Good day and welcome to the Logitech third quarter financial results conference call. At this time, all participants are in listen-only mode. This call is being recorded for replay purposes, and may not be reproduced in whole or in part without written authorization from Logitech. I would like to introduce your host for today's call, Mr. Joe Greenhalgh, Vice President of Investor Relations at Logitech. Please proceed.

Thank you. Welcome to the Logitech conference call to discuss the company's results for the quarter ended December 31, 2008 in the third quarter of Logitech's fiscal year 2009. The press release, a live webcast of this call and 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 1995, including forward-looking statements with respect to future operating results. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those anticipated in the statements. Factors that could cause actual results to differ materially include those set forth in Logitech's annual report on Form 10-K dated May 30, 2008 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. Forward-looking statements made during this call represent management's 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, the presentation slides accompanying this call are also available on our website. Joining us today are Jerry Quindlen, Logitech's President and Chief Executive Officer, and Mark Hawkins, Senior Vice President of Finance and Information Technology and Chief Financial Officer. I would now like to turn the call over to Jerry.

Thanks, Joe, and thanks to all of you for joining us. I'm going to start with a brief overview of our performance and then hand it over to Mark to go into more details on our Q3 results. I will address our view going forward following Mark's comments. Q3 was very challenging as our results fell significantly short of what we had anticipated when we started the quarter, as both retailer and consumer demand deteriorated during the quarter. The deepening global recession had a dramatic impact on our operating performance as our customers, particularly in the Americas and EMEA continued to reduce inventory levels in the face of weaker consumer demand. We were able to deliver sales growth in Asia, but our growth rate slowed significantly from prior quarters as the recession became visible in various countries there as well. We have long followed a strategy of providing customers with the best products in our categories at all key price points, and the importance of that strategy was visible during the third quarter. While our retail sales declined by 16%, our unit sales were down 10%. More significantly, the percentage of our retail sales of products with ASPs below $50 increased by nearly 10 points compared to the prior year, while we saw only a modest decrease in the percentage of sales of products with ASPs above $100. We believe the value of having a broad presence at multiple price points is even stronger during a period of deteriorating economic conditions. In addition to the drop in our sales, the year-over-year decline in our gross margin was the main cause of the steep drop in our operating income. The lower gross margin was primarily due to the combination of a significantly stronger US dollar compared to the prior year, and the increasingly promotional environment, especially in the US. I want to emphasize that we don't view these factors as being permanent. We have already begun to adjust our pricing in EMEA to offset the stronger US dollar, and we expect that pricing conditions in the Americas will eventually improve. We believe our long-term gross margin target range of 32% to 34% remains valid. We were able to significantly scale back our operating expenses during Q3 in anticipation of the challenging environment, and we're taking similar actions independent of the restructuring to reduce our spending in Q4. And despite the worsening macro conditions, we continue to generate positive operating cash flow, and we ended the quarter with $482 million in cash. Now, let me turn the call over to Mark to provide more of the financial details.

Thanks, Jerry. I'll start with an overview of our Q3 sales performance. Please note that the growth percentages that follow are in comparison to Q3 fiscal 2008. Excluding the unfavorable impact of exchange rate changes, our total sales, retail and OEM combined, declined by 12%. As Jerry mentioned, our retail sales fell by 16% with units down 10%. Our sales were down by 21% in the Americas and down by 19% in EMEA, and we delivered 8% growth in Asia. Now, let's discuss net sales by product family starting with retail. I plan to provide color on individual product performance as appropriate, but I want to emphasize that the rapidly deteriorating retail environment was far and away the biggest single cause of the varying degrees of weakness we experienced across most of our product portfolio. Retail sales, Pointing Devices: Sales fell by 20% and units by 19%. Our cordless mice were down by 10% with units down by 6%. Sales in the cordless mice category were down by low single digits, except at the high end, where the decline was much steeper as consumers shifted to our value priced offerings, such as the V220 Cordless Optical Mouse. The notebook category mice held up relatively well with sales and units down by just 2%. Retail sales, Keyboards and Desktops: Our sales in keyboards and desktop category declined by 28% with units down by 15%. Beyond the impact of the weak macro environment, what we are seeing in the mid-range and the low end of the category is a product mix shift, away from the cordless desktop, and toward lower-priced standalone keyboards, as consumers exercise their freedom to pair one of our keyboards with a make of their choice. Sales in our desktop category were down by 34%, although the sales of…

