"The fall in our share price
didn't really worry me"
Logitech CEO Bracken Darrell, at the helm of the company for 10 years, outlines the future options the Swiss company is exploring.
By Ludovic Chappex
A single Swiss firm has edged into our almost exclusively American selection. Although not purely a tech company – unlike the cloud and cybersecurity stars in this feature – Logitech is closely linked to technology and innovation in general. In addition to its quarter earnings, which pleasantly surprised analysts, the Swiss computer accessory manufacturer's medium- and long-term outlook has also caught the attention of markets. Its American CEO, Bracken Darrell, will be celebrating his 10th anniversary at the head of the group in January. He granted us a virtual interview via Zoom from his office in California. This gave us the opportunity to discuss the current crisis, but especially his long-term vision for the company and how it is moving forward in its quest for innovation.
Tech stocks were hit hard in 2022. And Logitech was no exception. How did you handle it?
One advantage I've gained from being in the profession for the past 10 years is that I've learnt not to get too excited or too concerned about short-term events. That's why I haven't been really worried about share prices, to be honest. I'm much more concerned about the medium and long term. I believe that you find the real value of what you do in the long term. That's how I've always functioned. To give you a frame of reference, Logitech's stock was worth about $7 when I became CEO. Today it's trading at around $55.
What will Logitech look like in 5 to 10 years?
We'll be much more focused on the B2B market. Historically, Logitech has been a consumer-driven business, but that started to change when we decided to focus more on video conferencing products about eight years ago. Since then, we haven't stopped growing on this market. These days, B2B accounts for about 25% of our revenue, and I bet that share will rise to 50% over the next few years. More and more individuals who own our products at home want the same user experience in the workplace – and vice versa. And we're trying to drive that kind of circular approach.
Your products have won many awards for their design, but what about innovation at Logitech? Doesn't it take a back seat to criteria like ergonomics, the look and user experience?
R&D remains a key area of investment for us. Despite cost cuts in many areas in recent months, we're increasing our investment in engineering. We probably have the world's best in-house expertise in mouse sensors. And we're also currently emphasising the development of artificial intelligence, especially for video conferencing. We announced a new product in October, which will launch next spring. It's an AI-powered tabletop camera that provides remote attendees with a front-facing view of speakers, regardless of the direction they're looking in the room. Apart from AI, we're also innovating in the range of sensors we use in our mice and cameras. Recently, we've even started investing in sensors that measure air quality.
Are these innovations developed in-house or are they acquired from other companies?
The two go together. We've always relied both on our own R&D and on integrating existing technologies. Often we start exploring internally and then acquire a company that provides technology we can use to complement and enhance product development. For example, five years ago we acquired a small Zurich- based company with human detection technology using cameras. The German police were using their solution to detect people outside their car on the motorways and receive notifications. In parallel, we'd already started working on similar technology, applying it inside conference rooms. We've invested a lot in these solutions, which have since become much more sophisticated. The system can accurately determine who is in the room and what movements are taking place.
As regards air quality, we launched an in-house project a few years ago. Experiments began in Switzerland and Taiwan to measure CO2 levels in meeting rooms. Participants were monitored and we observed how the discussions went. We were struck to note how much efficiency dropped as CO2 levels rose. So we started developing our own product, and last year we acquired the Zurich company Airica that had experience in this field. We're still investing in our own innovation, but we're also looking outside the company for valuable things that we can combine or buy.
The next few years will be ideal for acquisitions, as some smaller companies may be strapped for cash. Do you have any takeover plans?
We can't say much about that because we don't disclose what we're looking for. But we are constantly on the lookout, reviewing hundreds of opportunities every year. Now could definitely be a good time from an economic point of view. More companies will probably be trying to sell their technology. That said, price is not usually the deciding factor. The most important thing is to make sure it's a good fit strategically.
"I jump every time someone says the word competitor"
This autumn you launched a handheld gaming console called G Cloud in the United States. What are your first takeaways?
The reviews have been very positive. I was pleasantly surprised with the response, because I see it as a first-generation product. And cloud gaming is still in its infancy. We don't know how fast it will develop and what features people will like. We'll see where it goes, but I'm very optimistic.
The G Cloud format is very similar to the Nintendo Switch. Do you aim to compete with them?
You know, I jump every time someone says the word competitor... People are too focused on their competitors. I don't think of it that way. I think in terms of customer needs. In this case, I think you can have a Switch and our console. The two products are used differently, as the G Cloud is an exclusively online console with games running in the cloud.
Your product line has shifted towards a more premium positioning in the last two or three years. Is that a segment you intend to pursue? It brings to mind the trajectory taken by Apple over the past decade...
We have definitely developed a lot in the higher-end product segment. We really admire Apple. The comparison is flattering and an inspiration for design and user experience.
Do you see any signs of improvement in the economic climate?
One extremely positive thing is that supply chain issues have abated considerably, both in component availability and freight container shipping. The challenges we face are prevalent for most companies these days. Inflation and currency volatility hit us hardest in the last quarter, impacting our gross margin by 500 basis points. And these difficulties will continue to affect us. But in time they will work themselves out. In the short term, inflation will eventually be brought under control. Currency rates will stabilise and probably return to where they were. So I'm positive for the medium to long term.
Aren't you concerned about the supply issues caused by China's zero-COVID policy?
We have gained flexibility on that point. Three or four years ago, we had no production capacity outside China. Today, 20% of our capacity comes from other countries, and I think the share will be at 25% or 30% by the end of the year. That means we have the resources to increase our production if necessary. I'm pleased with our progress in that arena. With all the customs tariffs, COVID and geopolitical uncertainty, the system gives us flexibility.
You have been the boss at Logitech for 10 years. What are the key lessons you have learnt?
Firstly, that risk management is crucial. You always have to be able to assume responsibility for the risks you take. Sometimes a product category is successful for a while and then it stops working. You have to be prepared to change things quickly. Often we don't react fast enough. That's another important aspect to develop: the instinct and courage to make changes rapidly. And finally, probably the most important lesson is this quote from Winston Churchill, which Logitech founder Daniel Borel loved, "Success is never final, failure is not fatal." And it's true, you have to start over every day. What you achieved yesterday is over. And failure is never fatal if you know how to manage the risk.
LONG-TERM VISION
"A very long-term person" is how Bracken Darrell describes himself. His 10 years (January 2023) at the head of Logitech confirms this credo. Over the course of this era, Logitech has unshackled itself from its overdependence on mice and keyboards. The group's share price has also risen spectacularly. Before joining the Swiss firm, the congenial 59-year-old American had let his talent shine in management positions at a series of multinationals: Arthur Anderson, PepsiCo, General Electric, Procter & Gamble and then Whirlpool. He holds an MBA from Harvard Business School and a BA in English from Hendrix College in Arkansas. He also serves on the Board of Dean Advisors of Harvard Business School and the Board of Directors of Life Biosciences, a longevity company.
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