Case Study: Logitech: Finding Success through Innovation and Acquisition- 3-4 pages

Case Study: Logitech: Finding Success through Innovation and Acquisition- 3-4 pages

To consider the viability of Logitech’s future, the CEO of Logitech, has brought you in as a consultant. Your task is to use the company’s competitive analysis to predict it’s future. To do so, complete the following tasks:

Appraise the effect of Logitech’s size upon its ability to sustain its global positioning. Appraise Logitech’s speed of strategic decision making and implementation upon its ability to maintain or increase its market position. Determine whether Logitech’s past ability to innovate can be translated into continued successful market positioning. If not, what competitive advantage can Logitech exploit to maintain its position as an industry leader? How does Logitech’s quality standards impact its ability to be successful in the future?

appealing to a large group of technology users. Finally, with its acquisition of Paradial AS, Logitech was able to combine their peripheral products with the software, video effects, and security features Paradial offered (Logitech Acquires Paradial, 2010). This allowed Logitech to deliver a complete and intuitive HD video conferencing experience for companies of any size.

 

Future industry trends revolve around content strategy and consumer expectations regarding mobile web and Smartphone applications. Content strategy involves decisions about what information and features to include in a product, including those that provide the most benefit or fulfill the most needs; for Logitech, anything else is just noise and dilutes the product. In terms of mobile web and smartphone application trends, Logitech has three options: (1) develop closed partnerships with specific platforms (iPhone or Blackberry); (2) produce apps for each platform; or (3) produce “platform-neutral” apps by using the mobile web.

Global Presence

 

As the global economy expands and becomes more reliant on technology, Logitech has seen an increase in the desire for ease of use when it comes to portable computers, games, and video conferencing technology. Logitech has consistently expanded its product offerings to satisfy this growing demand for computer peripherals. In FY 2009, 85% of its revenue came from retail sales of peripheral products, such as mice, keyboards, speakers, webcams, headsets, headphones, and notebook stands. Logitech has also seen global demand sharpen for devices designed for specific purposes, such as gaming, digital music, multimedia, audio/visual communication over the Internet, and PC-based video security. The company’s products combine essential core technologies, continued innovation, award-winning industrial design, and excellent value that are all necessary to come out on top of a rapidly changing and evolving technological industry. Since its inception in 1981, Logitech has been a growing player in the technological product market and has distributed products to over 100 different countries.

 

For Logitech, opportunities arose as the desire for global communication increased. The trend of wireless and portable communication, such as Skype and Apple’s Facetime, has opened a window of opportunity for new and more advanced products to enable video communication and conferencing.

 

As computers have aged, Logitech has been able to sell add-on peripherals for users who want to add newer applications to their older computers. Logitech successfully continues to sell products at the end of the product life cycle, such as mice and keyboards, and to generate profits to fund new product development, such as the new Logitech Revue with Google TV. As consumers become more globally conscious and connected, Logitech is able to tailor its products toward the many uses of video communication and high speed Internet capabilities.

Since its founding, Logitech has created a global presence and reputation for its brand and products. In 2009, Logitech’s sales were distributed globally, with 45.3% in the Eastern European, Middle Eastern and North African regions; 35.6% in the Americas; and 19.1% in Asia Pacific. By expanding its presence globally, Logitech became the leading provider of personal peripherals in the world. In addition to being an innovator in its industry, Logitech also has maintained reasonably priced products. In 2009, 67% of their sales stemmed from products that were priced under sixty dollars. This innovative mindset, accompanied by reasonable prices, has contributed to booming sales, and in the end, Logitech’s good financial health as a company.

Finance

 

The recession in 2008/2009 hit Logitech hard. For the full fiscal year 2010, sales dropped to $2.0 billion, down from $2.2 billion in fiscal 2009. Operating income was $78 million, down from $110 million, and net income was $65 million ($0.36 per share), compared to $107 million ($0.59 per share) in the prior year. Gross margin for fiscal 2010 was 31.9 percent compared to 31.3 percent in fiscal 2009. As a result of the economic downturn, Logitech found it necessary to restructure its workforce. In early 2009, Logitech reduced its salaried workforce globally by 15%.

 

Logitech’s stock price spiked to $40 in late 2007 as a result of record sales and profits from its successful launch of iPod-capable peripherals. The iPod peripherals (speakers, docks, and headphones) made the increasingly popular iPod easier to use. But by 2009, Logitech’s operating margin was 5.15%, far below its 2007 high of 12%, due to increasing price competition. Logitech did not issue dividends to shareholders; it needed to reinvest its net income back into R&D and product advertising, and also have available capital for strategic acquisitions.

 

Logitech has outlined very specific financial objectives that it seeks to achieve. It aims to realize sales growth between 13–19% with a gross margin between 32–34%. Logitech also intends to invest 5% of its sales revenue to R&D and 12–14% to marketing. By continuously investing resources in research and development, Logitech has taken a strategic approach to maintaining long-term growth and profitability.

