Guerrino De Luca - President and CEO Mark Hawkins - CFO Joe Greenhalgh - IR

Yves Kissenpfennig - UBS Ted Chung - Bear Stearns Manny Recarey - Kaufman Brothers Matthew Yates - Merrill Lynch John Bright - Avondale Partners Odon de Laporte - Cheuvreux

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 President and Chief Executive Officer; and Mark Hawkins, Logitech's Senior Vice President of Finance and Information Technology and Chief Financial Officer. I would now like to turn the call over to Mark.

Mark Hawkins: Thanks, Joe. I will begin with an overview of our Q3 performance. I want to call out four major points in this overview: This was the best ever in terms of our performance for sales and profit in the history of this company. We delivered the highest gross margin for a quarter in the history of our company. It was the 33rd consecutive double-digit sales growth, as sales were up 15% to $659 million with the growth driven mostly by retail. We generated $171 million in cash flow from operations and this was the best cash flow quarter in our history. Now that I've set the stage via this overview, let's go ahead and turn to the specifics. As we normally do here, our comments during the call about gross margin, operating expenses, operating income, net income for Q3 '07 will be based on GAAP numbers that exclude FAS 123 R. We've consistently done this in the past. Let's talk about our gross margins. Our gross margins were at an all-time high at 36.3% and obviously this was pleasing. We like some of the analyst write-ups about this. It improved 170 basis points sequentially and by 400 basis points compared to the prior year. The improvement was primarily driven by the same factors that we discussed last quarter and that again is the launch of new products that had higher margins than the products that they replaced. Again, here you are seeing innovation and we're being able to get better margin for that. It was broad-based margin improvement with strong year-over-year gains in cordless, corded, video, audio and gaming. As was the case last quarter, the improvement in cordless was primarily driven by cordless mice and the improvement in corded was coming mostly in the keyboards. We were also pleased to note that our PC speaker margins continue to improve sequentially and year on year. Those of you that have been tracking this stock know that we've been working on our audio margins; we're making real progress. Please note that the percentages that will follow are in comparison to Q3 fiscal 2006. Our operating income grew by 29% and our operating margin improved by 170 basis points to 15.8%. Taking a closer look at our operating expenses, our sales and marketing grew by 25% with the growth driven primarily by marketing activities in support of our retail business and also headcount increases as we prepare the company for the future. Research and development was up by 25% with the majority of the growth driven by investments in product development in such key categories as video, audio and remotes. I also want to note and call out that our R&D spending also includes a one-time expense of $1 million for the purchase of in-process R&D associated with our Slim Devices acquisition. G&A increased by 49%, primarily due to headcount increases and consulting expenses. I think this is a continuing story. This is in support of our SOX 404 certification and our Oracle 11i implementation. As you turn then to net income, our net income grew by 38% and this is reaching an all-time high for a quarter at Logitech. Our net margin was 15%. Earnings per share grew more strongly up to 42% or roughly $0.51 per share. Let me add a few additional comments about our P&L here. I think if you point to other income, the first thing you will notice is that is up $1.5 million compared to prior year. That is related to exchange rate transactions. Secondly, our interest income is up nearly $1 million compared to the prior year. There are really three factors driving that: The first being that we are getting a higher rate of return on the cash; The cash balance is, in fact, higher. We no longer have the debt that we had for the debt expense associated with the convertible. Let's push on to the tax rate. The rate for Q3 was 9.4%. As it was said before, we expect our tax rate to vary by quarter, and in fact it has. But with that being said, one thing I want to call out is that you should expect our fiscal year tax rate, excluding equity-based compensation, to be between 11% and 12% for the full year. That is a bit of an update. That is down from our prior estimate of 13%. Let's move to the balance. Our net cash position was $356 million which includes $105 million reported as short-term investments. This is the highest ending cash balance in the history of the company, so our balance sheet is rock solid. When you look at the cash it increased $123 million sequentially and then $93 million compared to the prior year. Now the thing I want to talk you about is when you think about the increase of $93 million compared to the prior year, keep in mind that we just spent $20 million for the Slim acquisition and we also bought $249 million worth of our stock, because we believe that is a good investment. That was at a share price