Sales of personal computers (PCs) haven't been in great shape of late, and have been patchy at best. Per market research firm IDC, global PC shipments declined 2.4% year over year in the third quarter of 2024 after witnessing modest recovery in the previous two quarters.
The situation was much worse last year and in 2022, when PC shipments dropped 14% and 16.5%, respectively, as the industry saw demand fall off a cliff following solid growth in 2020 and 2021 amid the COVID-19 pandemic.
Looking at the positives, the PC demand did recover for some time. For instance, global PC shipments increased 1.5% in the first quarter this year, followed by a 3% increase in the second quarter. However, stronger PC sales in the first half of 2024 meant that retailers had already stocked enough inventory.
But more importantly, IDC thinks that the PC market has just taken a breather. A closer look at the market's trends indicates that growth is likely to return once again. One of the reasons that may happen is because of the growing adoption of PCs that support generative AI. IDC forecasts that generative AI PC sales could grow from 50 million units this year to 167 million units in 2027, accounting for 60% of the overall PC market at the end of the forecast period.
This surge in sales of AI PCs and the recovery in the overall market bodes well for Logitech International(NASDAQ: LOGI), a company that's famous for making a wide range of computer peripherals such as keyboards, mice, video collaboration hardware, streaming equipment, and tablet accessories, among others.
Logitech released its fiscal 2025 Q2 results (for the three months ended Sept. 30), and there were several positive takeaways from its report. Let's take a closer look at Logitech's quarter and check how the PC market's recovery is having a positive effect on its financial performance.
Logitech's better-than-expected results and improved guidance point toward better times
Logitech reported fiscal Q2 revenue of $1.12 billion, an increase of 6% from the same quarter last year in constant currency terms and higher than the $1.1 billion consensus estimate. The company also witnessed a jump of 210 basis points in its non-GAAP gross margin, thanks to lower inventory costs, robust demand, and a drop in product costs.
As a result, the company's non-GAAP operating income of $193 million exceeded consensus estimates of $176 million. The margin gain explains why Logitech's non-GAAP earnings increased 10% year over year to $1.20 per share. Even better, the company expects the favorable end-market environment to continue, which is why it has increased its full-year outlook.
The company now expects fiscal 2025 revenue to increase in the range of 2% to 4%, as compared to the earlier range of 1% to 3%. Non-GAAP operating income is now forecast to grow between 3% and 7%, as compared to 0% to 4% earlier. Logitech's updated guidance suggests that it could end fiscal 2025 with revenue of $4.43 billion and non-GAAP operating income of $735 million at the midpoint.
Logitech has started witnessing high single-digit growth in key end-markets such as gaming and keyboard combos. These two segments together produced $510 million in revenue for the company last quarter, up 7% year over year. Additionally, sales of Logitech's video collaboration offerings increased 5% year over year to $160 million last quarter.
So, the turnaround in the PC market's fortunes this year is already rubbing off positively on Logitech's performance. This trend is likely to continue thanks to the secular growth opportunity that's available in the AI PC market as discussed above. Not surprisingly, analysts have raised their growth expectations from Logitech of late.
LOGI Revenue Estimates for Current Fiscal Year data by YCharts.
Even better, the company is looking to make the most of the growth of the generative AI PC market by offering tools to customers in a bid to help improve their productivity. Logitech has announced features such as RightSight 2 AI that use AI to make meetings more immersive, while solutions such as RightSound 2 use AI to help improve audio quality during meetings.
These features are available across popular collaboration platforms such as Microsoft Copilot and Zoom AI Companion. Alphabet's Google Gemini chatbot is also going to rely on Logitech's solutions to generate meeting summaries, create transcripts, and carry out live translations. All this indicates that Logitech is trying to capitalize on the AI-driven opportunity in the computer peripherals market.
The good part is that Logitech operates in a market that is set for secular long-term growth. According to one estimate, the size of the global PC peripherals market was $7.2 billion in 2023. By 2031, the market is expected to generate $14.4 billion in sales, growing at an annual rate of almost 10%. As a result, it won't be surprising to see Logitech's growth rate picking up in the coming years.
The stock's valuation means investors are getting a good deal right now
Logitech stock is currently trading at just 20 times trailing earnings. A forward earnings multiple of 17.8 points toward an improvement in the company's bottom line in the coming year. Another thing worth noting is that there have been significant revisions in Logitech's earnings per share estimates in the past year.
LOGI EPS Estimates for Current Fiscal Year data by YCharts.
It won't be surprising to see those estimates moving higher in the future as the company gains more momentum thanks to improving PC sales, which should ideally drive an improvement in the sales of PC peripherals as well. That's why investors looking for an attractively valued stock that could be a smart long-term investment would do well to buy Logitech, before it jumps higher following the 32% gains it delivered in the past year.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Logitech International, Microsoft, and Zoom Video Communications. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
