Logitech 2004 Annual Report Download - page 64

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New product launches, process engineering, commodities management, logistics, quality assurance,
operations management and management of Logitech’s original design manufacturers occur in Hsinchu, Taiwan,
Suzhou, China and Hong Kong, China. Certain components are manufactured to the Company’s specifications by
vendors in Asia, the United States and Europe. Logitech also uses contract manufacturers to supplement internal
capacity, to reduce volatility in production volumes and to reduce the transit time from final assembly to regional
distribution centers. In addition, some products, including most keyboards, certain gaming devices and our audio
products, are manufactured by third-party suppliers to the Company’s specifications. Retail product localization
with local language manuals, packaging, software CDs and power plugs is performed at distribution centers in
North America, Europe and Asia Pacific.
Competition
Logitech’s industry is intensely competitive. It is characterized by a trend of declining average selling prices
in the OEM market, and continual performance enhancements and new features, as well as rapid adoption of
technological and product advancements by competitors in the retail market. Also, aggressive pricing practices
and downward pressure on margins has resulted in increased price competition from both our primary
competitors as well as from less established brands.
Microsoft is the Company’s main competitor in retail pointing devices and keyboards. Microsoft’s offerings
include a complete line of mice, trackballs and keyboards including cordless mice and desktops. Microsoft has
significantly greater financial, technical, sales, marketing and other resources, as well as greater name
recognition and a larger customer base. The Company continues to encounter aggressive pricing practices,
promotions and channel marketing on a worldwide basis from Microsoft, which will continue to impact revenues
and margins. Logitech is also experiencing competition and pricing pressure for corded and cordless mice and
desktops from less established brands, in the lower price segments which could potentially impact its market
share.
Microsoft is a leading producer of operating systems and applications with which Logitech’s pointing
devices and keyboards are designed to operate. As a result, Microsoft may be able to improve the functionality of
its pointing devices and keyboards to correspond with ongoing enhancements to its operating systems and
software applications before Logitech is able to make such improvements. This ability could provide Microsoft
with significant lead-time advantages for product development. In addition, Microsoft may be able to offer
pricing advantages on bundled hardware and software products that Logitech may not be able to offer.
Logitech’s main competitors in the U.S. for PC video cameras are Creative Labs and Veo. In Europe, its
main competitors are Creative Labs and Philips. The Company is also experiencing ongoing competition from
less-established brands in PC video cameras that are seeking shelf space and increased market share through
price competition.
Competitors for Logitech’s interactive entertainment products include Guillemot, Mad Catz, Pelican
Accessories, and Saitek Industries. Logitech’s 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 Logitech. The Company also competes 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 the
Company’s OEM revenues. In addition, Logitech’s 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 and microphone business, competitors include Altec
Lansing and Plantronics. In addition, with the Company’s entry into the mobile phone headset business, it is
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
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