of $21.35 on average. So despite those, we still were able to increase our cash balance substantially, which we are pleased with. Now let me give you another little bit of reflection on cash by looking at our cash flow from operations for the quarter. This was $171 million. This was $126 million improvement over last year's $45 million cash flow from ops. The higher cash flow was driven by a combination of effective working capital management and an increase in our net income. Our cash conversion cycle was the best ever at 44 days and this was down a whopping 17 days compared to the same period last year. So it is our best ever cash conversion cycle. At the start of the fiscal year, I think you'll recall we said that we expected significant improvement in our cash flow from operations for the full year and we've already delivered this. Let me give you some perspective on this. Through the first three quarters of 2007, our cash flow from operations was $213 million, and that was $198 million higher than the same period last year. With one quarter still left to go in our fiscal year, we've already exceeded last year's cash flow from operations of $152 million by $61 million. We've already improved it in three quarters roughly 40% compared to all of last year. We talked about being attentive to cash. I think you can see that that is turning to be a reality so we wanted to call a little bit of detail on that. Let me turn again to asset utilization, cash conversion inventory. We did an excellent job managing our inventory, as we ended the quarter with $23 million less inventory than in December of the prior year, which is a 9% decline, even with 15% growth in the top line. So the decline reflects us really focusing more on more efficiently moving and addressing our slow-moving inventory. As a result, our inventory turns improved significantly to 7.1 turns compared to 6 turns last year. If I turn to DSO, this was a topic we covered also at our last call and during that last quarter's call, we said we expected a solid sequential improvement in our DSO in Q3. I'm pleased to report that our DSO was 57 days for the quarter, which is a reduction of one day compared to the prior year but it's 14 days sequentially. So we improved it both sequentially, as we said, solidly by 14 days and we were able to drive year-on-year improvement. This major improvement sequentially was due to a combination of more linearity in the quarter in terms of our shipping patterns and also efficiency in our cash collection processes; again, this attentiveness to cash. If I turn to share repurchase, during the Q3 we repurchased 1.32 million shares for $36.2 million at an average price of $27.46. We own just under 5% of our outstanding shares. We have roughly 225 million remaining in our current repurchase program and you can expect us to continue to execute that. Now let's go ahead and completely shift gears and start talking about our product family, starting with retail. In terms of retail, it grew by 16% with units up by 10%. We achieved double-digit sales growth in our two largest regions. Europe grew by 19% and the Americas by 14%. Audio, cordless mice and Harmony remotes made a solid contribution to the growth in both regions. Our sales in Asia grew by 2% with our growth restrained and an organizational transition in Japan that may take another quarter to work through. If I then turn from the bigger picture and start going into the various families, let's look at retail sales for cordless. We delivered double-digit sales growth in cordless. Sales were up by 10%, with units growing 9%. Our sales of cordless desktops and cordless keyboards grew by 1%, with unit growth of 9%. We had a strong double-digit sales growth and unit growth in both the mid and the low-end category of the cordless desktop and keyboards. It was our best quarter ever for the cordless mice with sales growth of 19% and unit growth of 10%. We're very pleased about this. The growth in Q3 was primarily driven by the demand for our MX Revolution cordless laser mouse and the VX Revolution cordless laser mouse for notebooks. We also saw continued strength in our notebook category and I really want to underscore this. A lot of people ask me questions about the notebook form factor. We're really pleased when we see our sales of cordless mice growing for notebooks by 67% with units up by 42%. If I then shift to retail audio, it was our best quarter ever in audio with sales up 27% and units by 14%. Our speaker sales grew by 42% with units up by 37%. Let me speak a little bit more about that. Sales for our iPod MP3 speakers more than doubled compared to the prior year. Our PC speaker sales grew by 20%, with particular strength in Europe and a solid contribution from our new Z10 interactive speaker system -- very hot. If you look at our best-selling speaker during the quarter it was once again our MM50 portable speaker for iPod which grew by 51% and delivered the highest sales quarter ever for a speaker. This was the best quarter ever for our PC headsets as the sales grew by 27% and units by 19%. If I turn to video, our webcam sales grew by a solid 16% and units were up by 11%. This again was the best quarter ever for video. It was a particular success in terms