Thanks Mark. Let me begin my commenting on what we expect in the short-term. Unfortunately, all indications point to even weaker retail environment in the coming months. Holiday sales were the worst for retailers in many years and there is no reason to believe that consumers are ready to accelerate their buying any time soon. Now, our channel partners live with us on a daily basis, and have grown even more conservative in setting their inventory levels. Consequently, our plans assume that in Q4, the year-over-year declines in our sales, operating income and gross margin are likely to be similar or worse compared to Q3. We are taking a number of proactive steps to manage the company through this extended downturn. Given the current environment, we’ve temporarily shifted our financial focus away from driving growth to protecting our assets, namely our balance sheet, our brand and our reputation with customers and consumers alike. But our focus on, and commitment to new product innovation remains unchanged. Now the most significant step we’ve taken is to restructure the company. We plan to reduce our global salaried workforce by between 550 and 600 employees. This plan is expected to generate annual cost savings beginning in 2010 of approximately $50 million. As a result of the restructuring, we expect to incur a charge of approximately $16 million to $18 million during the fourth quarter of fiscal 2009. Let me provide more detail on our approach to this restructuring. All functions across the company will be impacted to varying degrees, including R&D, but we have made it a top priority to minimize the impact on our ability both to drive new product innovation, and to support our retail and OEM customers. As you would expect, functions that aren’t directly involved in new product development or…

And the first question comes from Andy Hargreaves with Pacific Crest. Please proceed.

Hi guys. Can you just comment a little bit more on the retail inventory, is it that most of your big customers ended the quarter at a comfortable level or will we continue to see reductions in inventory coming into this quarter?

Yes Andy. In general, retailers are continuing to be extremely conservative with their inventories and they will continue to be until they see that consumer demand has stabilized. In general, while retail inventories came down, in many cases sales came down even further. So, I think at this point, retailers are taking an attitude of being just very, very cautious about the amount of goods that they willing to have on hand. And in terms of our planning assumptions, I don't think that's going to abate until they see signs of stability in consumer demand.

Okay. And then in terms of your co-marketing with them, have you changed the amount of dollars that you're using for co-marketing? And have you lost any shelf space or given up any shelf space to conserve those dollars?

No. We haven't lost any shelf space at all and in fact, we’re using this downturn as an opportunity to try and gain shelf space, particularly from more marginal players. So, retailers in general are starting to reassess their overall space allocation in categories during a time like this. They’ll look at a category and say, do they have the right amount of space allotted to it in general. And sometimes they will make the decision to reduce the number of suppliers and we think if they do make those decisions and the smart ones will, that’s an opportunity for us because we’ll always be one of the suppliers that they want to keep because we constantly innovate. So we view it as an opportunity going forward.

Okay, thank you.

Thank you, Andy.

And the next question comes from the line of Jonathan Tseng. Please proceed.

Hey, it’s Johnny Tseng from Merrill Lynch here. Just a couple of questions on the FX. Now in the past you have always maintained that the moves in your dollar rate doesn’t make as big an impact on the margins because of LIBOR [plus income]. That seems to have changed this quarter. I was just wondering what’s the difference to what’s happened in the past. Is it the magnitude of the dollar weakening? Is it volatility or the timing around the end of the quarter? Can you give any thoughts on that?

Hi Johnny. It’s Mark. Yeah, glad to speak about that. I think part of the dynamic is that it’s a very different situation right now. As I think we can all appreciate, it is an unprecedented situation. The foreign exchange in Q3 was very quick and steep, and very disruptive. And what we typically do to achieve equilibrium in our pricing is that we make thoughtful adjustments over time that help dissipate the effect and that’s a normal thing that we do and we’ve done it and it’s tried and true throughout the years. In this particular environment, it’s even more difficult to make those thoughtful adjustments but part of the issue is the steepness and the quickness of this change. The other point to kind of keep in mind in terms of how the situation is so different, Johnny, is that if you think about in the past, let’s say over the past couple of years, you saw a very gradual change over a long period of time, where, for example, the dollar was weakening and the macro environment was conducive for us taking the time to adjust the price lower in euro, to dissipate the effect on the gross margin, and do that in a very orderly fashion. And you could see analytically, in our IR days that we covered, in multiple IR days, how that equilibrium holds up over time analytically. So, I think the difference is a very different circumstance I think, very disruptive for sure.

Okay. In terms of the margin, the gross margin impact from FX in the quarter, was it more on top line with the euro denominated where it has been worth less in dollars, or is it more on the kind of, the rising COGS [cycles]. I would have thought the COGS would have implied, seeing kind of more historical FX rates, and is there a hit from that to come in the current quarter?

