Leica Scrambles Back Into The Picture

It has pulled off a snappy turnaround, and its IPO is a smash

A Leica is more than just a camera. For amateur photographers from Jerry Lewis to the Sultan of Brunei, and for professionals such as Henri Cartier-Bresson, it's almost a cult. Since 1925, when the optical factory of Ernst Leitz in Wetzlar, Germany, introduced the world's first 35mm camera, the company has represented top optics quality for those who could afford it.

Now, Leica is also a turnaround story. Despite the camera's near-mythic status, the company got hammered when Japanese competitors attacked its position in the professional market in the 1970s, sending Leica into the red for nearly two decades. But with an all-out sales and marketing effort and a string of new products, Leica has battled back. For the fiscal year ended March, 1996, it posted net profits of $4.87 million on sales of $159 million. It expects double-digit profit growth in the current fiscal year, on projected sales of $183 million.

On Sept. 19, Leica went public--and got a warm reception. It placed more than 70% of its shares for $31 each, and the $108.9 million issue was 22 times oversubscribed. Says analyst Alexander Magona at Robert Fleming Securities Ltd. in London: "It's an excellent growth stock."

How did the venerable maker of microscopes, lenses, and cameras go from financial basket case to stock market darling? "It was a question of survival," says Chief Executive Klaus-Dieter Hofmann. Since 1993, when Hofmann and two gther executives engineered a buyout of Leica Camera, his strategy has been to exploit Leica's position as No.1 in quality while attacking costs to close the gap with Japanese rivals.

The team started by investing heavily in state-of-the-art equipment, and they cajoled labor representatives into allowing three work shifts. Turnaround time for a lens dropped from 16 weeks to three weeks. At the same time, Leica transferred some manual assembly to its subsidiary in Portugal, where wage costs are one-fifth those in Germany. Yet the company has still managed to create jobs in Solms, a small town northwest of Frankfurt. At the factory there, opticians in red-trimmed lab coats grind, polish, and test one lens at a time. "We have to [remain] the best in optics," says Burkard Kiesel, management board member in charge of production and R&D. "That's our mission."

NEW FOCUS. To maintain this edge, Hofmann also more than tripled annual research and development spending, to $7.3 million last year. At the same time, Leica is pushing into Asia and the U.S., markets it had neglected. Some 58% of sales are now outside Germany, and Hofmann wants that to hit two-thirds by 1998. Already, in the past two years, Asian sales have doubled, to nearly 20% of the total.

Leica is still best known for its ultra-sturdy, ultra-quiet manual cameras, which are pricey and rare. It produces only 10,000 a year of the M series, the classic rangefinder, and 7,000 of the R series, the single-lens reflex (SLR) model. The average price of a Leica is $800, more than twice the average of any other brand. Lenses can cost as much as $20,000.

But Leica is expanding its product line with everything from high-precision binoculars to zoom lenses. The $3,000 R8, latest in the R series of SLR cameras, is a completely redesigned model that was introduced with great fanfare at the Cologne trade show in mid-September. The company is working on a state-of-the-art digital camera for 1998, plus a new M series for the turn of the decade.

Leica is also gingerly dipping downmarket. In April, it bought Minox, the German maker of cameras priced below $300, that had been nearly bankrupt for seven years. Hofmann will keep it as a distinct brand, and by shifting nearly all Minox production to Portugal he expects it to post a profit by the year ending March, 1998.

For the premium brand, Hofmann and his team aim to boost Leica's appeal to the professional market. Now, 80% of Leica users are what Hofmann calls "ambitious amateurs." He wants to boost the percentage of professional users to 40% in the next couple of years.

Leica faces other challenges. The company is still highly leveraged, with total debt of $40 million. And it must be careful that its downmarket ventures don't tarnish its sterling image. So far, thanks to dynamic management and the devotion of its fans, the Leica mystique lives on.