Logitech 2004 Annual Report Download - page 47

Competitors for our interactive entertainment products include Guillemot, Mad Catz, Pelican Accessories
and Saitek Industries. Our controllers for PlayStation®2 are competing against Sony’s sales of their own
controllers. Sony has substantially greater financial, technical, sales, marketing and other resources than we do.
We also compete with another OEM manufacturer for sales of the EyeToy™product to Sony. If Sony were to
move away from Logitech as a supplier of this product, this could adversely affect our OEM revenues. In
addition, our controllers for Microsoft Xbox™are competing against Microsoft’s sales of their controllers.
Competitors in audio devices vary by product line. In the PC speaker business, competitors include Altec
Lansing and Creative Labs. In the PC and console headset, telephony and microphone business, competitors
include Altec Lansing and Plantronics. In addition, with our entry into the mobile phone headset business, we are
competing against mobile phone and accessory companies such as Jabra, Motorola, Nokia, Plantronics and Sony-
Ericsson, some of whom have substantially greater resources than we have and each of whom have established
market positions in this business. These markets are intensely competitive and market leadership changes
frequently as a result of new products, designs and pricing.
Further, we expect to continue to experience increased competitive pressures in our retail business
particularly in the terms and conditions that our competitors offer to our customers, which may be more
favorable than our terms. For example, some of our competitors are beginning to offer to consign products rather
than sell them directly to their customers. We are offering similar terms to select customers to compete
effectively. Offering products on a consignment basis could potentially delay the timing of our revenue
recognition, increase inventory balances as well as require changes in our systems to track inventory.
If we do not continue to distinguish our products, particularly our retail products, through distinctive,
technologically advanced features, design, and services, as well as continue to build and strengthen our brand
recognition, our business could be harmed. If we do not otherwise compete effectively, demand for our products
will decline, our gross margins could decrease, we could lose market share, and our revenues could decline.
Our success depends on the continued viability and financial stability of our distributors, retailers and
OEM customers.
We sell our products through a network of domestic and international distributors, retailers and OEM
customers, and our success depends on the continued viability and financial stability of these customers. The
distribution, retail and OEM industries have historically been characterized by rapid change, including periods of
widespread financial difficulties and consolidations, and the emergence of alternative distribution channels.
The loss of one or more of our distributors, major retailers or OEM customers could significantly harm our
business, financial condition and operating results. In addition, because of our sales to large high-volume
customers, we maintain individually significant receivable balances with these customers. As of March 31, 2004,
one customer, Ingram Micro, represented 16% and another customer, Tech Data, represented 11% of total
accounts receivable. During fiscal year 2004, Ingram Micro accounted for 10% of net sales. We generally do not
require any collateral from our customers. However, we seek to control our credit risk through ongoing credit
evaluations of our customers’ financial condition and by purchasing credit insurance on European retail accounts
receivable balances. If any of our major customers were to default in the payment of their receivables owed to us,
our business, financial condition, operating results and cash flows could be adversely affected.
Our principal manufacturing operations are located in China, which exposes us to risks associated with
doing business in that country.
Our principal manufacturing operations are located in Suzhou, China. These operations could be severely
impacted by evolving interpretation and enforcement of legal standards, by strains on Chinese energy,
transportation, communications, trade and other infrastructures, by conflicts, embargoes, increased tensions or
escalation of hostilities between China and Taiwan, and by other trade customs and practices that are dissimilar
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