Yeah. I think when you think about the effective gross margin, there are really two things to think about Johnny. One is the dollar, euro dynamic at the top line very specifically that you are asking about. The second impact and it was alluded to by Jerry and I is that the promotional effect was really significant, and it deteriorated as it went deep into the quarter. I think we can see the retail market, as Jerry talked about, was getting increasingly difficult and the promotional environment got increasingly difficult, and certainly bigger than we’ve seen in the past.

So in terms of your input costs for the products that you sold in the quarter, they were where you effectively knew more expensive dollar rates. Is that another hit to come?

The input costs were not a major factor in this quarter. In fact, even more specifically, Johnny, is that if you think about some of the dynamics in commodities and such, if they hold where they are at, overtime, that’s going to be good guide for us. It just takes a couple of quarters to kind of work that through the system, and this is a little bit of what we touched on the IR day, but not a big impact in this quarter. We think that will be a good guide going forward. We have factored that into our internal planning.

Thanks very much.

And the next question comes from the line of Manny Recarey with Kaufman Brothers. Please proceed.

Thank you. Good morning guys.

Good morning.

On the cost cutting and the restructuring, I just want to make sure that I’m thinking about this correctly. You say that the restructuring is going to save you about $50 million in fiscal 2010, and then another $50 million or so somewhere in that range in terms of variable cost cutting that you’re going to do, so it’s kind of a total of somewhere around $100 million. Is that thinking correct?

Yes. I think you are thinking about it right Manny. What we said is that the personnel related savings from the reduction of between 550 and 600 in professional headcount will generate about $50 million in annual savings, and we’re targeting a similar amount in what we would call variable expenses, and Mark articulated what a number of those were. So, I would say in general, you’re thinking about it right.

Okay. And then about the price adjustments that you’re making in EMEA, in this type of environment: do you believe it’s going to be kind of difficult to raise prices?

Yes, first of all, we’ve already taken the actions; it’s been completed. The thing to keep in mind is, we work with our channel partners, and we didn’t need to make significant increases in order to try and mitigate some of the impact of the stronger dollar. We did it very selectively, and the other thing to keep in mind is that a number of our competitors have also done the same thing, although not all of them, but a number of our competitors are facing the same headwinds from a stronger dollar and they’ve also raised prices. So, that’s what I’ll say to that.

Okay. And one last question on the growth margins; some of the headwind's going to be on the promotional side to try to move the slow moving inventory. So, the way to think about it is that, the offset to that which Mark just mentioned about let’s say, the transportation and the input cost, is it going to start showing up for another quarter or so? Is that the way to think about it?

Yes, Manny, I think you’re thinking right that concerning the input cost, there is a lag effect to move all the way through it. I think the gross margin, again, you called it out, and the promotional activity, has been intense. It’s been impactful, and hence, when we talk about our internal planning thinking for gross margin, it could be similar or even worse in Q4. But concerning the input cost, there will be a lag effect that could happen, and if they stay in place as they are today, we’ll see some benefit in a quarter or two.

Okay. And just to clarify that, similar or worse, you’re talking that, it seems like a 7% decline from December quarter '07 to December '08. So, are you talking that type of magnitude or larger? That’s what you’re talking about as opposed to the absolute gross margin level of 30% or somewhere around there?

Manny, the planning assumptions that we’re using for sales for gross margin and for OpInc are that they will be similar or probably worse, because we said in general we expect the conditions will get worse before they get better. We’re trying to be brutally realistic and so, across the board we’ve said that we think for sales, for OpInc and for gross margin Q4, conditions will likely be similar or probably worse than what we saw in Q3.

Okay. Thanks.

And the next question comes from the line of Thomas Schneckenburger with UBS. Please proceed.

Yes, good afternoon gentlemen. Sorry, I also have one question regarding to the gross margin, because I thought on Investor’s Day to come back to what you said and you showed us the charts, and also now on your price adjustments in EMEA, on a couple of a price applied coming back, plastics pricing coming back, and transportation cost coming back significantly. So isn't it fair to assume that this must be really a drought quarter now in Q3 or it must have been a drought quarter and that it should become better now going forward? That's one thing. And then I would be interested in the share of commissions in your personal cost, assuming that with sales going down substantially and remaining 20% down. What can you say in terms personal cost for your sales first? And the last point would be on the component suppliers. You also mentioned in Investor's Day that you have to support some of your main suppliers and today you mentioned that some of your competitors are in serious trouble. Don't you think we should expect some pressure also on DPO going forward because we have to support them more strongly? Thank you.

