Jan. 20 (Bloomberg) -- Logitech International SA, the world’s biggest maker of computer mice, said sales of computer peripherals such as speakers and keyboards fell for the first time in at least seven years as the global economy slumped.

Net income dropped 70 percent to $40.5 million, or 22 cents a share, in the third quarter ended Dec. 31, from $133.6 million, or 71 cents, a year earlier, Logitech said in a statement today. The gross margin, or the percentage of sales left after production costs, fell to 29.9 percent from 36.9 percent.

The margin drop is “the biggest worry,” Kepler Capital Markets analyst Roger Steiner said in a phone interview today.

Logitech retreated 1.70 Swiss francs, or 12 percent, to close trading in Zurich at 12.91 francs ($11.3), the lowest in more than five years. Chief Executive Officer Gerald P. Quindlen said sales may suffer in coming months as companies reduce inventories and consumers cut spending.

Analysts predicted earnings of 44 cents a share, based on the median of eight estimates compiled by Bloomberg, and revenue of $703.4 million, based on 14 estimates.

Fourth-Quarter Forecast

The drop in fourth-quarter sales and operating profit before restructuring charges will probably be “similar to or worse than” the three months ended Dec. 31, Logitech said. Operating income slumped 63 percent in the third quarter to $43 million.

Third-quarter sales slid 16 percent to $627.5 million, as consumer and business confidence fell in Japan, Germany and the U.S. The third quarter has been Logitech’s most profitable in at least each of the past 7 years, spokesman Ben Starkie said.

The Romanel-sur-Morges, Switzerland-based company makes about half its peripherals at a factory in China. Logitech products sold in retail stores fell 16 percent in the quarter. Circuit City Stores Inc., which sold Logitech products, went bankrupt in November and has agreed to hand its U.S. merchandise to a group of liquidators.

Logitech’s sales retreated 21 percent in the Americas and dropped 19 percent in Europe, the Middle East and Africa. Revenue increased 8 percent in Asia, the company’s smallest market.

Logitech will probably incur a restructuring charge of up to $24 million in the next 12 months, after giving details on its most sweeping job cuts in more than a decade. The computer-mouse maker will cut 550 to 600 salaried positions and book as much as $18 million of this cost in the three months through March.

Trimming Spending

The computer-mouse maker will trim spending on researching and developing more-expensive products, Quindlen said in a telephone interview from Fremont, California.

“We’re already made some decisions to trim some products or projects that were interesting, but maybe more high-end,” the 49-year old executive said. Products that “aren’t perfect for this timeframe and this set of conditions” may be delayed.

Quindlen declined to provide any targets for the next fiscal year.

Logitech has spent $64 million acquiring a specialist earphone maker and an Internet video-calling company during the fiscal year to expand sales of peripherals for digital homes and lifestyles. The reduction in workforce aims to help save about $50 million a year, the company said.

Logitech cut about 1,000 jobs between 1993 and 1995, when the company moved production to Asia from Ireland, Starkie said.

To contact the reporters on this story: Joseph Heaven in Zurich at jheaven1@bloomberg.net; Andrea Tan in Singapore at atan17@bloomberg.net.

Last Updated: January 20, 2009 12:18 EST