Logitech 2005 Annual Report Download - page 48

business, we are competing against mobile phone and accessory companies such as Jabra Corporation (a
company of the GN Netcom Group), Motorola, Nokia, Plantronics and Sony-Ericsson, some of whom have
substantially greater resources than we have and each of whom has an established market position in this
business. These markets are intensely competitive and market leadership changes as a result of new products,
designs and pricing.
Advanced Remote Controls. With our acquisition of Intrigue Technologies in May 2004, we have expanded
our product portfolio to include a new line of personal peripheral devices for home entertainment systems. The
market for advanced remote controls is highly competitive with many companies offering universal remote
controls at price points similar to or lower than those of our Harmony remote offering. These companies include
among others, Philips, Universal Remote, Universal Electronics, RCA and Sony.
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
could 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, 2005,
three customers represented 14%, 12% and 11% of total accounts receivable. During fiscal year 2005, one
customer accounted for 14% of net sales and another customer 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 certain U.S. and
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. We are currently expanding our
Suzhou manufacturing operations with the construction of a new factory that is scheduled to be completed in the
summer of 2005. 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 to those in the United States and Europe. Interpretation and
enforcement of China’s laws and regulations continue to evolve and we expect differences in interpretation and
enforcement to continue in the foreseeable future. Our Suzhou facilities are managed by several of our key
Taiwanese expatriate employees. The loss of these employees, either voluntarily or as a consequence of
deterioration in relations between China and Taiwan, could diminish the productivity and effectiveness of our
Suzhou manufacturing operations.
Further, we may be exposed to fluctuations in the value of the renminbi yuan, or RMB, the local currency of
China. Since last year, China has been under international pressure to revalue its currency, which certain of its
trading partners assert is undervalued. Speculation that the Chinese government will concede to international
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