of at the high end and also in that particular category and also in our webcams for notebooks. We really gained some good growth there. We again experienced solid double-digit growth in sales and units at the low end. So again, video is moving along nicely. Retail sales for corded -- we had a strong quarter in corded with sales growth of 9% and units by 14%. This growth again was driven primarily by the corded keyboard sales which were up by 19%, but I'm also pleased to report that the corded mice grew with sales up by 6% and units by 14%. If I turn to gaming, I am pleased report that we achieved growth in the gaming category for the first time in the last five quarters. Sales were up a modest 2%, while units were down by 18% due to the expected continued weakness in the console gaming. Our console gaming sales declined by 46% and units were down by 47%. This weakness in the category is primarily due to the transition to the new PlayStation. If we looked at little bit deeper though, it was our best quarter ever for PC gaming and the sales growth of this was 82%; units growth we're growing by 31%. The growth was driven by our strong demand for the G15 and G11 gaming keyboards and then also our G25 racing wheel. If I look at retail other, sales were up by 55% and the majority of this growth was driven by our Harmony remotes which grew by 42%. We had strong growth for our remotes both in the Americas and Europe and we're pleased to see that as well. The growth of our other category also reflects contributions from 3D Connections as well as Slim Devices, our new acquisition. If I turn to OEM sales, sales grew by 4%, despite an ongoing product transition at a major OEM customer. Our mice sales declined, as expected, down by 8% with just with units adjusting down by 4%. It was a very strong quarter for our sales of embedded webcams for notebooks, strong indeed. So let me just pause and summarize here. Again, we delivered the best ever quarter in terms of sales and profit. We delivered the best quarterly gross margin in the history of our company. We achieved a dramatic year-over-year improvement in our cash conversion cycle, best ever. Generated the best ever, $171 million, in cash flow from operations and ended the quarter with the highest cash balance in the history of the company. To me as I start to kind of reflect on this I think it is really all pointing to the evidence that our model – this innovative, flexible model -- is performing well. Before concluding my comments, I want to let you know that we've scheduled our fiscal 2008 investor meeting for May 10th in London. The agenda will feature a number of our senior executives reviewing our strategies and opportunities for fiscal 2008 and beyond. I do hope you'll be able to join us. So with that all said, let me go ahead and now turn it over to Guerrino. Guerrino De Luca: Thank you, Mark and thanks again to all of you for joining us. I am obviously very pleased with our Q3 results. We delivered the best quarter in the company's history with continued double-digit sales growth driven by a strong demand for our holiday line-up, record-setting profitability and an impressively strong balance sheet. One of the main highlights for Q3 was the significant year-over-year and sequential improvement in gross margin. Our ability to achieve the best gross margin quarter in our history is a confirmation of both our ability to introduce meaningful innovation in our categories, and the value that consumers place on that innovation. This gross margin performance not only boosts our profitability but also provides us with increased flexibility to maneuver in what remains a highly competitive marketplace. Let me comment further on our results, starting with audio. It was an outstanding quarter for our retail audio business, delivering 27% growth over what had been our largest quarter ever for retail audio. This demonstrates the continued consumer appetite for our iPod and PC speakers that enhance the digital music experience. Despite the delayed launch of our flagship iPod speaker, the $299 Logitech Audio Station, we were still able to more than double our sales of iPod speakers compared to the prior year. Our best ever quarter for PC headsets is a strong signal that we're taking advantage of the rapidly growing popularity of VoIP. Turning to cordless, we are pleased with the strong consumer response to our high-end mice, the MX Revolution and the VX Revolution. The VX Revolution made a significant contribution to the growth of our cordless mice for notebooks. Looking at cordless desktops and keyboards, the double-digit growth achieved in the mid-range and low-end of the category is evidence of the continuing mass adoption of cordless. Speaking of mice and keyboards, our portfolio already includes a number of products that are designed to elevate the Windows Vista experience, and you can expect more from us in the future. With notebook PCs growing in popularity, we continue to successfully expand our lineup of peripherals targeted at notebook users. Our retail sales of notebook peripherals such as mice, webcams and speakers grew by 53% in the third quarter. Our most recent offering in the category, the Logitech Alto, is our first combination keyboard and notebook