Bracken Darrell, the longtime chief executive of computer accessories maker Logitech, talks about the situation in China, the acquisition strategy of the Swiss company and his professional future.
When, to the surprise of many, Bracken Darrell was appointed President of Logitech ten years ago, the Swiss manufacturer of computer accessories was in a deep crisis. The share price 📈hovered around 7 francs. After the American was also given the office of Group CEO at the beginning of 2013, the share price continued to go downhill. But since the low in May 2013, the company’s value multiplied.
By the peak in the summer of 2021, Logitech’s market capitalization had increased twenty-fold to 21,5 billion francs. Although the company’s value has more than halved in the wake of the general correction in growth stocks, the track record under Darrell’s watch is outstanding.
In an in-depth interview with The Market, the Logitech CEO shows no signs of office fatigue: «I’m not ready to do anything else at all.» His enthusiasm and desire to constantly break new ground never seem to wane, and partly explain the success of the past few years.
The Logitech CEO is convinced he will soon show double-digit growth again. Video conferencing is not a flash in the pan that will disappear when the pandemic ends, he says. «At some point, virtually all rooms will be video-enabled.» The next big growth areas will be in products for cloud gaming and metaverse, he says.
Immediate challenges such as lockdowns in China, where the company manufactures more than half of its products, are of little concern to Darrell. Chinese factories and distribution facilities are open, he says, and procurement has already adapted to the new environment. «In fact, I’m more excited than ever about China’s long-term potential.»
The Logitech CEO is unwaveringly confident about the company’s future. «Nowadays, it’s much easier to see what could make us ten times bigger than it was years ago», Darrell adds. Such statements must be balm for Logitech’s currently somewhat unsettled shareholders.
Mr. Darrell, China is Logitech’s second biggest market, more than half of its products are manufactured there. With so many Chinese cities in lockdown mode right now, the situation must be frightful.
It’s not as though the whole country is in lockdown and nobody can buy anything. At the time of the first global lockdown, everybody said it would be a disaster for us. But I thought it would be even better for us. And it became a huge opportunity - people were buying more products because they were in lockdown. Chinese citizens continue to work from home during the lockdowns. So I don’t feel we are in a disastrous situation right now.
So Chinese consumers are still buying products?
Yes, and our manufacturing site continues to operate. Also, our distribution centers are open. The news you read about China is maybe even more exaggerated than what’s really happening. Individual cities are going through individual lockdowns. We are challenged with the lack of some components. It’s not totally perfect for us but so far it is ok. Sure, if our manufacturing site were to close for weeks or months that would have an impact. But we'd bounce back – it would be only a temporary thing. I’m too long-term oriented to worry too much about short-term things.
«I’m probably more excited about China then ever.»
You constantly mention how excited you are about China’s long-term potential. Are you still?
Definitely – I’m probably more excited then ever.
Logitech is lucky to have its factory in Suzhou in the province of Jiangsu, an area with no lockdowns. How’s the situation there right now?
We’ve been a little bit starved for some components, but it hasn’t caused us to stop manufacturing. Of course, that could change. But even if we had to close our factory, we would keep going right through it, we would recover. We would make as many things in other places as we can.
Have you been forced to change your sourcing strategy?
We’ve been adapting our sourcing strategy since the pandemic started. We added a lot of secondary sourcing for key components like chip-sets over the last two years, because we had to. I would say – we have really adjusted already.
Logitech’s size doubled during the pandemic. How well have you digested all this growth?
It’s a compliment to our team to be able to grow like that without having big chronic challenges. Don’t get me wrong: every year is a new year, every quarter is a new one. You are always changing and transforming, including right now. We are moving things from one part to another. That’s just the nature of the way we work, that made us pretty flexible and a bit quicker to respond and scale up. We are bigger but we still have the same mindset. I still see us as the little mouse company running around the feet of the elephants. We’ll never stop being that hungry little competitor that tries to make a difference.
Your business strategy resembles that of a portfolio manager. You enter new product categories early when you see potential and exit as soon as growth is waning.
