat. By market development, I mean those activities that tend to promote the category as a whole and products with that, but -- activities such as showing at the point of sale what you can do with a webcam, how easy it is for you. There is a very large population on the verge of adoption here and I think that we, by not continuing these promotional marketing or market development activities, we missed that. So the category is in between mass adoption and early adoption and we believe it is our responsibility to move toward the adoption. Yes, we did do promotional activities, not as frantically as we have seen a number of small players do in the category. If you will remember last quarter, we talked about a very aggressive promotional environment from the smaller players that did not want to get kicked off the shelf from the arrival of Microsoft. That continued brutally in Q4. So we did participate in some of that but not much of that -- enough to maintain our share, let’s say, but the category did not grow, or grew very modestly. When that happens, you address the same crowds and nobody wins. That is why we have decided that we have to refocus to what we have done for the category for a while and that is why we believe we -- there will be a number of tactical things we will do in the short-term and I will not discuss those, but the fundamental posture we are taking is one of market development and that is why we expect to see our sales in webcams going double-digit again in the second half of the year.

The second question is somewhat Microsoft related, in that you have seen a big player come into a market and as you say, not necessarily brought too much growth, just simply taking some share. Is there any worries you have with regards to Philips? They seem to be paying more attention and allocating more capital towards peripherals.

How do I answer this? I have to be appropriately wording this. I do not believe that Philips has the muscle of Microsoft in the mind of the consumer in any of the PC-related categories. We respect all competitors, of course, but I would call it a different order of magnitude of entrance. Philips has been in this webcam business for a very, very long time and has not made a particular dent on the market share charts, from what we see.

Could you give some sort of update on how the integration of Slim has gone and the kind of rollout phase to get that product into the big box retailers?

Well, as we speak, that is what is happening and we are transitioning the Slim Device products to the Logitech brand, which you would expect us to do, as we speak, we are talking in the coming weeks, and we had very advanced conversations with several businesses that are very excited about the category, so let’s see. I am very optimistic about this being the beginning of another triple-digit growth business for us and so stay tuned.

Okay, thanks for taking the questions.

Your next question comes from Manny Recarey with Kaufman Brothers.

Good morning. Thanks. You had mentioned that you have experienced slowdowns in the webcam market before. Could you comment on typically how long that that has lasted, the slowdown, and how long before you started to see a rebound?

Well, if you look at the growth profile of several of our product lines, including webcams, we have seen slowdowns meaning negative growth -- that is what I mean by slowdown in this particular case, negative growth to us -- that lasted between one and two quarters. I would not go as far as mentioning what will happen with webcams right now but as I mentioned, the main driver of this decline on our side is a significant slowdown of market growth. We are planning to reignite that. I would not expect that will happen overnight. We point to the second half of the year as the time in which we expect our sales to rebound at the double-digit level. We are not providing more details. It is a short time -- it’s an appropriate -- certain that what we believe we can do over time.

If I can move off into the webcam market, looking at the Americas versus EMEA, Americas I think were up 9% but units were down, where EMEA I think the units were up as well as the revenue was up. Could you give a little bit more color on what is going on in the dynamics there for mix?

Well, Mark said a few things about what drove growth in the region. I would say that growth was driven by higher price point products in AMR than in EMEA. For example, we had a tremendous success with Harmony 1000, which is, while very affordable and correct at price, a pretty expensive product. So that helped a lot in the ratio between revenue growth and unit growth in the AMR.

Thank you.

Your next question comes from John Bright with Avondale Partners.

Thank you. Guerrino, Mark, and Joe or was that Gene?

Thanks for bringing that up, John.

I wasn’t sure how that was going to go there.

We knew you would probably weigh in on it, John.

We talked I think of webcams ad nauseam. Let’s talk on the cordless side of the equation. I think the drivers, it looked to be a pretty strong tick on the cordless side. Can you elaborate on that first? And then, two other segments, if you could elaborate. Gaming, a real big quarter; PS3 I think certainly a driver there. Guerrino, I think it was you that mentioned the potential of getting into Nintendo this year as well. Can you elaborate on that please? Lastly, on the top line, the OEM, very strong double-digit growth on the OEM. How sustainable is that heading into fiscal year ’08?