stand designed to enhance the user experience by embracing the notebook form factor while providing a full-sized keyboard, a USB hub and raising the monitor to a more comfortable viewing height. It was a solid quarter for our video business. Microsoft's entry in the retail side has introduced some expected volatility in the category, with increased promotional activities driven both by Microsoft to ensure velocity and reassure the channel and by several existing players to maintain their shelf presence. That could linger for another quarter or two. Our sales in the high end remain quite strong, but we did lose some share at lower price points early in the quarter. The preliminary December share data indicated we regained some of that share late in the quarter. We believe that the eventual leading presence of two major brands in the category is good for the market. In this evolving context, we are ready to compete with continuous hardware and software innovation, combined with the flexibility provided by our healthy margins. I am very pleased with the acceleration of growth for our Harmony remotes. Our 42% growth was achieved despite the delay in the launch of our top of the line remote, the Harmony 1000. The good news is that this $499 product, which features a stunning design and color, touch-sensitive screen, began shipping this week. We also continue to make excellent progress in improving the user setup experience with a number of significant enhancements to the Harmony website introduced over the last few months and targeted at the early majority of mass-market consumers. Turning now to OEM, where our growth during the quarter was achieved despite the protracted product transition at a major customer. When we started the fiscal year we anticipated this transition would have been completed sooner. While the delay has restrained our growth in OEM, the transition is now moving forward and we anticipate a return to double-digit growth in our OEM sales this quarter. Let me give you an update on the integration of Slim Devices which we acquired in late October. We're making good progress integrating the Slim team and their operations into Logitech and we are finalizing the product roadmap for the next fiscal year. We are very excited about the potential of this emerging category in the next fiscal year and beyond. That brings me to my outlook for the remainder of fiscal 2007, which ends in March of this year. Let me start by saying that we entered the March quarter with a significantly higher retail order backlog than the prior year, a solid indicator of sustained demand for our portfolio. We continue to expect sales growth of 17% compared to the prior year and we have increased our target for non-GAAP operating income growth to be between 25% and 30% compared to last year, up from between 20% and 25%. Given the continued strength in gross margin we now expect gross margin to be at or above the high end of our long-term range of 32% to 34%. As you may recall, we had previously estimated gross margin to be above the midpoint of the range. As usual, our non-GAAP operating income growth target excludes the cost of equity-based compensation but now here we expect the net cost of equity-based compensation for fiscal 2007 -- which is reflected in net income -- to be at the low end of the $16 million to $19 million range we had previously estimated. Let me now turn to our preliminary comments for Logitech's fiscal year 2008, which begins in April of 2007. Our sales growth will continue to be driven by our ability to consistently deliver great products that are solidly positioned in the sweet spot of major consumer trends: wireless connectivity, Internet communication, digital music and the digital home. Our fiscal 2008 product portfolio, which we believe will be our strongest and most appealing ever, is directly targeted at riding the growth waves associated with these trends. One of the key priorities in fiscal 2008 will be to continue driving top line growth while taking advantage of the leverage opportunities in our business model. Our strategy remains to position Logitech as a premium supplier in our categories offering affordable luxury to the consumer, while continue to aggressively compete from the entry segment through the high end. Naturally, our first order of business is to focus on the current quarter and on achieving the increased targets for the current fiscal year I've just shared with you. Once fiscal 2007 is behind us, we will discuss in more detail the expected product and operational drivers of our fiscal 2008 performance. That said, for fiscal 2008 our target is to deliver 15% growth in both the sales and operating income. Not only was Q3 our best quarter ever, it also marked the end of calendar 2006, the first $2 billion sales year in Logitech's 25-year history. We are proud of our continued growth and we are pleased that the innovation and value of our broad product portfolio, combined with a strong execution by the teams, has positioned us to exceed our original full-year targets for both sales and operating income. I look forward to a successful conclusion of 2007. At this point I'd like to open the call to your questions. Please follow the instructions of the operator.