Marketing

 

Logitech began manufacturing mice for Apollo Computers, and later, for HP. These relationships were built at industry trade shows and became particularly important for Logitech’s growth and expansion because such clients were not buying just one or two mice at a time – they purchased 25,000. This gave Logitech strong sales right out of the gate. Logitech also developed a logo for its brand that became well known among both corporate customers and the general public as a symbol of innovation and quality within the personal peripherals industry.

 

In 2004, Logitech also signed an agreement with Global Internet Telephone Company and Skype to co-market and promote their products in the United States, Canada and Europe (Logitech and Skype Announce Marketing Agreement, 2004). Pursuant to this agreement, a Logitech headset and 120 Skype minutes were bundled together into one package and offered to customers. In addition, the two companies also cross-promoted one another on their respective websites. This was a wise marketing decision for Logitech because it expanded the brand name and promoted its product to more users, as Skype was also a booming and expanding company.

 

Logitech has also made very strategic decisions regarding the marketing of specific products. Logitech recognized that women were a segment typically not targeted by technology fields in general, and it saw this as a prime opportunity for the Logitech Quick Cam product (Buchanan, 2005). In 2005, Logitech launched commercials for the Quick Cam that targeted businesswomen, showing a traveling mother using the Logitech Quick Cam product in her hotel room to say goodnight to her children and husband. Logitech recognized that women do, in fact, embrace technology when it fits their needs, and demonstrated in its commercials how its product could fit those needs.

 

On a smaller scale, Logitech also made a wise marketing decision by giving products a recognizable and memorable logo. The Logitech logo and branding is visible on all of its products and has become a recognizable symbol of quality and innovation in the peripherals and technology industries.

 

Logitech initially had a limited marketing budget when it first introduced its mouse in the early 1980s. This small budget limited promotional activities available to Logitech. However, the company made a few key marketing decisions early on that allowed it to wisely implement the budget it had. Logitech chose to position itself at industry trade shows, particularly at Comdex in Las Vegas. This allowed Logitech not only to get the Logitech name out within the industry, but gained it several key clients that allowed it to expand and grow.

Operations

 

One of the initial weaknesses Logitech faced regarding operations was that it had numerous manufacturing locations dispersed throughout the world. The problem with having so many locations was that these facilities were not cost effective. Many of the facilities were located in countries where it was expensive to operate, and the labor costs for qualified employees were high. Logitech realized in the early 1990s that the personal computer industry was becoming increasingly competitive. Logitech thus made two primary operations decisions that allowed it to significantly increase its competitiveness. First, Logitech consolidated manufacturing, which was once widely dispersed throughout China. This helped the company maintain lower prices on its products, increasing its competitiveness. In addition to its China manufacturing facilities, Logitech established a second center for R&D in Cork, Ireland – a prime location for innovation in the technology and IT sectors. Second, Logitech also knew the industry was changing rapidly and that it would no longer be able to compete simply by manufacturing computer mice. Logitech thus made a strategic operational decision to expand its product line beyond the mouse and introduced a variety of products, including a handheld scanner, Fotoman (a digital camera), Audioman (a speaker/microphone), and Wingman (the first gaming peripheral).

 

These operational decisions not only helped Logitech remain innovative and competitive within the industry, but they also positioned the company for success during the personal computing industry boom in the mid- to late-1990s, when the Internet and online industries took off. Even by that time, Logitech was known as a leading personal peripheral provider. Logitech was both innovative, with more than 130 personal computer peripheral products, and reasonably priced. When the PC industry took off, Logitech was already established as an industry leader, and its sales soared along with the industry.

 

Logitech also has become a leader in the wireless peripherals sector. By closely following consumer trends, Logitech saw early on that the personal peripherals sector was moving into a new digital era, where wireless peripherals were becoming a new trend. Logitech created an entirely new product category with the Logitech Cordless Desktop, a wireless mouse and keyboard bundle. By staying on top of and leading consumer trends, Logitech sold over 100 million cordless mice and keyboards.

The Changing Landscape Ahead

 

Logitech became a leader in computer peripherals by developing innovative products and focusing on the consumer’s experience. Between 2007 and 2010 alone, Logitech received eleven different awards for nineteen products and fourteen categories (see App. IV). In a market saturated with deep-pocketed competitors like Microsoft and Philips, Logitech has used innovation as its means of survival.

 

In 2010, however, Logitech faced significant challenge: The way people interacted with their devices had begun to change. The iPhone and iPad used touch screen technology with built-in accelerometers, eliminating the need for mice and Trackpads. Additionally, camera and higher quality speakers had become standard equipment built into the iPhone, iPad, and Windows laptop computers; Apple had introduced the “magic pad” to replace the mouse altogether. The need for consumers to buy add-on peripherals was slowly evaporating, as more peripherals became standard equipment designed into new mobile technologies.

 

As a consequence, Logitech could someday see its peripherals market disintegrate completely. Logitech must decide if it should invest more in video conferencing and television all-in-one remote controls, and/or focus on developing partnerships with computer and telecom manufacturers and mobile carriers such as ATT, Verizon, T-Mobile, and Sprint. Once again, the computer industry is changing, and Logitech will have to formulate new diversification strategies to ensure its long-term survival.

