Q&A with Plantronics' CEO Ken Kannappan The headset leader's CEO talks about keeping his company on top in office call centers while expanding into new markets
Among a handful of makers of telephone headsets, Plantronics rules. The Santa Cruz (Calif.) company is the world leader in the hands-free phone gear that's being snapped up by call-center operations around the world. Now, Plantronics is moving into less mature markets, such as headsets for home-office workers and mobile-phone users. The combination of hot products and explosive 300% growth in sales of mobile-phone headsets won Plantronics record gross revenues of $311 million through the first three quarters of fiscal year 2001.
Yes, Plantronics is suffering with its brethren in the tech downturn. The company's stock floats just above $20 per share at 52-week lows. And in late February, it slashed its earnings expectations for the coming year to $1.60 per share, down from $1.88.
But the move into the mobile-headset and PC-communications markets puts the company in a sweet spot, as more and more voice-recognition interfaces roll out for everything from word processing to Web surfing. BusinessWeek Online Technology Editor Alex Salkever recently spoke with Plantronics CEO Ken Kannappan. Edited excerpts of their conversation follow:
Q: What would you say are Plantronics biggest strengths right now?
A: Plantronics has been the leader in the call-center market for nearly 40 years, and the expertise that we've built up in headsets is something that we're able to apply to some big new market opportunities in office, mobile, computer, and residential. The leverage of that expertise is our biggest strength.
We understand what is important to people who buy headsets. If you're wearing a headset, you want it to be very, very comfortable. Everyone's ear is unique. It's as unique as a fingerprint. So we've taken physical molds of over 900 different ear types. We scan them into a CAD [computer-assisted design] database, and we use that to design products that are more comfortable across different types of ears.
We've combined that [data] with critical measurements of the head and of the face, so that we can come up with products that fit and are very stable. We take measurements of weight/drag distribution, so that our headsets have excellent stability and a feeling that is lighter than the actual weight.
Q: What do you think are the company's biggest weaknesses right now?
A: The mobile market is dominated by the large OEM [original-equipment manufacturer] companies. They have different adapter standards for their handsets. That makes it difficult for us to come up with products that easily connect to all handsets. So it becomes more complicated for people to buy a headset and know that it will plug into any handset.
Q: How much more expensive is it to build different adapters for different types of handsets?
A: It's not so much the cost of the adapters as the fact that it's more cumbersome for consumers. A consumer that buys a phone which doesn't have a standard two-and-a-half millimeter port on it then has to buy a different adapter. That adds cost but not value -- [the headset] only works with that phone.
Q: How would you say Plantronics' product line is segmented, in terms of percentage of sales?
A: About 40% of our business is in the call-center market. About 42% of our business is in the office market, about 13% of our business is in the mobile market, and about 5% of our business is in the PC market. All of these percentages are referring to our headset business. We do have 4% of our business that's not in the headset market -- that business is called Walker, and it primarily makes specialty phones for the hearing-impaired.
Q: How are those sectors growing right now?
A: Let me talk about this on a secular basis. I want to keep this very distinct from cyclical effect. So on a longer-term secular basis, we think that the call-center market is growing in the 7% to 8% range per year. And this is largely tied to the increased number of Asian call centers. The office market is growing in the range of about 20% or so. Growth is most sizable in the U.S., where people are very comfortable with the idea of wearing a headset while they work on the computer. We are seeing growing interest, especially in Europe, in use of headsets in the office. And we think, ultimately, [Europe] could even outstrip the U.S. in terms of penetration.
The mobile and PC markets are growing very rapidly for us. They are very early in the adoption curve. And we've also been gaining some market share there. So in the past year, those businesses have grown for us by over 300%. We don't anticipate that level of growth on a sustained basis going forward. We're expecting something more like in the range of 40% to 50% a year from those markets.
Now, in terms of cyclical overlay, the call center is the most heavily affected by economic cycles. It's the most mature of our four markets. Even the office market is only 3% globally penetrated. But the call-center market is in the range of over 90% penetrated, in terms of agents using headsets. So we're really tied to the growth of that business.
When people are building their businesses, adding capacity, that's when they're adding agents to handle customer-service questions at their call centers. A new call center is a major capital-investment decision. They have to build a facility and put in computing and telecom equipment, not to mention the new people that they'll be hiring. In the current type of economic environment, these are more likely to be deferred.
The office market is negatively affected in the economic cycles by two forces. First, the headset is a personal product -- people don't want to wear the headset someone else has worn. So when you hire somebody into your company, they expect to get a new headset. That's something that tends to diminish in downtimes -- people are less likely to job-hop.
And there's just general belt-tightening. Companies are looking to control expenses. Many of our headsets are purchased over corporate intranets, and in that environment, the corporation can shut down what they view as some of the discretionary purchases. And so we get some effect there. In the mobile and PC markets, while we think we're dealing with rising adoption, the number of global phones and the number of PCs being sold has declined relative to earlier expectations.
Edited by Robin J. Phillips
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Copyright 2001, Bloomberg L.P.
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