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FEBRUARY 13, 2002 COMPANY CLOSEUP By David Rocks The Mouse Maker That Roared Thanks to Logitech's marketing savvy, the big cheese of mice and low-cost peripherals is thriving despite declining PC sales
The reason for the hairdo: De Luca had set tough targets for his sales staff and pledged to paint his hair pink if they beat them. They did. And De Luca held up his end of the deal, wearing his crowning glory pink for three weeks. "My daughter said: 'That's cool, dad,'" De Luca notes with a chuckle. And the suits in Zurich? "It really tested my self-confidence," De Luca grimaces. "But people thought: 'This guy comes from California, and even if we don't understand it, it must be OK.'" NO DRAG FROM PCs. With the results De Luca has been producing since taking over Logitech four years ago, it would be hard for them to say anything else -- no matter the color of his hair. Sales have more than doubled, from $471 million in fiscal year 1999 to an estimated $960 million for the 2002 fiscal year, ending March 31. Over the same period, net income has tripled to an estimated $71.5 million this fiscal year, according to S.G. Cowen analyst Robert Stone. And even as PC sales tumbled by 14% in 2001 -- with a further slide of 2% expected this year -- Stone predicts Logitech's sales and profits will grow 15% or better in fiscal 2003. Over the past year, that performance has helped drive Logitech's stock price from $23 to around $43, where it closed on Feb. 12. "Guerrino's done a great job," says Yves Kissenpfennig, an analyst with UBS Warburg in Zurich. "Before he arrived, Logitech had great products, but they weren't marketing them right." A veteran of Apple's marketing operation, De Luca was well suited to take Logitech to the next level. The company was founded in 1981 by an Italian, Pierluigi Zappacosta, and a Swiss, Daniel Borel, both students at Stanford at the time. The two built a sprawling $400 million company that's legally based in Switzerland, although most execs work out of Fremont, Calif., and which has extensive manufacturing operations in China. Both founders, though, are engineers who readily admit lacking the marketing chops to fuel the growth they wanted to see. "Engineers fall in love with technology," says Borel, now the company's chairman. "Guerrino brought a much more objective perspective." His breadth of experience didn't hurt either. De Luca has his feet firmly planted on both sides of the Atlantic: A native of Italy who spent five years in Paris running Apple's European marketing, he then moved to Silicon Valley to take over global marketing for the computer maker. "Logitech has a very strong international flavor" and De Luca's varied resume made him fit right in, says Zappacosta, who has retired from the company and is now chairman of Digital Persona Inc., a designer of fingerprint-recognition systems. Even though most of his working life had been in marketing, De Luca studied engineering at the University of Rome -- which helped establish his legitimacy in Logitech's engineering-driven culture. GRABBING MARKET SHARE. De Luca hit the ground running. "Days after being with Logitech, it was like he'd been with us forever," Borel recalls. One of De Luca's first steps was to push the purchase of Web-cam-maker Connectix, a deal the board had been dawdling over. The problem: Logitech's engineers believed that their own technology was better than Connectix' and were loath to pay a premium for the rival. But Connectix had something Logitech lacked: Market-leading share of 50%, compared to Logitech's 4%. "I said: We don't have to adopt the technology, we're building the franchise," De Luca notes. Logitech bought Connectix in November, 1998, for $25 million in cash and has since sold nearly 8 million cameras worth at least $180 million. Today, Logitech is the market leader in Web cams, although its share now stands at roughly 40% worldwide as competition has picked up. "Without Quickcam, we would have been a small player," De Luca says. De Luca has pushed Logitech deeper into its traditional markets as well. Although the company was already building its own brand identity and moving away from simply making mice for computer manufacturers when De Luca took over, he boosted Logitech's bets in two key areas: Wireless and optical. CUTTING THE CORD. Today, he says, one of Logitech's top products -- selling roughly 3 million units a year -- is the so-called cordless desktop, a combo keyboard and mouse that communicates with a computer via a wireless link. And Logitech is also betting big on optical mice, which rely on lasers to track the mouse's movement instead of the plastic ball used in traditional models. Today, cordless products and cameras account for 45% of Logitech's sales, while mouse sales to computer makers represent just 15%. Those products have helped Logitech prosper even as the PC industry has faltered. While nearly all of Logitech's products are useful only if a customer has a computer, they're almost always add-ons -- mice, trackballs, keyboards, cameras -- that make it easier, or more fun, to use the machine. Furthermore, few of its products top $100, a price that people are usually willing to meet without much deliberation. "The strategy was to disconnect Logitech from the growth of the PC market," De Luca says. "We're in the PC industry, but we're not a PC company. We're subject to a different dynamic than Compaq and Dell, and we're not hurt by the saturation of the PC market. In fact, we get a lot of benefit from it." BIGGER TARGETS. De Luca's outfit also is moving beyond the PC. The company last year launched a steering-wheel game controller for Sony's PlayStation 2, which investment bank S.G. Cowen expects may add $25 million in annual sales over the next three years. "The Playstation 2 opens up a completely new market," with as many as 150 million of the gaming boxes expected to be sold in the next five years, says ABN AMRO analyst Andre Jaekel. De Luca also hints at peripherals for handheld computers, which could further expand Logitech's potential customer base. Other moves, though, may prove less successful. Logitech last March paid $125 million for Labtec Inc., a maker of headsets and speaker systems for PCs. While Jaekel believes the headsets could be a small but profitable niche for Logitech, he says: "I'm not so convinced about the speaker business because they don't have a competitive edge." De Luca acknowledges that the headsets have better potential than speakers -- and allow entry into other non-PC markets such as cellular phones. But he points out that Logitech today is No. 1 or No. 2 in speakers in both the U.S. and Europe, which sets the stage for substantial growth. "We can gain share in the speaker market," De Luca says confidently. If you ask, he might even dye his hair pink to prove it.  Rocks is Computers editor for BusinessWeek Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | FEBRUARY |
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