It’s true we like playing choices. We try to enter new categories early and we exit when we don’t see a long-term potential for us either because they are declining and can’t improve margins or we don’t see a path to get to a leadership position. But we only occasionally exit categories. Sometimes it has paid off to stubbornly hang on and others leave earlier.
Over the years you exited areas like tablet and phone covers, docking stations and the OEM business. Looking at the current situation, smart home products and mobile speakers could be next.
In smart home we have already exited Harmony universal remote products. We stopped manufacturing them.
«We won’t exit mobile speakers yet, or maybe ever.»
What about mobile speakers? They were doing terrifically some years ago, but now they are lacking growth.
They were a fantastic product. And it was one of the first categories where I feel like we got a footing on designing around the user. For me that was the future of what we were going to be. That was 9,5 years ago. We are not the leader in that category but it could have dynamic growth in the coming years. We like the category, we love the innovation we have there and we love our product. We won’t exit mobile speakers yet, or maybe ever. You’ll continue to see things from us but not as high profile or heavily invested as categories like mice, keyboards or gaming. We focus where the growth is.
What will be the next big thing? Cloud gaming, products in connection with the Metaverse?
There are two big secular trends we tap into, like video everywhere, or esports, which is becoming the biggest sport in the world. Also, people want to work from home. Metaverse and cloud gaming are strong mega trends, way beyond everything and will keep growing. Our existing categories are perfect for these two trends. We have already experimented a lot in the Metaverse, in the virtual reality space. But I don’t see those suddenly becoming monster categories, rather they will grow our existing categories.
One of those is videoconferencing, which boomed during the pandemic. What makes you so sure that it wasn’t just a flash in the pan?
It’s easy to understand why somebody would conclude that video collaboration growth is over when the pandemic has ended. But we didn’t go to the office during the pandemic and everyone was doing video. Over 90% of the rooms in the world are not video-enabled yet. The previous growth curve was driven by web-cams, then it went down and is stable now. But the conference room camera-businesses kept growing double digits and is still. Eventually, I think virtually all rooms will be video-enabled. In a world where some people are at home, some in the office, it just makes sense. I see a very long, strong growth curve ahead.
And it makes a huge difference if you buy a web-cam for $50 or conference room equipment for a couple thousand dollars.
The average costs are over 400 to 500 $ per room. These are big ticket items for us, something that often gets overlooked. Logitech also sells a lot of things for over 1000 to 2000 $.
In videoconferencing, Logitech increased its market share from only 4% in 2016 to 31%. Are you now the market leader in that category?
In the hardware space for rooms enabled we are the number one. In value terms, we became number one this last quater. I never underestimate our competitors but I love our position. We built a sales force to sell directly to big and small companies. I’m very optimistic about this business.
Recently, Hewlett-Packard bought one of your competitors, Poly, for $3,3 billion. Did you consider buying the company?
No, but we were aware that they were on the market. We didn’t make an offer. We seriously considered it years ago before we built our own sales force. We thought at the time that could be a shortcut to going to market. Today an acquisition wouldn’t make sense because we have the products and we already have the sales force.
You are increasingly targeting the enterprise market, not just the private consumer. What does this mean for your margins?
Margins tend to be higher in the enterprise space. But it also requires more human sales activities. So it’s not dramatically more profitable for us but it has higher gross margins. It’s surprising that we have been so long in the business of mice and keyboards, yet that we never had an enterprise focus. It’s opened up a whole new avenue of growth for all our categories. In the long term, we will talk much more than video collaboration in our B2B story.
Do these big commercial customers appreciate your products?
In the beginning they thought we just made little things. In the meantime they learned that we make very high-quality products. We love customers as individuals, but we also love customers like an IT director whose job is on the line with big decisions. We want them to be successful.
«My goal is to grow double digits every year.»
The current fiscal year 2023 you just started will be a rather slow growing one. You expect sales growth of just 2% to 4%. When will Logitech be back on its long-term growth path of 8% to 10%?
