How Logitech bet big on work from home


Logitech is one of those ubiquitous companies — it’s been around since 1981, selling all kinds of important things that connect to computers of all shapes and sizes: mice, keyboards, cases, cameras, you name it. When Bracken Darrell took over in 2013, he restructured the company around growth, started making acquisitions like Blue microphones, and invested heavily in software. In fact, the last time I talked with Bracken, it was the end of 2019, and he laid out a vision of Logitech as a software and services company in addition to its hardware business.

Unfortunately, 2020 happened, and the pandemic sent a huge number of people to work from home, and suddenly, Logitech keyboards and mice and webcams were the hottest things around. I actually had to buy a Logitech webcam on the gray market in 2020 — demand was just that high. And now, 20 months into this thing, Logitech is making new products specifically designed for working from home.

Bracken and I talked about that, how the company met that demand, whether that changed his plans, and how the supply chain issues around the world affect his business. We also talked about how he manages Logitech’s relationships with other tech giants: Logitech is one of the few companies with close access to Apple’s tightly controlled ecosystem, and it, of course, has to sell products through Amazon, which has a long history of undercutting its own vendors.

And we had to talk about the decision to kill the Harmony remote line, the growth Logitech has seen in products for creators and streamers, the mess that is USB-C, the metaverse, and more. Bracken even told me what his favorite mechanical keyboard switches are. This one has everything.

Bracken Darrell, CEO of Logitech. Here we go.

This transcript has been lightly edited for clarity.

Bracken Darrell, you are the CEO of Logitech. Welcome to Decoder.

Thank you for having me.

The last time you and I had a chance to talk to each other was 2019. I had you on our other show, The Vergecast. You were just acquiring a company called Streamlabs. You were talking about becoming a software and services company. Then 2020 happened, and we all went home. I bought a Logitech webcam for a 300 percent black-market markup.

Oh, I’m sorry.

It was impossible to get, but it was great. It was worth it.

Okay.

But just tell me about that moment in the business for Logitech; you were on a trajectory to become a larger kind of software and services organization, then everyone had to work from home. Demand for things like keyboards and mice and webcams shot through the roof. The PC industry experienced a little bit of a renaissance. Tell me about that moment and managing through that early part of the pandemic — it seemed really challenging.

It was really surreal. Around March 8th, I was in New York. We had just given an investor meeting. We kind of forecasted what we were going to do over the next several years. Of course, this COVID thing was being talked about, but it wasn’t a big deal. Then I flew home, and literally the next Monday we shut the office down. Everything was closed.

For the next month, we had a very good outlook for the year. We expected to grow 8 to 10 percent. We’ve been growing at or near double digits for the last five or six years, and along this trajectory there are these long-term secular trends: video’s going to take over audio. Gaming’s going to become the biggest collection of sports in the world. Streaming and creating is going to be the next big, big, big thing — even bigger than gaming. The mouse and the keyboards are going to do just fine.

What happened was all those businesses went through the floor. They just dropped out of existence. Our sales completely collapsed for the first month or two after COVID, but we knew it was temporary. We knew it wasn’t going to stay like that. I don’t think people knew what was going to happen yet. Our retail business had disappeared. We knew people were buying for working at home, but we sold mostly through retail.

The toughest part of that individual moment was: what do we do now? A lot of people started cutting costs and conserving cash. I had a discussion with my head of operations; people have to work from home, but we won’t have enough inventory to supply them if COVID comes roaring back. So I said to him, “What do you think about making a big inventory bet?” He said, “Yeah, I think you’re right.”

We made a very big inventory bet and we’re lucky we did. We grew 74 percent last year because we had the inventory to sell.

So that was an early bet. You were assuming that work from home was going to be here for real. People are going to need mice and keyboards. That’s a hardware business — you have to actually make the stuff and stock it to sell. How early did you actually make that bet? What’s the timeframe between the decision to increase inventory and selling it?

We have to make that bet a minimum of two months beforehand, but in some cases you’re producing about four to six months in advance, depending on parts availability. It was a short-term bet, but we set the table for the next six to eight months. We were lucky. I won’t pretend we were geniuses. We just followed our intuition. Now it seems obvious.

We’re 18 months into COVID, and some people are going back to the office and some people aren’t. That’s going to play out however it plays out, but I can see now there are products designed to be work-from-home products. You have some, there are Zoom displays, there’s a new webcam startup, which is not something we’d ever seen before. There’s an ecosystem of companies and products now that are focused on a work-from-home consumer as opposed to customers buying enterprise hardware and software for their homes, which is kind of what was happening before. The bet you made to make sure you had the inventory — was that the existing product line?

That’s right.

When did you start realizing that you had to make new kinds of products for work-from-home?

The lucky situation we’ve been in is that those four secular trends I mentioned earlier are long-term. We were already making products that really fit into your life and into your home. We really ran the same play — instead of growing, though, at double digits, we were growing 25 percent at first, then 64 percent, then 100 percent. Our growth rates went way up, but it was really the same play. We really didn’t change the strategy or the portfolio. We were already building that portfolio for those people who were working in a hybrid environment. The hybrid environment just came much faster than we expected.

On the flip side of things, building things with chips in them has gotten increasingly difficult because of the chip shortage and the supply chain crunch. As the trend increases, the demand is there, but what I’ve been told from everyone is that the supply is the problem. How have you been managing through that?

We’re kind of lucky in that we have a very distributed portfolio. We’re in 36 different categories and probably 30 of those are chipsets, and they’re not 15 chipsets that go into 36 categories. I don’t know how many, but a lot, so when we were short on one chipset, we could try to shift our business to other products that didn’t require that chipset. Between that, and really having a good long-term relationship with our suppliers, we’ve probably managed around that better than most companies have, but we’re not immune to it.

We’ve had to develop alternative sources of supply. If you’ve talked to people like me, you know that instead of working 100 percent of the time on new products, we are working 80 percent of our time on alternative supply. We’re using a different chipset in an existing product. That’s largely over for us. I would say we’re 80 percent of the way through that. We still have some limitations, but it’s not terrible now.

When I’ve talked to other CEOs in other industries, the predictions of when the chip crunch will end are kind of all over the map, depending on the field. The carmakers are thinking it’ll be another year, maybe even more. They just seem tired. Companies that make smaller things with newer kinds of chips in them see the light at the end of the tunnel. Do you feel like the end is in sight?

I think so. I think we’re looking at six months to a year of the shortages. As I said, most of our chipset issues are resolved. We still have some left and we’re limited, but we’re just about there. The shorter-term issue for us now is, ironically, logistics. This is probably another thing that your guests are talking about — just this bizarre problem where there’s just not enough big cases to ship products over the water. It’s really a strange dynamic.

Is there a container ship loaded up with Logitech mice and keyboards just waiting to get into a port somewhere right now?



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