Well, you asked about cordless, gaming and OEM. Yes, cordless was -- first of all, cordless is our largest category so to see that kind of growth in our largest category and a category that has been pointed to as sort of a dead body for some point in time is actually what I was trying to say in a little bit more politically correct words before, which is we have seen this. Things come back. The market is there. In this particular case, not only our cordless mice did great but our cordless desktops and keyboards were just phenomenal, which means of the a category that among the dead was considered that most dead is the one that drives that most growth. Sometimes things are not as they appear. I think innovation played a huge role there. I think the diNovo Edge was fantastic, but even the mainstream, well-priced and for once well-featured mid-range did great in cordless desktops, the vanilla mid-range desktop that has been a source of concern for a while. Those were the culprits and as I said in my remarks, I would not be surprised if this cordless desktop and keyboard categories becomes one of our largest drivers of growth next year, or this year. On gaming, first of all the first commentary is we are absolutely pleased with what is happening in PC gaming. This category is another category that we have given some depth three years ago has actually done wonders to us. I believe that what we did in gaming keyboard and gaming mouse, particularly gaming keyboard, is just phenomenal and we believe that it will continue to sustain growth. Yes, we are finally back on consoles. It took some time. It took for PlayStation 3 to finally get out of the penalty box and not only launch in Europe but establish itself elsewhere. This is the cycle and this is when we thought that we would start to see growth and we are seeing it. We have a few products and others coming. Yes, I said we will go Nintendo. We have not had a product for a Nintendo platform for I think three or four years, something like that. We had a wheel, modestly successful wheel on previous generation Nintendo Gamecube. We think we can do a lot, especially in game-specific devices, but I think my PR people will kill me if I say more, so I won’t.

Anything from a Microsoft standpoint in that arena?

Not much. Microsoft continues to have the cloister they have on licensing and we have never depended on them here and we probably won’t.

Right.

You asked about OEM. Yes, it was great to see that finally we were out of the tunnel in OEM growth and we have seen with a very strong 16% growth this quarter. We believe we will see growth. It is hard to pin it. It is kind of -- I am hopeful that we will see double-digit growth but it is a little bit more uncertain than when I talk about our 15% growth for the company.

Right, right, so then just a couple of final ones. You now have two quarters in a row of 34% plus gross margins. You are talking about the high-end for fiscal year ’08. You have made a number of changes that you have put in place. What is the sustainability do you think of staying up there, that 34% gross margins, particularly as you have again some newer products that have come online as we approach the June-August timeframe?

We do not expect our new products to be a negative impact on the margin, so that -- we have learned some lessons here. On the other side, I think that 32% to 34%, as we are driving for top line growth, we have to assume the 32% to 34% is a reasonable estimate of our sustainable gross margins. For fiscal ’08, we expect to be at the high-end of this range, as I said, but the core thing that matters to us is that our current gross margin levels provide us with increased flexibility to maneuver in what is a very highly competitive market. If anyone ever thought that the markets in which we play is a piece of cake, they are not. We can handle it but we need to use all the levers we have and I am very happy that we have this little cushion on the margin side to play the growth in.

Right. Last one, Mark, on the operating -- on your other income. It looked like you had something a little bit better, or something in the other income other than an interest expense benefit, or an income benefit. Can you talk about that?

A couple of things here, John. One on the other income, other expense line. We had the gain on the sale of the Anoto shares. We had a small gain of about $2.5 million from that standpoint, so that is one of the things there that created a slight improvement year on year -- not hugely material but something to call out. Then, as far as on the interest income, the other aspect of that, it is no surprise with the cash balance being up so high plus we are getting a higher rate of return. That gave us a nice lift in the interest income as well. So those are the two dynamics, John.

Gentlemen, thank you.

Your next question comes from Michael Foeth with Banque Vontobel.

Good afternoon, gentlemen. I have a few questions. First of all, regarding the iPod peripherals market, you note a decline. My question is, is that decline specific to Logitech or is the entire peripherals market down? Is it somehow related, do you believe, to the launch of the iPhone that is coming up? That is the first question. The second one would be regarding Harmony. If I recollect correctly, in 2008 you will eventually have to pay some earn-out for the Harmony acquisition. Can you be more specific on how much cash outflow do you expect on that? The third question is just a clarification, whether the market share loss in webcams, you said 10 to 15 points. Was that basis points or percentage points? Thanks.

I will take the first and third question, and then I will let Mark comment on the earn-out for Harmony. On the iPod market, we saw a softening of the market in general out there, iPod peripherals. Is that long term, short term? It is very hard to say. Is it related to iPhone? Very hard to say, I do not think we have enough information to assume that. I doubt it, frankly. We feel that this could be one of those cycles that happens in these markets. In this particular case, we do not have a particular market development. We participate, we have great products and they are a fraction of our sales. We hope to increase it, but it is not so much on the radar as other things. Your third point was -- I am sorry, I did not --

Market share loss in webcams.

The market share loss -- we started the cycle, let’s say, a year ago. We were at the peak of our market share, which was around 60% to 65%. We are now around 50% to 55%.

