Logitech International SA

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Logitech International SA

Moulin du Choc D
CH-1122
Romanel-sur-Morges
Switzerland
(41)21863 5111
Fax: (41) 21 863 5311
Web site: http://www.logitech.com

Public Company
Incorporated :1981 as Metaphor Inc.
Employees :2,700
Sales :$390.2 million (1998)
Stock Exchanges :Zurich NASDAQ
Ticker Symbol :LOGIY
NAIC :334119 Mouse Devices, Computer Peripheral Equipment, Manufacturing

Logitech International SA is the World’s leading manufacturer of computer input and interface products, ranging from computer mice to joysticks and computer keyboards. Logitech supplies original equipment manufacturer (OEM) products to 18 of the 20 leading computer manufacturers, including Apple, Hewlett Packard, Dell, Packard Bell, Acer, IBM, Toshiba, Compaq, Vobis Microcomputer, and Siemens Nixdorf Information Systems. Logitech is based in Switzerland, where the company operates its research and development facilities and financial operations; a second headquarters, in Fremont California, keeps the company close to the Silicon Valley scene.

Some 90 percent of Logitech’s sales come from its range of control devices. These include the company’s line of computer mouse devices, trackballs, and touchpads, as well as joysticks and other gaming interface equipment for the consumer and OEM markets. The company also manufactures and/or distributes 3D controllers for both professional and consumer/entertainment markets, including its 6DOF (“six degrees of freedom”) controller—a product originally developed for the computer-aided design (CAD) market, but that, with increasing processing power available to consumer computers, is being adapted to the computer gaming market. Another 3D device is the Magellan mouse (known as the Space Mouse in Europe), developed by Germany’s Space Control GmbH; in 1998 Logitech, which had distributed Space Control’s 3D controller to the CAD/CAM/CAE market in the United States since 1993, acquired a 49 percent equity stake in Space Control, with an option to increase its ownership position to 100 percent by the year 2001. Logitech also manufactures computer keyboards, especially in conjunction with its cordless mouse, to provide a wireless desktop.

Pointing the Way to the Future in the 1980s

One of the most important inventions for “personalizing” computers was that of the computer mouse. Developed by computer visionary and pioneer Douglas C. Engelbart, a new computer input device made its debut in 1963 at the Stanford Research Institute. Engelbart continued to refine the concept, and by 1968 Engelbart’s team made the first public presentation of the device—by then dubbed the “mouse”—at the 1968 American Federation of Information Processing Societies’ Fall Joint Computer Conference at San Francisco.

Engelbart’s mouse would change the course of computing history and would launch Logitech as a company a decade later. The first commercial presentation of the mouse also would present the first “windows”-type graphical user interface, which, controlled by the mouse, would enable the computer to become accessible for individual and home use, and not the private domain of highly trained programmers. In conjunction with the mouse, Engelbart would introduce such basic computer concepts as the onscreen combining and manipulating of text and graphics, hypertext and hyperdocuments (which would become extremely important for later Internet development), and videoconferencing. Engelbart’s place in the computer industry of the 1960s and 1970s was highlighted by his office’s position as the second node of the ARPAnet, which would later become the Internet.

Engelbart also proved an inspiration for a new generation of engineers and computer industry developers, including two Stanford University engineering students, Daniel Borel, from Switzerland, and Pierluigi Zappacosta, from Italy. Inspired by the burgeoning Silicon Valley scene, Borel and Zappacosta decided to set up their own company to produce software products. The partners hoped to bring the same sense of entre-preneurship that they had found in California to the European computer industry.

In contrast to the United States, where high-tech companies could find a vast pool of venture capital and other financial backing, especially for the development of computer technology and products, the European situation in the late 1970s remained fixed on an older corporate model. Unable to find the venture capital that they needed, and with no banks willing to risk a multimillion-dollar load, Borel and Zappacosta were forced to place their dream of starting their own software company on hold.

