Logitech International S.A.

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Logitech International S.A.

CH-1143 Apples
Switzerland
Telephone: (21) 863-51-11
Fax: (21) 863-53-11
Web site: http://www.logitech.com

Public Company
Incorporated: 1981 as Metaphor Inc.
Employees: 6,000
Sales: $1.27 billion (2004)
Stock Exchanges: Swiss NASDAQ
Ticker Symbol: LOGN (Swiss); LOGI (NASDAQ)
NAIC: 334119 Other Computer Peripheral Equipment Manufacturing; 334310 Audio and Video Equipment Manufacturing; 334290 Other Communications Equipment Manufacturing

Logitech International S.A. is one of the world's leading manufacturers of input and interface devices for personal computers (PCs) and other digital products. Best known as a producer of mice, the company has shipped more than 500 million of the essential devices in numerous models—including corded, cordless, optical, and laser. Building on its success with mice—its first product—Logitech by the early 2000s had branched out into a wide variety of interface devices, including trackballs, keyboards, web cameras, joysticks and other controllers for both PC and console games, multimedia speakers, PC and game console headsets and microphones, mobile phone headsets, three-dimensional (3D) motion controllers, and advanced remote controls. Although the company started out supplying original equipment manufacturer (OEM) products, Logitech has increasingly targeted the retail market, which now accounts for 80 percent of revenues. Logitech was incorporated in Switzerland, and its stock has its main listing on the Swiss Exchange; its worldwide headquarters, however, are in Fremont, California, providing it with access to Silicon Valley's talent base, and Logitech has a secondary stock listing on the NASDAQ. The firm's main research and development operations are in Fremont; Romanel, Switzerland; Hsinchu, Taiwan; Vancouver, Washington; and Toronto, Canada. Its primary manufacturing facilities are in Suzhou, China. Product distribution reaches more than 100 nations worldwide, with Europe generating 47 percent of net sales; North America, 37 percent; and the Asia-Pacific region, 16 percent.

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 entrepreneurship 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. (The name, which would not be adopted until 1988, was derived from the root of the French word for software, logiciel, plus the word tech. ) Originally operating from a "garage" shop, the company was established with headquarters in Apples, 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 at first produced mice for the Apple computer system. 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 1984 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 middle to late 1980s it began increasing its manufacturing capacity, with plants in California and new plants in Taiwan in 1986 and in Cork, Ireland, in 1988. The launch of production in the Taiwan facility enabled Logitech to take on its largest client to date: IBM and its personal computer range, which already had succeeded in defining an industry standard for personal computing. In 1988, when revenues had reached $40 million, Logitech incorporated under the name Logitech International S.A., listing its shares on the Bourse de Zurich through an initial public offering.

Going Beyond the Mouse in the Early to Mid-1990s

By then Logitech had moved into the retail channel, with the launch of its C7 mouse in December 1985. A square-shaped mouse in marked contrast to later "ergonomic" designs, 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. In 1988 the company produced its first non-mouse peripheral, a handheld scanner. 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 others. In 1991 Logitech increased its share in Advanced Gravis to 58 percent, giving Logitech seats on Advanced Gravis's board of directors. Also in 1991 Logitech introduced the industry's first radio-based cordless mouse, the MouseMan Cordless.

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 3D 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 GmbH, would be dubbed the Space Mouse for the European market. Logitech later, in 1998, acquired a 49 percent equity stake in Space Control.

Company Perspectives:

Logitech's objective is to strengthen its leadership in the growing market for personal interface products, linking people to the digital world wherever and whenever they need to access digital information to communicate, learn and play. The Company has historically served the installed base of PCs by offering innovative personal interface devices to address the needs of the desktop. While PCs are being used more and more as the digital hub to access information and communicate, other platforms such as game consoles and cell phones are also becoming a rich resource for people to access information, communicate and enjoy an expanding offering of interactive games. Logitech believes that the Company is well positioned to take advantage of the many opportunities in this growing marketplace.

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 3D 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 Soundblaster, as a de facto standard.

Meanwhile, Logitech continued to look beyond the pointing device and joystick market. In the mid-1990s the company targeted two other 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. The center of manufacturing was now in Suzhou, China, where Logitech had opened a manufacturing facility in 1994.

Logitech, which had posted revenues of more than $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 $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. 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 10 percent investment in Logitech. In March 1997 Logitech listed its stock on the NASDAQ National Market, selling four million American Depository Shares.

New Leadership, Growth Through Acquisition in the Late 1990s and Early 2000s

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. (Zappacosta had left Logitech in 1997 to become chairman of Digital Persona Inc., a firm specializing in biometrics.) 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 Quick-Cam PC video camera division from Connectix Corporation, a $26.2 million deal completed in September 1998. The QuickCam had been one of the first 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. This acquisition propelled Logitech into the top spot in PC video cameras.

