Analysis: Logitech caught in accessories mousetrap

ZURICH Tue Nov 20, 2012 12:05am EST

A computer mouse and keyboard package of Logitech is seen at a computer store in Lucerne January 10, 2008. REUTERS/Michael Buholzer

A computer mouse and keyboard package of Logitech is seen at a computer store in Lucerne January 10, 2008.

Credit: Reuters/Michael Buholzer

ZURICH (Reuters) - As retailers stock up for Christmas, the No. 1 maker of computer mice is fighting to increase its share of the computer accessories market in an increasingly mouse-less world.

Founded in a farmhouse near the small Swiss town of Romanel-sur-Morges in 1981, Logitech's (LOGN.S) (LOGI.O) star rose rapidly in the 1980s when it marketed the first modern computer mouse, developed at the nearby Swiss Federal Institute of Technology in Lausanne.

Since then the Swiss-American company has shipped more than a billion mice and introduced a successful line-up of PC accessories including keyboards, cameras and speakers.

But like many other household names in the industry, including Intel (INTC.O), Hewlett Packard (HPQ.N) and IBM (IBM.N), Logitech is having trouble adapting to a market increasingly dominated by the tablets and smartphones that make much of its product line redundant.

"There is no doubt that the industry of classic computers, which is a big part of our business, is changing," Logitech's president Bracken Darrell told Reuters, speaking from the company's U.S. headquarters in Newark, California.

After a dismal 2011/12 financial year, when Logitech issued back-to-back profit warnings and sacked its top management, the company promised investors a range of "explosive new products".

The revamped line-up of audio products for both smartphones and tablets - including headphones, speakers, a WiFi-connected smart radio and a boombox - ultimately failed to grip the imagination, leaving many investors wondering about the company's future growth prospects.

Logitech's share price remains nailed below seven Swiss francs, against its historic high of 41.52 francs back in 2007, prior to Apple's (AAPL.O) launch of the first generation iPhone and back when it was seen as the Apple of computer accessories.

"The products recently launched are solid but no real game changers," said Credit Suisse technology analyst Chris Gretler.

FRESH KNOCK

The group's shares took a fresh knock on October 25, plunging more than 16 percent, when the company released a dismal set of second quarter numbers, reflecting sliding PC sales.

According to data from market research firm IDC, global PC shipments fell another 8.6 percent in the third quarter.

Year-on-year sales have been down in each of the company's past four quarters.

"Two-thirds of Logitech's business still depends on PC sales while customers spend an ever-increasing part of their budget on mobile computing," said Andreas Mueller, technology analyst at Zuercher Kantonalbank (ZKB).

Although Logitech is catering increasingly to mobile users, the need for add-ons in this segment is much lower, he said.

Semir Saleh, 25, is a case in point. A video-designer from London who is in Zurich freelancing for Swiss internet companies, Saleh said he had very little use for accessories.

"The iPad comes with everything I need," he said.

"I use for instance Skype a lot. The new one even comes with a camera so there is no need to buy one."

According to Reuters company data, Logitech sales over the coming years are likely to stagnate at around 2.3 billion Swiss francs ($2.49 billion).

TURNING THINGS AROUND?

Chief executive Darrell was brought in from home appliances giant Whirlpool (WHR.N) to turn the troubled company around, and will succeed current chief executive and chairman Guerrino De Luca in January next year.

He said although Logitech may have been slow to embrace new developments in the industry, it was never too late to start.

"No matter when we started, I think it's smart to be in it," he said in the interview with Reuters.

One recent hit is Logitech's combination of keyboard and cover for the iPad, which according to technology analysts contributes around five percent to the company's annual turnover.

The cover has been such a success that Apple allows Logitech to sell it via its Apple stores.

But technology analysts say that original equipment makers will be quick to exploit such niches themselves. Microsoft's new Surface tablet will come fully equipped with a keyboard, for example, ZKB analyst Mueller said.

The company is pinning high hopes on Microsoft's new Windows 8 operating system, which is geared towards mobile users, and which Logitech expects to reanimate the moribund PC business.

But technology analysts say this will not necessarily boost sales of pointing devices such as computer mice as the trend is going more and more towards gesture and speech communication.

New multi-touch systems currently under development at universities and research labs in the United States and elsewhere could soon allow users to operate computer by gestures transmitted via a camera and video projector.

"Logitech is simply non-existent in this field," said Kepler Capital Markets technology analyst Cyrill Pluess, meaning the company once again is running the risk of missing out on new mega trends.

Asked about the new technology, Darrell said it was too early to tell how it would be applied in workspaces and homes.

"I by no means think the mouse is dead. It's alive and well and will be for a long time."

Logitech has some reason to be cautious. The company had its fingers burnt leaping onto supposedly hot new technologies such as its access system for Google-TV (GOOG.O), which proved a costly flop after Logitech sank more than $100 million into it.

COST-CUTTING

The company has announced a cost-cutting programme that includes plans to shed 450 jobs out of a total workforce of 3,300, which analysts say is a good start toward a better business model.

"I think they are on a good way to bring their cost base in line with their changed sales prospects," ZKB's Mueller said.

Given its cash reserves of more than 360 million Swiss francs ($387.74 million), Logitech should have some staying power, but analysts think further cuts are unavoidable.

And though analysts predict that there will still be a market for accessories, the future Logitech may look quite different from today.

"We are learning and continuing to learn about risk management and taking bets. What we can't do and what we won't do is stop making bets," he said.

($1 = 0.9234 Swiss francs)

(Additional reporting Tarmo Virki and Caroline Copley; Editing by Sonya Hepinstall)

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Comments (5)
realjjj wrote:
Logitech is less a victim of secular trends and more a victim of their own failings.
De Luca has an Apple obsession and that twists his view about the market and could be a major problem going forward.
At this moment Logitech is in trouble because they failed to make great products at great prices in almost all areas.
Windows 8 was a great opportunity to innovate and gain share with keyboards and mice that are better fit for the new OS, yet their efforts there are minimal.Luckly the competition is also slow and their new products could still provide some upside if Windows 8 sales are not terrible.
Their solar keyboard is doing well but they failed to expand the solar line,in PC speakers Logitech used to have great products but they slowed down the refresh cycle and often the new models are worse than the old ones.In gaming mice and keyboards they are not even addressing the very high end of the market anymore and in mechanical keyboards they were very late in noticing the trend.The MX518 mouse was a brand in itself yet they discontinued it without a similarly named successor to bank on the success of a the MX518.
“Darrell said it was too early to tell how it would be applied in workspaces and homes.” – the first high profile device to use gesture was the Nintendo Wii,launched 6 years ago,Logitech should be at the forefront of this tech instead of saying such things.
Lately the build quality of their products seems to be also in a decline,might be because they outsource more of the production or maybe something else changed.
Logitech used to have quality products with (at least) good design at good prices and it was more innovative than their competition,now they are mostly behind the curve.What got lost and where ,i have no clue but they need to figure it out.

Nov 20, 2012 1:34am EST  --  Report as abuse
tougar wrote:
real:
you sound like an unhappy investor or a casualty of: “After a dismal 2011/12 financial year, when Logitech issued back-to-back profit warnings and sacked its top management…”

Nov 25, 2012 8:43am EST  --  Report as abuse
SanPa wrote:
Dear Logitech – Try to figure out a touchscreen retrofit for those interested in Win8 but unwilling to pay hundreds for a new monitor.

Nov 25, 2012 9:02am EST  --  Report as abuse
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