Engelbart’s invention would change the pair’s direction. As Zappacosta told Fortune :“We didn’t want to be in mice. They seemed to be beneath our intelligence. We wanted to be a software company—like Microsoft.” Nonetheless, it was with the computer mouse that Borel and Zappacosta finally would go into business. In 1981 the pair acquired the U.S. distribution rights for a mouse designed in Switzerland. Hardware proved an easier investment sell than the pair’s software dream. With the backing of a number of Swiss investors, Borel and Zappacosta set up the company that would later become known as Logitech. Originally operating from a “garage” shop, the company was established with headquarters in Switzerland, but with a strong U.S. presence from the start.

Borel and Zappacosta’s timing was fortuitous. In 1982 Steve Jobs, of the rising computer star Apple, made the decision to incorporate Engelbart’s mouse in the company’s computer systems. The decision would revolutionize the computer industry, paving the way for the first truly “personal” computers. Other computer designs would soon adopt the mouse as well. Borel and Zappacosta, originally scornful of the mouse, quickly discovered the device’s interest, as well as its possibilities. They continued to make improvements in the design and manufacturing methods.

Logitech (the company would not adopt this name until 1988) at first produced mice for the Apple computer systems. As other manufacturers began producing mice-controlled computer interfaces, Logitech’s mice were adapted for these systems, too. For the distribution of its products, Logitech was unable to afford the retail path. Instead, the company took out ads in the growing number of computer and other electronic technology magazines, newspapers, and trade journals.

Logitech also would find a new boost as an OEM. In the early 1980s the company was contracted by Hewlett Packard (HP) to produce mice for that company’s computer systems. The HP contract placed Logitech—then known as Metaphor— on the computer peripherals map. Soon after, the company signed contracts with AT&T, Olivetti, Convergent Technologies, DEC, and others. Apple, which was in the process of launching the breakthrough Macintosh computer systems, soon would turn to Logitech for its computer mouse needs as well. Around this time, Logitech also introduced the first “cordless” mouse, a product that would forecast the growing demand for the wireless desktop in the late 1990s.

Logitech expanded rapidly. In the mid-1980s it began increasing its manufacturing capacity, with plants in California and Ireland, and in 1988, a new plant in Taiwan. The launch of production in that facility enabled Logitech to take on its largest client to date: IBM and its personal computer range, which had already succeeded in defining an industry standard for personal computing. In that year, Logitech incorporated under the name Logitech International SA, trading on the Zurich stock exchange.

Market Leader in the 1990s

By then Logitech had moved into the retail channel, with the launch of its C7 mouse. A square-shaped mouse in marked contrast to the “ergonomie” designs of the late 1990s, the C7 nonetheless featured the three-button design that would become something of a Logitech hallmark. Throughout the late 1980s and early 1990s Logitech continued to build its position in the computer market. A 1991 joint venture agreement brought the company to mainland China, reinforcing its manufacturing position, while also bringing additional funding from both the Chinese government and from Hong Kong.

Logitech also was branching out. A 1990 deal gave the company a share of Canada’s Advanced Gravis, a maker of joysticks as well as pointing devices, including a Mouse Stick, for the variety of computer systems available at the time— including the Amiga, Atari, Tandy, and other systems. In 1991 Logitech increased its share in Advanced Gravis to 58 percent, giving Logitech seats on Advanced Gravis’s board of directors.

Company Perspectives

Logitech’s objective is to become the leading provider of human interface devices in the growing mass consumer market. As computing, communications and consumer electronics continue to create new product categories, the Company intends to provide affordable, user-friendly interface solutions, supplying consumers with maximum comfort and control. Logitech intends to meet these objectives by capitalizing on its technological innovations, brand image, customer relationships and manufacturing capabilities.

In that same year Logitech made another significant acquisition, buying up 50 percent of Gazelle Graphics Systems, of California. The company would acquire full ownership of Gazelle in 1993, giving Logitech control of Gazelle’s innovative trackball technology, which soon would become an important feature of the growing portable computer market. The introduction of new three-dimensional pointing technology, initially developed by NASA, brought Logitech into the high-end graphics market, with its Magellan 3D pointer for Silicon Graphics and other high-end CAD/CAM/CAE workstations. The Magellan, developed in conjunction with Germany’s Space Control, would be dubbed the Space Mouse for the European market.

