Logitech 2006 Annual Report Download - page 66

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 short product life cycles, continual performance
enhancements, and rapid adoption of technological and product advancements by competitors in our retail
market, and a trend of declining average selling prices in the OEM market. We continue to experience aggressive
price competition and other promotional activities from our primary competitors and from less-established
brands, and we may choose to adjust prices or increase other promotional activities to improve our competitive
position. We may also encounter more competition if any of our competitors decides to enter other markets in
which we currently operate.
In addition, we have been expanding the categories of products we sell, and entering new markets, such as
the market for programmable remote controls. As we do so, we are confronting new competitors, many of which
have more experience in the categories or markets and have greater marketing resources and brand name
recognition than we have. In addition, because of the continuing convergence of the markets for computing
devices and consumer electronics, we expect greater competition in the future from well-established consumer
electronics companies in our developing categories, as well as future ones we might enter. Many of these
companies have greater financial, technical, sales, marketing and other resources than we have.
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, 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. The
emerging Notebook peripheral segment is also an area where we face new competitors that have broader
Notebook product offerings, as well as aggressive pricing and promotions.
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, for
example the expected Vista operating system launch expected in early 2007, before we are able to make such
improvements. This ability could provide Microsoft with significant lead-time advantages. 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, which offers a complete line
of PC web cameras. In Europe, our main competitors are Creative Labs and Philips. In view of the rapid growth
of this market, we expect additional competitors, including major players such as Microsoft, to enter this
category in the near future. 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 Intec, Mad Catz, Pelican
Accessories and Saitek Industries. Our cordless controllers for PlayStation®2 also compete against corded
controllers offered by Sony. In addition, our cordless controllers for Microsoft Xbox™ are competing against
Microsoft corded controllers.
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