At Bang & Olufsen, The Sound Of Rising Profits

The high-end audio maker is being rewired, and investors are singing

No other maker of TVs and stereos has enjoyed the panache of Denmark's Bang & Olufsen. For fashion-conscious Baby Boomers, B&O's sleek and expensive audio-video equipment was for decades the epitome of cool. But in recent years, B&O has stalled. Its gear seemed like an out-of-tune luxury in the era of the iPod.

Now B&O is getting its groove back. High above the Las Vegas Strip, technicians are wiring penthouse suites with B&O sound systems and flat-panel TVs in a collaboration with the MGM Grand hotel. The Danish company is also courting yachtmakers, jet-leasing companies, and developers of high-end real estate as new venues for B&O gear. And for the first time, B&O is taking its show out of the living room and onto the road. On Mar. 1, the company unveiled a car stereo developed with German auto maker Audi that features a head-pounding 14 speakers, including two cylindrical "acoustic lenses" that rise silently out of the dashboard when the car starts up. Set to premiere this fall in Audi's top-of-the-line $75,000 A8 model, the high-tech toy is likely to cost thousands of dollars.

These partnerships are essential if B&O is to revive its glory days. "It's all a way to get more people to touch our brand," says Chief Executive Torben Ballegaard Sorensen, who took charge at B&O in 2001 following six years as vice-president of Danish toymaker LEGO Group. Founded in 1925 by a pair of young engineers, Peter Bang and Svend Olufsen, B&O made its mark in the '70s with beautifully designed products that appealed to status-conscious buyers worldwide. But by the time Sorensen landed at headquarters in Struer, 225 miles northwest of Copenhagen, this icon of Danish business risked slipping into irrelevance. Plagued by inefficiencies and complacent management, B&O was turning out lousy numbers. Worse, it had lost its technical edge. Its super-expensive gear, ranging from $2,000 boom boxes up to $50,000 home-theater systems, looked gorgeous, but audiophiles turned up their noses at the sound quality. "There was a gap between our image and our performance," says the 54-year-old CEO "We called it the 'pretty-face syndrome."'


Sorensen worked fast. He pared back staff from 3000 to 2200, hiving off a Danish factory and its 350 employees to contract manufacturer Flextronics. He shuttered dozens of poorly performing B&O stores. And he has moved to fix B&O's image by rolling out high-performance products like the $16,000 BeoLab 5 speakers, which sport a microphone that measures room acoustics and subtly adjusts the sound. "Sorensen has added a fresh new way of thinking at B&O," says Niels Leth, a stock analyst at Swedish investment bank Enskilda.

That has investors tuning back in. B&O's shares are up 23% over the past 12 months, double the rise in Copenhagen's stock index. Brokerage Alfred Berg, a subsidiary of ABN Amro (ABN ), forecasts net profits of $46 million for the fiscal year ending in May. That's on the back of 3.5% growth in revenues, to $665 million -- the first such increase since 2002. Next year, revenues should climb 6.8%.

Helping to power sales is a breakthrough called the acoustic lens. Just as camera lenses focus light, acoustic lenses reshape sound, spreading it horizontally to increase the sensation of space. In the late 1990s, B&O contracted with the American inventors of the technology for an exclusive license. After years of refinement, the company in 2003 rolled out its BeoLab 5 speakers -- the first to use acoustic lenses -- to rapturous reviews. Since then, B&O has put lenses into the more affordable $3,800 BeoLab 3 models and the new Audi "Car-Fi" system. That has given it an edge over rivals such as Bose Corp.

To keep the momentum going, Sorensen is pushing B&O engineers to venture farther afield. The company has just introduced its first hard-drive-based personal video recorder, the $1,600 HDR 1. Sorensen says B&O is working on a product that will let customers download music from the Internet without using a home PC. And he is mining for revenue in other areas, too. B&O has licensed its digital-amplifier technology to rivals including Samsung (SANYY ) and Sony Group (SNE ). One of its Danish factories even turns out aluminum parts for other companies, such as camera bodies for Hasselblad.

The company's workforce -- which includes third-generation employees -- has taken the changes in stride. Yet many are unsettled by a plan to shift 200 jobs to a new plant in the Czech Republic by 2006, the first time B&O will make products outside of Denmark. Chief Operating Officer Peter Thostrup says offshoring will save the company $7 million a year, money that can be reinvested in higher-skill jobs at home. If Peter Bang and Svend Olufsen were alive today, they might well be singing the same tune.

By Andy Reinhardt in Struer, Denmark

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