Logitech 2005 Annual Report Download - page 47

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To manage the growth of our operations, we will need to continue to improve our transaction processing,
operational and financial systems, and procedures and controls to effectively manage the increased complexity. If
we are unable to scale and improve them, the consequences could include: delays in shipment of product,
degradation in levels of customer support, lost sales and increased inventory. These difficulties could harm or
limit our ability to expand.
If we do not compete effectively, demand for our products could decline and our business and operating
results could be adversely affected.
Our industry is intensely competitive. It is characterized by a trend of declining average selling prices in the
OEM market, and continual performance enhancements and rapid adoption of technological and product
advancements by competitors in our retail market. We continue to encounter aggressive price competition from
our primary competitors and from less-established brands, and may choose to adjust prices to improve our
competitive position.
We expect continued pressure in our retail business, particularly in the terms and conditions that our
competitors offer customers, which may be more favorable than our terms. Future market conditions, product
transitions, and initiatives by our competitors may require us to take actions to increase our customer incentive
programs and could impact our revenues and operating margins.
Corded and Cordless. Microsoft is our main competitor in retail cordless (mice and desktops) and corded
(mice and keyboards) categories. Microsoft’s offerings include a complete line of mice, trackballs, keyboards
and desktops. Microsoft has significantly greater financial, technical, sales, marketing and other resources, as
well as greater name recognition and a larger customer base. We continue to encounter aggressive pricing
practices, promotions and channel marketing on a worldwide basis from Microsoft, which will continue to
impact our revenues and margins. We are 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 our market share.
Microsoft is a leading producer of operating systems and applications with which our mice and keyboards
are designed to operate. As a result, Microsoft may be able to improve the functionality of its mice and
keyboards to correspond with ongoing enhancements to its operating systems and software applications before
we are 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 we may not be able to offer.
Video. Our main competitor in the U.S. for PC web cameras is Creative Labs, offering a complete line of
PC web cameras. In Europe, our main competitors are Creative Labs and Philips. We continue to encounter
aggressive pricing practices, promotions and channel marketing on a worldwide basis from Creative Labs, which
will continue to impact our revenues and margins. We are also experiencing ongoing competition from less-
established providers of PC web cameras that are seeking shelf space and increased market share through price
competition.
Gaming. Competitors for our interactive entertainment products include Guillemot, Mad Catz, Pelican
Accessories and Saitek Industries. Our cordless controllers for PlayStation®2 also compete against corded
controllers offered by Sony. Sony has substantially greater financial, technical, sales, marketing and other
resources than we do. In addition, our cordless controllers for Microsoft Xbox™are competing against
Microsoft’s sales of their corded controllers. Logitech’s advantage relative to offerings by Sony or Microsoft is
that our controllers are cordless, whereas neither of the companies currently have an equivalent cordless offering
on the market.
Audio. 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
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