CNBC Business | Leica it or not, digital is here to stay

Leica it or not, digital is here to stay

High-end camera maker Leica enters the digital age

How does a time-honoured company known for its world-class analogue cameras adapt to the information age? RICHARD LOFTHOUSE reports

Digital photography is here to stay, and so too is Leica. The legendary German camera maker launched its first digital M-series rangefinder camera last October, and although they cost €4,200 each the company cannot make them fast enough to satisfy demand. This is an astonishing transformation given that Leica was technically bankrupt as recently as 2005.

Dr Andreas Kaufmann

All but swept away by an electronic revolution it couldn’t contain, today Leica is surfing the digital wave on its own terms. But will this be enough to secure the future of a globally recognised luxury brand that is also a camera maker?

By the time this article is published, Leica’s full-year results for 2006-7 will have been released. They are likely to show a sharp upswing in fourth-quarter sales despite the company posting a multimillion-euro net loss.

Meanwhile, Austrian investor Dr Andreas Kaufmann will have become the sole owner of Leica Camera AG, having bought out the final 7.47% of the equity he didn’t already own via an open offering at €12.50 per share. Shortly thereafter he will have announced the return of Leica to Wetzlar, the firm’s spiritual and historical home, an hour’s drive from Frankfurt.

Having taken full control, Kaufmann will probably take the company private again later this year, leveraging the optics expertise of several other businesses he owns to accelerate the pace of a complete restructuring of Leica, with a view to its long-term success.

As this flurry of highly significant news suggests, there is a new tension in the air in sleepy Solms, the town where Leica’s 930-strong workforce methodically polishes lenses to time-honoured formulas.

Kaufmann is perfectly candid about his error of judgment in diagnosing Leica’s ills when he first started investing in the company in 2004. “I started to hear stories about the Leica brand and the Leitz family, having invested in other optics companies nearby,” he says. “I saw huge potential in Leica, but I underestimated the amount of restructuring that was needed. I thought the company just needed good management, but that wasn’t true. The problems were deeper than management alone.”

Kaufmann insists that the digital revolution did not sweep Leica aside. If anything, he claims, the company was ahead of the wave when it launched its first digital camera, the Leica S1, in 1996.

The problem stemmed from the S1’s over-lengthy development and narrow market appeal. Sporting a frankly unbelievable 75 megapixels, it cost DM38,000 (in today’s money, around €50,000). A handful were sold and the camera’s exorbitant development costs were written off as a loss.

A lurch towards the mainstream resulted in a partnership with Fuji and Leica’s first affordable compact digital camera in 1998, but then the cry went up that Leica had ceased to be anything more than a badge pinned on a Japanese camera, despite the fact that the company had successfully partnered with Minolta as early as the 1970s.

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