By Eric Auchard
FRANKFURT (Reuters) - Gadget maker Logitech International SA said on Thursday quarterly operating profit fell 34 percent on steep currency declines and shrinking demand for accessories like the computer mouse on which it built its global brand name.
Nonetheless, strong demand for newer music and video accessories helped profits to come in higher than all analyst forecasts.
Logitech has refocused on new lines like wireless music speakers, videoconferencing and video game controllers, offsetting a decline in personal computers and demand for its mice and keyboards it has made since the dawn of the PC age.
Towards that end, Logitech said it will exit a low-margin business that mainly makes computer mice for PC makers to sell as their own. Sales there fell 26 percent in the latest quarter.
It reported operating profit of $14.5 million for the quarter ended March 31, compared to $21.8 million a year ago, due to pockets of sales strength, lower costs and fewer restructuring charges. Net sales in the March quarter fell 4.7 percent to $467.2 million, at the high of estimates.
Logitech has at best managed slow sales growth for six of the past seven years. However, underlying demand for new products and action to cut costs and raise prices are positioning it for sustained growth in coming years, it said.
Shares of the Lausanne-based company traded up 2.2 percent at midday on the Zurich stock exchange, following the report.
PRICE HIKES PLANNED
Once Logitech exits the declining computer mouse manufacturing business, underlying sales results from are set to show sustained sales growth in constant currency terms, Chief Executive Bracken Darrell said in an interview.
"This (retail business) is going to be the bulk of our business going forward," Darrell said. "What we are announcing today is the simplifying of our story."
Excluding currency swings, sales nudged up 1 percent. Logitech's retail business, which generates 90 percent of sales, grew 7 percent in constant currency. Importantly, newer growth categories on which it is betting its future business, grew 45 percent and now make up nearly one-third of its retail business.
Darrell, who has moved Logitech into new product lines while cutting costs in older product areas, said Logitech was prepared to increase prices to offset currency declines.
"We are raising prices around the world," Darrell told Reuters, referring to markets outside the United States. The price increases will take effect in this quarter," he said.
The CEO said he believes the company commands pricing power in many of its accessory lines including what is now its best-selling product line -- wireless Bluetooth speakers. It plans to raise prices around 11 to 13 percent in Europe, for example.
More than half of Logitech's costs and expenses are in U.S. dollars and roughly 10 percent are in Swiss francs while it relies on suppliers in Asia, where currencies have been stable, to source most of its hardware.
(This story amends headline to read "moves away from computer mouse" instead of "kills off computer mouse")
(Reporting by Ismail Shakil and Narottam Medhora in Bengaluru; Editing by Keith Weir)