Okay. So a couple of things here, I'll try to break this down, Thomas. One is, it’s about the gross margin in some of the commodity activities that we talked about in the IR day. Again, one of the things we said in the IR day was that we will get a benefit of that, if things hold as they are today, but it takes a while to work it all the way through the system, to the inventory, and to the purchase contracts. And hence, our view is a quarter or two out and that's kind of the view that we had at the IR day. In terms of pricing adjustments, we did talk about the equilibrium for foreign exchange and how our pricing adjusts, and that those things happened rapidly. It can be disruptive and challenging to put that all together. The thing I would emphasize, Thomas, I want to make sure I get right to the spirit of your question that, the promotional activity was obviously a major factor in this quarter and the deterioration of the retail environment and the promotional dollars related to that certainly had an effect on us. So I’m trying to make sure, I’m trying to listen carefully to your question but hopefully that frames it. In terms of your commissions, you’re right. When sales are down there’s less commissions. Jerry’s talked about the bigger picture in terms of the personal expenses. We’ve talked about the fact that there’s fewer head count, let alone the fact that there will be less commissions at least historically in Q3. And the last point is on the component supplier. In terms of DPO, I can tell you that in this quarter our DPO was fine. In fact it improved slightly year-on-year. So analytically in Q3 we’re fine. We don’t give forward looking targets but we obviously monitor very carefully how our suppliers are doing financially.

Thomas, this is Jerry. One of the reasons that we believe, that gross margins will remain under pressure is because the retail environment is going to remain promotional for some time period, until consumers settle down and are go back into stores at more normal levels. And secondly we finished with more inventory than we want and we’ve acknowledged that we’ll have to selectively use promotion to move goods there and that will keep some pressure on gross margin. So that’s one of the reasons we’ve said that it’s likely to be similar or worse than what we saw in Q3.

I really got this. It’s just that you might equate -- you made it quite plausible that it takes a lag effect and that we should see the first improvements in Q4. If I remember right this is the hardest part of the question.

Okay.

Thank you very much.

And the next question comes from the line of Tavis McCourt from Morgan Keegan. Please proceed.

Hey, Jerry and Martin. Just a clarification on, the kind of $100 million cost savings goal for next year. Is that something we should look at for modeling purposes, comparing fiscal 2010 relative to 2009, or is that kind of up on the run-rate where you finished last quarter and if you could talk about any of the timing of those expense reductions? Is this once off or does it happens throughout the year ? And then I had a question in terms of how you are guys are managing what appears to be increasing bankruptcy risk amongst your retail customer base. And you obviously managed the Circuit City issue relatively well. But are you tightening up on terms with retail customers and how do you manage your situations like that in terms of credit?

Yeah. Okay. Let me take a short of that. And in terms of the $100 million of cost savings, again it’s truncated into two items. One is the headcount reduction that will happen largely in Q4, so that will impact our cost structure fairly immediately from that standpoint. The next part is that if you look at the other $50 million, I think the way to think about that is the seasonality related to the way we spend our OpEx historically. Think about that other $50 million kind of co-rated with the seasonalities that we typically have and I think that would be a way to think about the OpEx. And the, a point I would again like to underscore is, on the variable side, of course we are focusing very much on the things that don’t impact innovation nor customer touch points but rather things that are G&A and other things that are not related to that. So we are being very choosy in that regard. And in respect to the bankruptcy, much like we did Circuit City, we have been on high alert in terms of credit for some time. First of all, we have credit insurance in most parts of the world, and that is a helpful dynamic. Secondly, we manage our terms very carefully, and one of the things I called out that I’m actually fairly pleased about in the cash conversion cycle, is that we held the line in DSO year-on-year, which is not an easy thing to do in the current environment. We’re monitoring very, very carefully global Air customers, and we have a very, very rigorous process, which is a really paying off right now. We’ve been focused hard on our credit management over the last three years, and it’s really paying dividends right now. It not as if they we’re exempt, but it’s paying off.

Tavis, this is Jerry. I want to make sure I clarify one thing that I think you’re asking. The savings related to the restructuring, while the restructuring will be completed in Q4, the savings will not begin to be realized until Q1 of FY ‘10.

Okay.

Just to be clear about that.

That’s very helpful. And then there is just a follow-up on the gross margin impact. Is there any impact from, less absorption from your fixed cost overhead of your manufacturing? Are you able to scale that down relatively quickly for the new level of volume?