The third point, just following up on what Guerrino was asked, is with respect to the Harmony remote; Michael, you are absolutely correct. Actually, you will see that if you look on our balance sheet and the intangible assets, you will see an increase year on year, substantially. That is basically we have accrued an estimate of $34 million for the earn-out, so we are just absolutely delighted with the full picture of the Harmony business and the purchase. You know, the original purchase price we had, plus the earn-out, and you can see the size of the business and the capabilities. You are right to spot that. That is where you will see it in the year-on-year compare at $34 million. That is a preliminary estimate. Without going into too much detail on how it is calculated, there are six quarters that have to be assessed before the final calculation is done but that is the minimum that would be there.

Great, thanks. Just a last one, if I may. In the OEM business, is there any business related to Sony on the OEM side or is it only keyboards and desktops?

I believe, and I can ask for help from the people in Freemont, I believe it is marginal at this point but that said, with the cycle of PS3 and the other opportunities for OEM in gaming to increase.

We do have some, to your point, small participation with Sony on the OEM side.

Your next question comes from Tavis McCourt with Morgan Keegan.

Hi guys, just a couple of quick follow-ups. Guerrino, you mentioned expecting to get back to double-digit growth in webcams in the second-half of the year. I guess it is a pretty material difference if you are talking about getting back to double-digit growth on top of the Q3 number or the Q4 number. Do you think there is a chance to get back to that level by Q3, or are you talking about double-digit growth on top of the Q4 number you just put up?

That is a very specific question for me. Let me look at my crystal ball here. I believe that if you took Q3 and Q4 combined, you can see double-digit growth over that.

That’s helpful. And then in terms of the market share commentary year over year you obviously mentioned, do you think you guys were pretty flattish sequentially or do you think you lost some more market share sequentially in webcams?

No, we did not. We actually were flattish sequentially, so what we did experience in November, which was a bigger loss, we recovered in December and we sustained it.

Great. And then my real question relates to Harmony remotes, which I suspect are mostly in North America now. Can you talk about the timing or the strategy of launching those or getting that market more developed in EMEA and APAC?

Yes, let me talk about EMEA which is the biggest growth opportunity we have. We have begun an approach to develop channel competencies for selling Harmony which do not exist as such, and so have taken a little bit longer than in the U.S. Let me give you an example. One of the largest Harmony customers in the U.S. is Best Buy. Best Buy has a phenomenal business which is called the Geek Squad, you have probably heard. The Geek Squad is much of the way Best Buy makes its money, and it is a group of people that come to your place and install and service everything -- very well-received by the American consumer. This kind of capability is not as developed throughout Europe and therefore it is taking time. So we are focusing towards not only the big box retailers in Europe but also to more specialist AV retailers. They are the more natural Harmony channel. We expect to have substantial growth in Europe with Harmony moving forward.

Is there any product development that needs to happen for that, or is it really just a distribution issue?

No, it is a distribution and channel development challenge. The product is actually available in multiple languages and you can buy it in Italian and German and French and many more languages now.

Thanks very much.

We will take a last question.

Your next question comes from Odon de Laporte with Cheuvreux.

Thank you very much for taking my question. Most of my questions have already been asked but I was wondering if you consider to be more aggressive in prices under the webcam category. Given the fact that this category has very high margin, don’t you feel that it could affect the margins in the second part of the current fiscal year? Thank you.

There are many things that we will do with webcams, and I cannot and will not be more specific, due to the competitive nature of the information. Let me just make a comment on margins. You have seen us post a substantial margin this quarter, and the highest margin we have ever had in a Q4 in history, in memory. That, in spite of a 32% decline in webcams. So the margin of the portfolio is quite healthy and I believe that even a small erosion in webcam margin, if any, combined with growth will bring us to a substantially, at least an equivalent margin level, if not better, so I would not particularly be worried about that.

Thank you very much.

Let me close this call. Thank you very much for attending today. As I said at the beginning, this was a banner year for us. We grew in the mid-teens. We added more than $60 million to our net income. Our margins are strong, our balance sheet has never been healthier. Most importantly, we see the opportunity to continue this long-term growth path in the mid-teens in the foreseeable future, thanks to the multiple drivers in the portfolio. As the product categories go up and down quarter after quarter, over the years we have demonstrated a strong ability to develop markets and reaccelerate growth. Just a few examples, we created the webcam category. We created cordlessness for the PC and we transformed a dormant remote control market to what it is today. I am confident that this ability and our results will again play a significant role in the coming quarters and years. With that, thank you for joining us today. Have a good day.

This concludes today’s Logitech fourth quarter fiscal 2007 earnings conference call. You may now disconnect.