Logitech Forecast, An Ill Omen For PC Makers (LOGI, DELL, HPQ, AAPL, GOOG, INTC, MSFT)

Computer peripherals maker Logitech International SA (NASDAQ: LOGI) has been having a tough year and its going to get tougher. The company posted an EPS loss of -$0.17 in its first fiscal quarter and yesterday the company clipped its outlook for fiscal year 2012 for the third time this year. There could be a warning here for PC makers like Hewlett-Packard Co. (NYSE: HPQ) and Dell Inc. (NASDAQ: DELL). Even Apple Inc. (NASDAQ: AAPL) may not be immune.

Logitech revised its revenue estimate for the fiscal year from $2.5 billion to $2.4 billion. The company estimates operating income will fall from $143 million to $90 million. When Logitech released its first quarter earnings in July, it revised sales down from $2.6 billion to $2.5 billion, and operating income estimates from $185 million to $143 million.

Yesterday’s announcement cuts the original operating income estimate in half, which means that margins are shriveling. In its announcement, the company’s acting president/CEO said the company now has a “thorough understanding of what needs to be fixed. Our strategy remains unchanged.” Ahem. Lowering operating income estimates by half doesn’t indicate that perhaps the strategy is wrong?

On gross margins, Logitech expects full-year margins to rise to 33%, from the dismal 26.1% in the first quarter, more than 7 points lower than in the same period a year ago. The company recently had to cut the price on its Logitech Revue TV box from Google Inc. (NASDAQ: GOOG) from $249 to $99, which certainly won’t help margins in the second quarter. Where the margin increase is supposed to come from is not specified.

Even though many of Logitech’s products are aimed at home users, its keyboards and mice also have a place in businesses. The company said in its first quarter Form 10-Q that it believes it can increase sales into enterprises, but if that’s part of their strategy to turn the company around, it could be just more wishful thinking.

As the economy weakens and large PC users like financial services companies announce tens of thousands of layoffs, the outlook for PC and peripheral sales has got to weaken. No company is going to replace PCs for people who are soon to be shown the door. Those companies aren’t going to be replacing keyboards and mice anytime soon either.

Logitech’s falling revenue could be a signal of continued weakness in PC sales or it could be a trailing indicator. Either way, expectations for PC makers probably aren’t going to rise on Logitech’s revised outlook.

And what about Microsoft Corporation (NASDAQ: MSFT) and Intel Corporation (NASDAQ: INTC)?  Microsoft has already unveiled a planned version of Windows and Intel still ends up in about 4 out of every 5 PCs made.  If peripherals are slow, imagine what a software upgrade cycle push-out could mean for new PC sales as well.

Less than half an hour before markets open Logitech shares are down more than -14%, at $7.47, which would be a new 52-week low if it holds. The current 52-week range is $7.85-$23.29.

Paul Ausick