There is some effect on the lesser volume, lesser scale to a degree, again, because it’s in order and fairly rapid. It effects, but it’s a second order effect, Tavis. The big dynamic is the promotional activity in a very intense retail environment on a year-on-year basis and then the dollar as we’ve described.

Thanks, Mark and Jerry. And good luck.

Thanks.

Thank you.

And the next question comes from the line of Simon Schafer with Goldman Sachs. Please proceed.

Yes, thanks so much. Just a follow-up question on this point about the health of your channel partners. I think you went through most of the implications conceivably in terms of working capital, but is there such a sea change happening whereby there could be a risk, you are just loosing such a high number of channel partners at the retail level that the company just needs to originate different sales channels and refocus that outfits on something like online or something else. Is that so structural that we need to think about something else from a cost perspective or finding different channels?

No. I don’t think so, Simon. What we did see in the quarter was, I’ll say a shifting consumer buying behavior amongst channels, but they are channels we already do business with. For example, the online and so called 'e-tail' channel was quite strong in the quarter, as was discount so Wal-Mart did well in general and we did well with Wal-Mart. We did well with Target, we did quite Amazon, TigerDirect and people like that. Yes, consumers are shifting their buying behavior during a time like this, which is not a surprise, but we’re already in those channels and we have a very healthy presence. I think that there certainly been selected high profile failures like Circuit City. But, so far, we haven’t seen other than Circuit City and CompUSA a couple of years ago, I could not point to really too many other retailers that were significant customers of ours that have gone out of business. So, our channel base is actually fairly stable.

Understood, thank you. And, then just a second question again on, I am sorry to harp on about gross margin. But, presumably, the world doesn’t feel as if the sort of promotional spending, all this sort of miscue that we’re seeing in the world has any reasons to change. So, I guess the simple question is do you think there is much of a change to this "check-with-your-spouse" price points that may have gone down from $100 to something less. So in other words, is there really a structural change there from one to two year perspective whereby gross margins stay below 30%?

Well, I absolutely still believe that the "below-check-with-spouse' threshold is what we've always called it is still valid. What we are referring to is the fact that we have a very robust, and what we've always said is we have a very robust portfolio. We have a different business model in that 85% of our products are sold for less than $100, and in times like this, we are perfectly positioned to take advantage of a more price sensitive consumer. Now they may trade down from some of our higher price mice to some of our lower price mice or keyboard or whatever. But again, we are well positioned to take advantage of that, and if it happens we see it more as a temporary shift. And we are not necessarily concerned about it because our margins are very strong at lower price points just as they are at higher price points. But, we have always found that if we add meaningful innovation at a higher price point, people respond to it. We saw it with our Pro 9000 webcam recently for example. And we don't believe that has changed one bit. During a period like this, we probably will see some more shift down to lower price points, we saw in cordless mice this quarter I think. But, we still had very strong movement, very, very sales at lower price points. So, we still believe that philosophy holds and is valid, and when the environment returns to what I'll call more normal macroeconomic environment, I think consumers who may have moved down to lower price points will move right back up to higher price point, more value added products.

Got it. Thanks so much.

And the next question comes from the line of Michael Foeth with Vontobel. Please proceed.

Yes. Hi gentlemen. I would just have a clarification question. Jerry, you just answered or gave a side note about the savings, the $100 million savings, whether we should compare it to Fiscal '09 or the previous run rate. Could you just repeat that? I didn’t understand?

Well, Mark made the comment but what I was trying to clarify was, I didn’t – we have said that the restructuring would be complete Michael in Q4 but the savings do not begin to materialize until Q1 of FY ‘10. I didn’t want there to be any misunderstanding about that.

Okay, great.

And just the other thing Michael, that is for a full year, right.

Okay. And then I would have two small questions, one regarding acquisitions. Is that still something you are looking at or is that come to a halt for the time being?

Yes. The way we’re looking at acquisitions right now, we’ve said and Mark commented on it in his remarks Michael that, prioritizing our cash is at the top of our list. Now we continue to scan the horizon for potential acquisitions but in general, what I would say our posture is right now. In the last two years we purchased four companies including two in the last five months. We are actively engaged in fully integrating those companies, Slim Devices, WiLife, SightSpeed and Ultimate Ears, fully integrating them into our business model and extracting the full value from those companies. And, so while we continue to scan the horizon from an M&A standpoint we’re taking a cautious approach, that’s what I’d say. Maximizing cash is our priority and so that’s how we’re looking at M&A right now.