Appendix I: – History Timeline

 

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 QuickCim 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.

Appendix II: – Market Segments

 

Selected 2009 worldwide retail value share by category

 

Mice 40.1%

Webcams 49.4%

PC speakers 34.1%

Remotes 39.8%

Appendix III: – Global Economic Trend Analysis

Source: Yahoo! Finance, 2010

Appendix IV: – List of Innovation Awards

 

• CES Innovations 2010 Honoree (7 categories)

 

• iF Product Design Award 2010 (1 product)

 

• CES 2009 Best of Innovations Category Winner (2 categories)

 

• CES Innovations 2009 Honoree (5 categories)

 

• 2009 red dot Design Award (1 product)

 

• Good Design Awards 2008 (4 products)

 

• CES 2008 Best of Innovations Honoree (1 product)

 

• CES Innovations 2008–Design and Engineering Showcase Honors” (6 products)

 

• iF Product Design Award 2008 (2 products)

 

• 2007 red dot Design Award (2 products)

 

• Good Design Award 2007 (2 products)

 

 

 

 

 

 

 

Appendix V: – Internet Usage in China

Data Source: World Bank, World Development Indicators. Last updated July 26, 2010

Appendix VI: – Logitech Price Performance

Share price performance previous 3 years

© www.advfn.com

Source: ADVFN

 

 

 

 

Appendix VII: – Logitech Six-Quarter Price Graph

Source: Yahoo, http://finance.yahoo.com/q/bc?s=LOGI+Basic+Chart

Appendix VIII: – Operating Margin

 

 

 

 

 

 

 

Appendix IX: – Profit Margin

 

Appendix X: – Debt-to-Assets

 

 

 

 

 

 

 

Appendix XI: – Cash Position

Appendix XII: – Logitech Solvency in 2010

SOLVENCY RATIOS

SHORT-TERM SOLVENCY RATIOS (LIQUIDITY)

 

Net Working Capital/Equity- 22.09

Current Ratio- 1.8

Quick Ratio (Acid Test)- 1.2

Liquidity Ratio (Cash)- 0.73

Receivables Turnover- 9.6

Average Collection Period- 38

Working Capital/Equity- 35.3

Working Capital pS- 2.02

Cash-Flow pS- 0.78

Free Cash-Flow pS- (-0.36)

 

FINANCIAL STRUCTURE RATIOS

Altman’s Z-Score Ratio-4.35

Financial Leverage Ratio (Assets/Equity)- 1.6

Debt Ratio- 37.5

Total Debt/Equity (Gearing Ratio)- 0.00

LT Debt/Equity- 0.00

LT Debt/Capital Invested- 16.0

LT Debt/Total Liabilities- 0.0

Interest Cover- 0.0

Interest/Capital Invested- 0.0

http://ir.logitech.com/releasedetail.cfm?ReleaseID=174109

 

MISH. (2009, May 5). MISH’s Global Economic Trend Analysis. [Graph image]. Retrieved from http://1.bp.blogspot.com/_nSTOvZpSgc/Sf1XZcpoJxI/AAAAAAAAGCk/Y38fyMUWmVM/s1600-h/debt+service+payments.png

 

Operating Margin. (2010). Investopedia ULC.

 

Philips. (2010). Company Profile. Retrieved from http://www.usa.philips.com/about/company/index.page

 

Profit Margin. (2010). Investopedia ULC.

 

Quindlen, G. P. (2009, November 11). Getting Back to Growth: Logitech. [Slideshow Presentation]. Retrieved from http://www.bloobble.com/broadbandpresentations/presentations?itemid=3134

 

Rovi Corp. (2010). Microsoft Corporation. Retrieved from http://www.allgame.com/company.php?id=915

 

Smith, G. (2010, January 12). Five User Experience Trends I’ll be Watching in 2010. nForm. Retrieved from http://nform.ca/blog/2010/01/five-user-experiencetrends-il

 

Wikinvest. (2010). Logitech International SA (LOGI). Retrieved from http://www.wikinvest.com/stock/Logitech_International_S.A._(LOGI)

 

Yahoo! Finance. (2010). Logitech International S.A. (NMS). Retrieved from http://finance.yahoo.com/q/bc?s=LOGI+Basic+Chart

 

Yahoo! Inc. (2010). Royal Philips Electronics Company Profile. Retrieved from http://biz.yahoo.com/ic/41/41823.html

 

The author would like to thank Tyler Thompson, Heather Wooten, Meagan Foy, Samantha Louras, and Will Hoffman for their research and contributions to this case. Reprinted by permission of Dr. Alan N. Hoffman, Dept. of Management, Bentley University, 175 Forest St, Waltham, MA 02452. RSM Case Development Centre prepared this teaching case to provide material for class discussion rather than to illustrate either effective or ineffective handling of a management situation. The author has disguised identifying information to protect confidentiality.

 

Copyright © 2011, RSM Case Development Centre, Erasmus University. No part of this publication may be copied, stored, transmitted, reproduced or distributed in any form or medium whatsoever without the permission of the copyright owner.

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