Logitech goes from mouse to house

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Logitech, the Swiss/North American market leader in computer mice, is now taking aim at the domestic remote control market. It is pioneering an internet-based remote control for managing the proliferation of televisions, DVD players and other household electronic entertainment devices.

Unlike conventional controls, which are usually preprogrammed, the device codes are stored on Logitech's website to be downloaded to suit each home's collection of electronic products.

Launched last year in the US and now available in Europe, the new controllers have made rapid inroads into the $500m-a-year market for universal remote controls: in November last year it was the US market leader with a 20 per cent share by value. "It's the mouse of the digital home," says Guerrino De Luca, Logitech chief executive. "We created a $700m mouse business around the personal computer. We can build an equivalent business in the home."

It would be a significant achievement for a company that has based its growth on innovative engineering and a business strategy that avoids head-on conflict with competitors such as Microsoft, the other big mouse maker.

"We don't compete in areas that matter to Microsoft," Mr De Luca argues, pointing out that mice and keyboards are a small part of the software giant's activities. "We love Windows [Microsoft's PC operating system] and Microsoft knows that. When it develops new Windows versions it makes sure the software works with our products."

But in the home Logitech will have to take on Universal Electronics, the Netherlands/North American manufacturer of the "One For All" range of controllers, which claims its products are used by 130m people, as well as Philips of the Netherlands and a clutch of small Asian producers.

However Mr De Luca, an engineer whose career has spanned companies such as Olivetti and Apple, seems unfazed. He is aiming the controller, priced at about €200, at the mid-market: a cut above cheap controllers with limited functionality but well below sophisticated devices costing $1,000 or more that may have to be programmed by an expert.

He can take comfort from the company's record. It has just experienced its 25th successive quarter of double digit growth and is generating turnover of about £1.4bn with a net profit margin close to 10 per cent. Profitable since 1994, its development in the 24 years since it was spun out from the Swiss Ecole Polytechnique Federale de Lausanne has been due to innovation, a global outlook and an unsaturated market.

Logitech's reputation depends on the 500 engineers among its 6,500 workforce and its annual research and development expenditure of more than $60m. Mr De Luca says it markets about 100 new products a year. Examples include cordless game controllers for the Sony PlayStation 2 and Microsoft XBox, cordless laser mice and mobile headsets. He accepts that 10 per cent will be flops.

From its beginnings in PC mice, Logitech has expanded into keyboards, PC loudspeakers, web cameras and games accessories. Technically advanced, they are never the cheapest or the most expensive option: "The premium mass luxury brand. Like Starbucks coffee," Mr De Luca claims.

Design is important but not overarchingly so. "Every time we made a product based on industrial design alone it was a flop," says Mr De Luca. "It's not the shape, it's the combination of form and function."

An international outlook is key. The company may have spun out of Swiss academia but Daniel Borel, co-founder and current chairman, is Stanford-educated. With no domestic market to speak of, the company was international from the first, siting its headquarters in Fremont, California, and listing on both Nasdaq and the Swiss stock market.

Mr De Luca is amused by those who warn of the Chinese threat, pointing to the company's Chinese factories and plans to invest in a new plant there. "We are as cost-effective as any Chinese company," he says. "We are Chinese: 75 per cent of our employees worldwide are Chinese and one-third of our engineers are based in China." The company builds about half its products in its own factories and the rest is outsourced to Asian contractors. Logitech's ace, however, is its 50 per cent share of the global mouse and keyboard market, which gives it channel domination in a largely unsaturated market. Mr De Luca says future growth will come from the cordless market: "Only 7 per cent of PC owners worldwide have either a cordless keyboard or mouse. We are targeting the other 93 per cent".

"Our growth has been driven by low product penetration, the exact opposite of the growth cycle of PCs and mobile phones. That is the fundamental reason why Logitech has done well and will continue to do well."

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