Okay, thanks. And my last question would be regarding tax rate. I understand that it fluctuates in the quarters but it was quite a massive spike there. So what do you expect for the full year and does your longer-term tax guidance still -- is it still valid?

Michael you’re right. We talked about it fluctuating and it has fluctuated in the past. But I take your point on the fluctuation. In terms of the full year target one of the things we are not giving full year target because we would do our target at this stage. You should expect when update our targets we will do this because it’s interlinked with our overall targets. So it’s driven by geographic mix and the various countries where we are making income and that’s kind of where is at right now. But we have seen fluctuation in the past and certainly this quarter was the case.

But you don’t assume that the geographic mix is going to shift massively in short term?

Yeah. Again I’m not prepared to get into too much detail on this thing. I would just look and say that if you look backward you will see some fluctuation historically, that there will be some historical fluctuation and I look forward to giving you updated targets but…

Okay, great.

Yeah.

Thanks a lot.

Yeah. You bet.

And the next question comes from the line of Yair Reiner with Oppenheimer. Please proceed.

Yes. First, what we seen through January right now, can you just discuss what the trends have been since end of the Christmas shopping season and how that maybe compares to prior years?

Well I think what I can say is we haven’t seen any improvement from the conditions at the end of Q3. Beyond that I don’t want to say a whole lot but we haven’t seen any improvement and we’ve already shared with you what are planning assumptions are for Q4 that we think it will be similar or probably worse than Q3. Yair Reiner – Oppenheimer: Okay. In terms of the promotional price activity, have you been satisfied with the elasticity? In other words when you reduced the prices, are you seeing the demand bounce back as you might like or are you sensing that elasticity is also beginning to weaken?

We don’t reduce prices. I mean I don’t think that’s the way to think of it. In general, what we’re referring to is, what I have seen retailers say in general, about the fact that, in December for example -- in the month of December, the environment got even more promotional than it was in the first two months. And I think, as retailers see fewer and fewer consumers come in to their stores, they tend to just discount much more heavily, and that affects us and our vendors. But we think that environment is going to be with us for a couple of more quarters, and then things will return to I would say, a more normal pattern. And it’s especially acute right now in the Americas as you would expect, but we’re also beginning to see it in EMEA and even a little bit in Asia. Yair Reiner – Oppenheimer: Got it. Final question. Have you made any adjustments to executive compensation?

Well, our executive compensation is heavily tied to overall performance metrics of the company. And we have not made any changes, but we’ve always had our executive comp directly tied to the performance of the company. So that our executives are rewarded when the company performs well, and they feel the pain when it doesn’t, and that’s been our operating principle and we’ll continue to have that as our operating principle. But our executive compensation is also reviewed by the comp committee or the Board, and any changes that are made are obviously communicated publicly and have to be approved by the comp committee and the full Board. So, no we haven’t made any changes though, to directly answer your question. Yair Reiner – Oppenheimer: Okay. Fair enough. Thank you very much.

And the next question comes from the line of Chris Gretler with Credit Suisse. Please proceed.

Yes. Hi, good afternoon. I have essentially two questions, and the first relates to this reorganization. Do you expect this to have an impact on your mid-term target of the margin level, you have been discussing in the past, and anyway, just to be clear and precise, due to the notice withdrawal of your targets, you actually did only mean in the annual targets and not these mid-term targets, is this correct?

Well, we only provide annual targets, and at this point, we’re not even providing Q4 targets. I want to clarify that. We’re providing our Q4 planning assumptions. And we are not saying anything about FY ‘10. And frankly, we won’t make decision about whether to provide FY ‘10 targets until April, because right now the visibility is just so difficult. So, we don’t provide any kind of mid range targets. What I will say about our gross margin, I think I heard you say that, is that we still believe that the long-term model of 32% to 34% is relative. And we continue to believe that because over 27 years the business model has performed in that range when you look at the long-term. Frankly, a year ago, the question we were getting asked most often is, why aren’t you raising your target above 32% to 34%, when we had seen several quarters well above the 34% range, and we’ve always maintained that we think 32% to 34% over the long-term best captures our innovation model and the way we run the company. But we have always maintained that we think 32% to 34% over the long-term best captures our innovation model and the way we run the company. But we've always acknowledged that we see quarterly variability, both above and below the range. And that’s one of the reasons we’ve resisted the pressure a year ago to say that we should raise the range, but we do believe that 32% to 34% long-term range is still absolutely applicable.