Not all of Logitech’s investments were successful. In 1993, for example, the company joined with cable television giant TCI in an investment in Virtual I/O, a Seattle-based maker of a three-dimensional computer display headset. This product, however, proved to be a bit ahead of its time. The company also attempted to enter the soundcard market, with, among other products, its SoundMan speaker system. The company’s sound products failed to move the computer industry, which was just beginning to adopt another soundcard technology, the Sound-blaster, as a de facto standard.

Meanwhile, Logitech had begun to look beyond the pointing device and joystick market. In the mid-1990s the company attempted to enter two more promising markets: scanners and digital cameras. Logitech would achieve some early success in the scanner market, with its handheld and sheetfed scanner designs. Yet Logitech was far from alone in entering this market, which soon was flooded with products from a large number of competing businesses. A price war broke out, severely cutting into Logitech’s profit margins. Worse for Logitech, the market clearly shifted away from the sheetfed design to the flatbed design. By the late 1990s Logitech’s scanner division was losing money heavily. The company faced a similar situation in the digital camera market. The entry of such major manufacturing names as Sony, Philips, and others into the digital camera market forced Logitech into the niche player position of that market.

The company’s financial troubles, exacerbated by an extended economic crisis both in the United States and in Europe, forced Logitech to reorganize its operations in 1995. The company closed its U.S. and Ireland manufacturing facilities, moving production entirely to China and Taiwan, while cutting some 500 jobs.

Logitech, which had posted revenues of more than US$300 million in 1994, also was facing new competition in its core product line—and from the most fearsome competitor of all. In the mid-1990s the Microsoft Corporation was branching out into computer peripherals, launching its own mouse products and joysticks. Given its near-monopoly position in the worldwide personal computer market, Microsoft was able to impose itself quickly on the pointer market, taking some 40 percent of it. Logitech, which had been earning margins up to 50 percent on its pointing products, was forced to cut its prices to compete with the software giant. Nonetheless, Logitech was able to maintain its leadership position, particularly as the leading OEM mouse supplier, with customers including 18 of the World’s 20 largest computer manufacturers.

Logitech’s restructuring would cost the company some US$20 million in 1995; by 1996, however, the company had once again been restored to profitability—in time to celebrate the production of its 100 millionth mouse. Once again regrouped around its pointing devices, Logitech would quickly double that figure, announcing the production of its 200 millionth mouse in December 1998. The company’s scanner division was sold off in 1997 to Storm Technology, a deal that also gave Storm a ten percent investment in Logitech.

Since its origins, Logitech had been headed by Daniel Borel and Pierluigi Zappacosta, who had shared CEO and other duties. In 1998, however, Borel retired to the position of company chairman. Logitech brought in Guerrino De Luca, a former executive at Apple Computer and architect of Apple’s Claris division’s success. De Luca, who had served as CEO of Claris and had once been pegged for the top Apple spot as well, resigned from Apple with the return of company founder Steve Jobs to its leadership. De Luca moved quickly to enhance Logitech’s image beyond that of a mouse and joystick maker to that of the leading computing interface company.

One of De Luca’s first acts was the acquisition of the QuickCam digital camera division from Connectix Corporation. The QuickCam had been one of the first digital video cameras designed for easy incorporation into a personal computing system. Introduced in the mid-1990s, the distinctive QuickCam— shaped much like an eyeball—had captured the industry’s lead. The rise of the Internet—and the appearance of faster modem and other data transfer technologies, including satellite and cable internet access—had made videoconferencing technology viable. Many industry analysts expected to see a boom in digital video camera sales for the end of the century.

In addition to the QuickCam purchase—which, by late 1998, resulted in three new Logitech-signed QuickCam products—Logitech purchased a ten percent interest in Immersion Corporation, pioneer of “force feedback” technologies, designed to enhance user interactivity with games, Internet, and other computer applications. In early 1999 Logitech also debuted several new products, including its next-generation mouse designs, such as the Gaming Mouse, developed specifically for computer strategy and FPS (first-person shooter) games. Logitech continued to make revenue advancement, topping the US$400 million mark for 1998. Although mouse sales continued to represent some 75 percent of these sales, Logitech’s moves into the broader interface market were expected to maintain its position as one of the World’s leading computer peripherals manufacturers.