Key Dates:

1981:: Daniel Borel and Pierluigi Zappacosta incorporate in Switzerland the company that will eventually be called Logitech.
1982:: The company introduces its first mouse, the P-4.
1985:: The company enters the retail market with the introduction of the C7 mouse.
1988:: Logitech International S.A. is taken public on the Bourse de Zurich; a handheld scanner, the firm's first non-mouse product, is introduced.
1991:: Logitech introduces the first radio-based cordless mouse.
1994:: The company opens its manufacturing facility in Suzhou, China.
1997:: Logitech gains a listing on the NASDAQ and divests its scanner business.
1998:: Guerrino De Luca takes over the CEO position from Borel, who remains chairman; the QuickCam PC video camera division of Connectix Corporation is acquired.
2001:: Logitech acquires audio peripheral maker Labtec Inc.
2003:: Logitech ships its 500 millionth mouse.
2004:: Intrigue Technologies, Inc., maker of advanced remote controls, is acquired.

In addition to the QuickCam purchase—which, by late 1998, resulted in three new Logitech-signed QuickCam products—Logitech purchased a 10 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 $400 million mark for 1998. Although mouse sales continued to lead the way, Logitech was already generating 25 percent of its revenues from non-mouse interface devices.

Explosive demand for Internet video cameras (or webcams) helped reestablish Logitech as a computer industry growth stock. Revenues surged 31 percent for the year ending in March 2000, hitting $615.7 million, while net income jumped 73 percent, to $30 million. The company's shares rose an astounding 174 percent during the year, the peak year for the Internet bubble. During 2000 Logitech sold its 300 millionth mouse and captured a commanding 70 percent share of the world mouse market.

A key move under De Luca's leadership was a major shift away from OEM products to higher-margin, branded products for the retail market. By 2001, 80 percent of revenues were coming from the retail side. This helped buffer Logitech from the severe early 2000s slump in PC sales. The firm also continued to seek growth through new product lines. During fiscal 2001 Logitech introduced its first peripheral designed for a game console, the Driving Force racing wheel for the Sony PlayStation 2. Over the next few years, the company developed more than 15 more peripherals for consoles, two of the most popular being cordless controllers for the PlayStation and Microsoft's Xbox, both introduced in 2002. Logitech pioneered another new iteration of the mouse in 2001, introducing the Cordless MouseMan Optical, the first cordless optical mouse. The optical mouse, which used a light-based tracking system, began replacing the older type of ball-based mouse.

In March 2001 Logitech significantly strengthened its position in the audio peripheral sector by purchasing Vancouver, Washington-based Labtec Inc. for $73 million. Labtec produced PC speakers, headsets, and microphones, and Logitech greatly expanded this line in the next few years, extending into audio products for game consoles and entertainment as well as headsets for mobile phones. At the same time, Logitech was developing products based on the new Bluetooth wireless technology. In 2002 it introduced a pointing device that allowed a user to control presentations within 30 feet of a PC. The company the following year brought to market its first cordless headset for a mobile phone, the Mobile Freedom Headset, which featured wind-canceling technology. Among the numerous other new products introduced in 2002 was the io Personal Digital Pen, a pen with a built-in camera for electronically capturing written notes for transmittal into a PC document. Another mouse milestone was reached in September 2003 when Logitech shipped its 500 millionth mouse.

By the fiscal year ending in March 2004, Logitech had enjoyed a remarkable string of success during a down period for the personal computer industry. Both revenues and profits had grown for six straight years since De Luca came onboard: revenues jumping from $470.7 million to $1.27 billion, profits from $7.1 million to $132.2 million. Logitech launched more than 100 new products during fiscal 2004 and shipped more than 47 million units under the Logitech brand. Continuing to seek new niches within the human–machine interface sector, Logitech bought Intrigue Technologies, Inc. for $29 million in cash. Based in Mississauga, Ontario, Intrigue produced advanced remote control devices for entertainment products such as televisions, DVD players, and the like. Later in 2004 Logitech announced plans to build a new factory in Suzhou, China, with an initial capacity increase of 30 percent, and it also introduced the world's first laser cordless mouse. The company said that the laser tracking system, codeveloped with Palo Alto-based Agilent Technologies Inc., offered 20 times greater sensitivity than LED-based optical mice. By accelerating organic growth through aggressive new product development initiatives, seeking additional medium-sized acquisitions similar to that of Intrigue, and increasing manufacturing capacity, Logitech aimed to triple its revenues by around 2010.

Principal Subsidiaries

Logitech, Inc. (U.S.A.); Labtec, Inc. (U.S.A.); 3Dconnexion, Inc. (U.S.A.); Intrigue Technologies, Inc. (U.S.A.); Logitech Hong Kong, Ltd.; Logitech Europe S.A.; LogiCool Co. Ltd. (Japan); Logitech Far East, Ltd. (Taiwan); Suzhou Logitech Electronic Co. Ltd. (China).