Okay. Very clear. Thanks.

Thank you.

And the second question was with respect to your comments about the retailer's inventory. So, basically, if I got it right now, you've sold into the channel something like minus 12% in all currency adjusted this quarter. So, essentially it means the sellout by the retailers was no less than minus 12% essentially. So, would you basically be able to help me out on the inventory levels, you know, the retailers have typically and where you know, you will think they stand right now on, I mean, best is always, you know, do you have an inventory days number, but basically, just to give us an idea where we stand and how that to relate to history?

Okay. So, Chris, on the channel inventory, one of the things that will give you a sense is it declined both year-on-year and a declined in the major regions of the world, and it declined sequentially in high single-digit percent range. So that can give you a general sense here. So hopefully that gives you a little bit of a perspective.

Here is the other way I’d suggest you to think about it. Just as we said, we're trying to reduce our inventory, retailers; their two main high cost items are store personnel and inventory. And so, they are very focused on minimizing the goods they have on hand from all retailers, it's not specific to Logitech. We're not being a singled out. It's across the board. The other thing is, even though absolute levels of inventory have generally come down in just about all cases, in many cases sales have decline faster. So, as the retailers are looking forward, and you were correctly concluding, making their weeks of supply calculation. Even if they have reduced the amount of goods they have from us and other vendors, as they look forward, they might say, from a weeks of supply standpoint, if I am expecting that the categories are going to remain weak, I still have too many goods on hand. And that's what makes them continue to keep pressure on us and other vendors and buy less. So, I maintain that this pressure on inventory will not abate until the retailers feel a comfort level in general that consumer buying behavior is returning to a more normal pattern. So, we think this is going to be with us for a while until we see that dynamic take place with consumer buying behavior.

That was very clear. That's actually our economist pointed out, he says these sales to inventory ratios, they are completely abnormal, so I guess they have to correct first.

Right correct. That’s the right way to think about it.

And the next question comes from the line of John Bright with Avondale Partners. Please proceed.

Thank you. Gentlemen, video was the bright spot in the quarter. There seems to be an increased industry focus on video. Is this an area where there might be a bright spot for fiscal year 2010?

Well, John, you’re right. It was a bright spot. We’re not commenting on FY ‘10 today, but what I can say is, we’re pleased that the turnaround efforts that we started several quarters ago continue. Our acquisition of WiLife is helping, and one of the reasons we were so exited to add SightSpeed in October to the Logitech family is we think SightSpeed will be a platform to take us beyond. It will help us go further with PC-to-PC video calling, and it will also enable some very exiting things in the digital living room, which as you know is a major focus for us. So that’s one of the reasons we added SightSpeed back in October, but video is an area that is core for us. We’re very committed to it, and I won’t say anything about FY ‘10. We’re not giving any targets on that as you know right now but we look forward to talking to you more about that and other categories in April.

Terrific, and then a follow up. What impact if any on peripheral sales? Are you anticipating or have you seen from netbook sales, does it seems to be surging as a percentage of total PC, desktops and laptops. Any impact that you're seeing associated with those?

Well, I need to say two things about netbooks. We have netbooks factored into our future roadmaps. So netbooks have been in our thinking for a while, just as we adjusted our road map several years ago for notebooks when it became clear that they won’t impact our shift from desktop to notebook was fundamental and structural and would be with us but also keep in mind netbooks have been surging all year. And if you go back and look at the earlier quarters of FY '09, when for example, our pointing devices and other key peripherals, sales were quite strong. That was at the same time notebooks were strong. So we weren’t seeing any impact and we don’t -- we cannot point to anything that’s happening that is related to -- that is an impact from netbooks in terms of our current results. That said we are building netbooks into our future roadmaps and we think patch opportunities are there.

All right. And then lastly back to the M&A question, would you talk about product areas, a focus for M&A. If you look at the desktop today or if you look at the laptop or the netbook. You got most of the peripherals covered. Are there certain areas that you hope to expand upon and widen any offering within?

The area that were the most excited about and you can look at all by recent acquisitions were most of them and CD connection is the digital living room or the digital home more broadly that we’ve always talked about. And so I think that there is a ton of opportunities for us. That’s one of the reasons sites being exciting acquisition. Both WiLife and Slim Devices, Squeezebox product line are part of that whole digital home initiatives. So we will continue to be looking at that broad topic and it’s a broad space. There is a ton of opportunities for us that in that broad definition of the digital home that give us opportunities for growth going forward. So that’s the – there is a number of product categories under that but that’s the umbrella I would point you to say that, that’s been a big guiding post for us in terms of acquisition pots.