(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 in-process R&D with the Slim Devices so that is another little bit of an insight that you might want to think about. Beyond that, I think you are aware that we've been heavily working toward our SOX certification year one and our Oracle implementation which is now up and live and we're working on the optimization for the company. So there are some spending on investments that we plan to make as we prepare this company for the future. Just to give you some color on our thinking about this is, we are actually very pleased to be able to make the investments to grow this company for the future and to plant the seeds -- whether it is in sales and marketing or whether it is research and development -- in driving our innovation engine which is proving to be so fruitful and then still delivering the kind of growth in EPS that we are delivering to The Street here. So that gives you a context of as planned, scaling nicely, major investments, a couple of significant one-offs. When you think about the OpEx going forward, please again go back to our long-term annualized model. We try to stay very close to that on an annualized basis. You know, any given quarter there is going to be some variation here or there. But that is really to picture on that. On the gross margin guidance, I think a couple of things to think about and I will let Guerrino touch on this as well. But when we look at our overall performance we are very pleased on the gross margin. I think it shows the overall flexibility that this business model really has and also, we view it as a tremendous asset as a company to be a strong growth company with a very strong gross margin and a very strong balance sheet just really prepares us well, in addition to a strong product offering. So when we think about this we think the gross margin model long term is good model to look at. Guerrino has given you some high level direction on what you might expect on an annualized basis. When we get into '08 -- we will get into '08 later probably at an investor day and what not -- but I think certainly in the short term we view it very much as an asset. Guerrino let me turn it over to you on the gross margin as well. Guerrino De Luca: Yves, obviously we are ecstatic with the 36.3% gross margin. It is a combination of powerful mix and innovation and we couldn't be more pleased. As Mark said, this gives us a lot of flexibility moving forward. You should know that sequentially Q3 to Q4 there is always a decline in gross margin. It is historical; it is part of the game. I wouldn't go much further than that. Again, our job here is to manage a set of variables and face competitive issues, growth opportunities, profitability goals together. So it is a set of variables we dial and we are very pleased that the dials are allowing us a lot of leverage and leeway going forward. Mark Hawkins: The other thing to think about, Yves, as we look at the picture because we are trying to step back and look at the totality of the situation, I think you know we started out the year with 15% in terms of a revenue growth and operating income and then we went to 17% revenue for the fiscal year and 20% to 25%. And as Guerrino has called out, we are now at 17% with a 25% to 30% growth here. So you can see the total picture for in terms of profitability and we are actually very pleased on that. Yves Kissenpfennig – UBS: Great, thank you very much.

Your next question comes from Ted Chung - Bear Stearns. 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. Ted Chung - Bear Stearns: Okay, great. Thank you.

Your next question comes from Manny Recarey - Kaufman Brothers. 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. Manny Recarey - Kaufman Brothers: 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 which we have been competing with Microsoft -- keyboards and mice. We are two very strong high-end brand players that share a big portion of the marketplace and a few others that just complete the roster. So not unexpected. The most important thing is that we made an absolutely conscious decision to moderate our participation in what we believe is an inevitable jockeying in positions by those players both the new ones and the old smaller ones. So that was the results. We did lose some share particularly at the low end, mid-range at the beginning of the quarter. We regained some of that based on the data that we have for December. But I think share position is very, very, very volatile in this and any other market. What's important is that demand is strong, that our video business is broad and in fact I'm a very pleased that it now shows up both on the OEM and retail side of the house. Video communication is in its infancy and we are ready to compete. Mark Hawkins: And its nice too -- just to add-on to Guerrino's point -- with all this jockeying that they did to continue to be just a strong leader in market share leadership here with all the other activities that he had mentioned, it is neat to see the leadership continue. Manny Recarey - Kaufman Brothers: Okay, thank you.

Your next question comes from Matthew Yates - Merrill Lynch. 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 lines ASPs go up, some lines ASPs go down as the mix moves one way or another. It is part of our normal competitive dynamic and growth dynamic of this market. I'm not concerned about this particular line. On the webcam side, I believe that our improvement in market share in December is driven by both some impact of lingering actions that were not there maybe later in the quarter by some of the players and promotional action, and also by our willingness to send signals back to a few players saying we are here. So we will not let our market share deteriorate more than necessary, even as we understand that there is a lot of promotions out there. So it is purely tactical and we will continue to play that way. Thank God we have the resources to do so. Mark Hawkins: Matthew, good afternoon as well. In terms of the cash conversion cycle and in terms of formal targets, we haven't been setting targets for our various working capital items but let me speak to you a little bit. You and I have had some discussions before about our intention to be very attentive to cash and the cash conversion cycle. Certainly in the DPO area this is something that I think we need to look at and make sure is being appropriately managed and attended to. I want to also broaden that out, Matthew, when you look at the cash conversion cycle. We are looking not only at the DPO but the DSO and you can see the really strong improvement sequentially and improvement year on year on that. And then DSI for the inventory side too, and you can see the strong year-on-year improvement there. So those three pillars making up the cash conversion cycle really drove really record cash conversion in the history of this company this quarter. While I'm not guiding on capital items per se I do want you to know that we are going to continue to be very attentive to the cash and there is no structural reason why we shouldn't be doing that, working that and driving for as much cash as possible. So, does that help you? Matthew Yates - Merrill Lynch: 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. Matthew Yates - Merrill Lynch: 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. John Bright - Avondale Partners: 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. John Bright - Avondale Partners: 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.