Even excluding the pandemic effect, we grew nearly double digits over the last couple of years. Historically, 2% to 4% is low. On the other hand you have to realize that we grew 74% in the peak pandemic year and shocked many that we grew from that level. This year we have a couple of unusual things. The most noticeable one is the Russia-Ukraine war that takes 2% right off the top. And we had some very strong quarters in last fiscal year. As we get our engine going over the long term, I expect us to be in the 8% to 10% range. And I hope we will grow much faster than that. My goal is to grow double digits every year, that’s always my mission.
With no debt and over $1,3 billion in net cash, Logitech is super stable and financially strong. What do you intend to do with all that cash besides buying back your own stock?
We have bought back almost 10% of the company. My number one priority is strategic investments. Then next, I look for what can we buy from the outside to improve or to become the ingredient for us to drive new growth. That’s why we are very aggressively looking for acquisitions. We make acquisitions all the time. Just this month, we will do another one. But it will be a very small one, an ingredient we think is strategically important for us.
«We don’t gamble the company’s future on large acquisitions.»
Why do you avoid large acquisitions?
We also look at bigger things. But as you know it's hard to make that happen because the costs and complexity are very high and investors inherently know that big acquisitions might have big returns but also carry a lot of risk. We don’t gamble the company’s future on large acquisitions. If we make one of those it’s going to be very strategic and well thought through.
Was the painful experience that Logitech had with Lifesize a reason why you are so cautious in doing larger acquisitions again?
No. And I was only around when we sold Lifesize. I don’t feel any hesitation to buy something large if it makes sense. But I also have my risk management gene that always tells me not to take too much risk where we shouldn’t.
Are too high valuations holding you back?
No, we never looked away from something because of price. We just haven’t found something big that made a lot of sense. We want to be the company that people say about: They are not just super innovative but they are also very smart, they are an organic growth company, they can grow without big acquisitions.
It’s just more fun to grow organically, is it?
It’s not only super fun but also vital for the life blood of a company. I love our strategy of being a design company that unlocks the power of engineering, both for consumers and for enterprises.
You are 59 years old and have been at the helm of Logitech around ten years, way over the average duration of a CEO. Is it time to move?
I’m absolutely enthralled with what I’m doing. I’ve never been more excited about this job. I’ve been here for ten years but it feels like running a different company every few years. Logitech has transformed so much over the last three to four years that I feel like being at the beginning of something exciting and new. I’m not at all ready to do something else. We have so much great talent in our company including on my leadership team. We came from being a small fish in a big pond to a medium-sized fish in the big pond.
«I absolutely despise the word success.»
Your ten years track record is impressive. During your time at the top the valuation of the company increased ten times. What’s the recipe for this success?
I can’t articulate a formula that would be «the one». I would say the most important thing is putting consumer and customer understanding above everything else, period. That’s what I meant when I said we would become a design company. Then, having a corporate culture where people feel like they can do their best work. We are not perfect, we have all kinds of flaws. But here at Logitech you have room to run. That’s a pretty good thing; hard to protect, but super important. And the third thing is to prevent the things that got you there from becoming your Achilles heel. I absolutely despise the word success, – because success becomes something people want to protect, for their reputation or sense of self-worth. You have to discard that every day. At Logitech, we are not protecting anything, we are a hungry small company trying to make a big difference in the world. I don’t have to protect anything, what I have to do is to grow. Keep creating new paths. That’s what we’ve done at Logitech and what will be the future of the company.
Before you joined Logitech in 2012, the company also had a very long successful period behind it and then became complacent. That’s what your predecessor, Guerrino De Luca, told me when we met in 2018. How do you avoid that happening again?
The biggest risk is to lose the drive and the courage to try new things, because you are afraid they won’t work. The only way to avoid that is to constantly talk about it and change things up once in a while. That is what design is all about.
Nevertheless, after such a good run it’s hard to stay agile and not get lazy, isn’t it?
We had a tremendous ten year run but the run ahead of us will be even much bigger than that and much more exciting. That’s my mindset. Nowadays, it’s much easier to see what could make us ten times bigger than it was years ago.