Got it. Thank you.

Thank you.

And our final question comes from the line of Alexander Peterc with Exane BNP. Please proceed.

Yes. Hi, thanks for taking my question and maybe just a housekeeping first. This would be related to the top products as a percentage of sales. You present a slide every six months, but I thought that maybe you could just give an assessment this second. What is the percentage of total sales?

I think you are [off line], could you repeat the question because we want to answer it but we are not sure what the essence of it was. Would you repeat it please? Or maybe we will ask the caller?

We are trying to get a clarification on the question please. Could you just repeat that or rephrase that for us please?

We will get the operator.

Operator?

Yes. Alexander, if you would press star one again to get back into the queue, please do so.

We will just wait here…

Okay, here he is.

Okay.

Go ahead Alexander.

Okay. Sorry about that. Stopped unfortunately. So just to clarify again, every six months you present a slide with the top 20 products as a percentage of sales. So could you maybe tell us in Q3, which one -- what was the percentage of your top selling product, and number two as well?

Let me just say, generally it has been pretty stable Alexander. I think the 3% to 4% for the top product of all the revenue is typically where it has been, and the second top product is been less than that. So it’s -- we don’t have any single product that’s overly dominating from that standpoint. But those are directionally, the ratios you should think about and so we talk about the top one and top two products.

Yeah, exactly. So is it still remade of one of the top selling products or has that slid a bit in the rankings?

You know, our mice are always in the top five of our products. I’m probably not prepared to get more specific than that right now, but it’s certainly in the top three, I’m sure.

Okay. Thanks. And can you just tell us a little bit about the audio category. Is you feeling that the actual markets for audio is a little bit better than the other markets or is it just that you are coming of a very low base if you look at here in a [unique] base and in their quarter-to-quarter and therefore that didn’t look as bad as other categories.

Actually, we are going over the audios in number of dynamics. First of all, our digital music speakers, our iPods speakers performed quite well in the quarter. They are up 34%. We introduced two great products in the quarter in our Pure-Fi family and they have both done very well, they are both priced under a $100. That was part of what we’ve talked about this in prior quarters that we knew that some of our -- we have some product gaps, we were priced little bit too high in a few cases and we said we have products coming that would fix that. There is an example of the innovation strategy at work up 34%. Our Squeezebox products contributed to the growth. Our PC headsets did quite well 25% and Mark talked about PC or excuse me -- ClearChat Wireless one of our headsets continues to perform well. In addition to that, PC speakers, we said that we -- PC speakers have struggled in the past and they were a big a reason why audio was down in prior quarters and while the selling it remains under pressure, we have begun to gain market share back in PC speakers particularly in the US. Where in the September through November reporting period we did quite well in PC speaker share, and we think somehow was driving that with some of our newer products. We introduced the product called the Z5 recently, a USB speaker doing quite well. So, what we have going on in audio is frankly a number of different products and I shouldn’t forget Ultimate Ears, the acquisition we just made in August. Small, the base is small but that’s also contributing to the audio result. So, we got a number of points in momentum, I will say in Audio, and while we haven’t fully fixed the PC speaker issues, our product gaps are being addressed and we are starting to gain share there. So, I think are the reasons audio was one of the great spots.

So, those really you are all making and the actual improvement of you line up there, do you have any clues to give us on the current quarter? Are you going, you know put a particular effort into one particular category?

In Q4, quite honestly, we're putting the effort across all categories. But, we've acknowledged in our planning assumptions that were facing a considerable headwind in terms of the general level of demand. We'll continue to try and build on the momentum we have in video and audio, and we've introduced new products in Q4 and we have plenty of great products planned for FY '10, calendar year '09. So we will continue to innovate through this downturn, and I am glad to end on that point, because, while one of the things I said earlier is we see an opportunity to gain share from weaker competitors, and one of the reasons is, we believe that we will innovate steadily. We know that we will innovate steadily through this downturn and we think many of them won't be able to. And that's always served us well on the past and you can see some of the results from your questions just in terms of what we've done in digital music speakers and PC speakers. And as we continue to do that in all the categories, we think we'll be able to gain market share and come out of this downturn stronger.

That was very clear. Thank you very much.

Thank you very much.

And this concludes our question-and-answer session. Ladies and gentlemen, thank you for your participation in today's conference. This also concludes the presentation and you may now disconnect. Have a good day.