I know this is a Nikon lens forum but I think some here will find this interesting and the lens forum is 'common ground'. TECHNOLOGY SEPTEMBER 16, 2008 Late to Digital, Leica Slow to Refocus German Camera Pioneer Fired American CEO Who Pressed for Filmless Future By MIKE ESTERLArticle SOLMS, Germany -- Leica Camera AG's employment dispute with fired Chief Executive Steven Lee brings to light the venerable German company's troubles moving into the digital age. The quirky company, which helped create modern photography in the early 20th century, stuck too long with film technology and now faces mounting losses and sinking sales. Leica Camera AGThe Ur-Leica was designed in 1913 by engineer Oskar Barnack, who seized on the idea of housing 35mm cinematic film inside a small camera and enlarging the negatives in the studio. Since 2006, Leica has been controlled by Andreas Kaufmann, a 54-year-old German aristocrat. A wealthy photography aficionado, he decided to buy the company to rescue it. Mr. Kaufmann imported Mr. Lee, an aggressive American executive from Best Buy Co. As part of a turnaround effort, Mr. Lee pressed longtime employees to turn out digital products more quickly. He also tried to replace Leica's small network of specialty dealers with Internet sales and kiosks in upscale resorts. Mr. Kaufmann eventually fired Mr. Lee after employees complained about his management and the company's sales slumped. "My mandate was not to be Mr. Nice Guy," says Mr. Lee, 54, who worked for two decades at International Business Machines Corp. before becoming a Best Buy executive. He recently moved back to Minneapolis and is suing Leica for wrongful dismissal. A German court held a hearing in June but has issued no ruling. Leica helped pioneer the 35-millimeter film format that took photography out of the studio and into the streets. Many of the 20th century's most arresting moments of revolution, war and its aftermath were captured by Leicas, the camera clutched by Henri Cartier-Bresson, Alfred Eisenstaedt, Robert Capa and other photographers. The 21st century has been far less kind to the company. Leica has been awash in red ink, careening from one crisis to another. It has churned through three chief executives since 2005 -- most recently Mr. Lee. Photography purists still gush over the quality and craftsmanship of Leica's cameras and lenses, which cost thousands of dollars and continue to be made in a rural hamlet of central Germany. Leica hopes its M8 digital range-finder camera will revive its fortunes. But Leica finds itself on the wrong side of history after the global market share for digital cameras soared from zero to 90% in about 10 years. Leica's annual revenue of about €150 million or $213 million is a fraction of that of rivals such as Japan's Canon Inc. or the U.S.'s Eastman Kodak Co. Mr. Kaufmann isn't a typical capitalist. After helping found Germany's environmental Green party in 1979, he taught for 15 years at a Stuttgart school that follows the alternative Waldorf model. In 2004, he took a small stake in Leica, raising it in steps to 96.5%. The rest of the shares are publicly traded on the Frankfurt exchange. He takes a long-term view. "My family owned a pulp and paper company for 101 years," says the soft-spoken Mr. Kaufmann, who now is Leica's interim CEO. Mr. Kaufmann, a German citizen who lives in Salzburg, Austria, is discreet about his finances. People close to him estimate he is worth hundreds of millions of euros and peg his investment in Leica at more than €60 million. Leica owes much of its fame to Oskar Barnack, an engineer with asthma who began wondering a century ago whether there wasn't an easier way to take photos outdoors than carrying around the era's heavy, bulky cameras. His idea: build a small camera to house 35-mm cinematic film and enlarge the negatives back in the studio. Best Buy's novel forecasting toolLinkedIn CEO's tough hiring decisionSunPower CEO's sports-inspired leadership styleOther companies pursued the same concept, but Mr. Barnack's employer, the optician Ernst Leitz II, gambled more heavily by authorizing the production of 1,000 such cameras in 1925. Leica's high-quality, 35-mm models revolutionized the industry and became the gold standard for photographers on the move. Leica's more recent history is one of miscalculations and resistance to change. In the 1970s, the company invented the auto-focus lens but sold the patent to Japanese rival Minolta, reasoning that its customers knew how to focus. In 1996, as the digital photography revolution began, Leica brought its S1 digital camera to the market. The S1 packed 75 megapixels -- several times the resolution of even today's best digital cameras -- but was too large and heavy to carry around and cost about $30,000. Leica made only 146 of them. By early 2005, banks called Leica's credit lines and the company was on the verge of bankruptcy. Emergency meetings were hosted that spring by French fashion house Hermès International SCA, which owned nearly a third of Leica and was the largest shareholder. Among those who exchanged business cards at the meetings were Mr. Kaufmann and Mr. Lee, a fellow Leica fan representing Best Buy as a potential investor. The Minnesota-based company stayed on the sidelines, but Mr. Kaufmann became Leica's majority shareholder in early 2006. Messrs. Kaufmann and Lee met in Florida that spring to discuss the camera business. That June, Mr. Kaufmann flew to Minnesota and offered Mr. Lee the CEO job. Mr. Lee faced immediate problems as he arrived in Solms, a sleepy town surrounded by farms about 50 miles north of Frankfurt. An important new digital camera, the M8, had to be retroactively fitted with an infrared filter to combat color distortions. Mr. Lee signed 4,000 letters of apologies to customers. Mr. Lee threw himself into every detail, insisting on personally approving expenses above €100. He traveled to Asia to try to strike better deals with suppliers of electronic components. To broaden the company's customer base, Mr. Lee quickly rolled out a new line of lenses called Summarit that didn't match the quality of Leica's traditional optics but -- at a retail price of around €1,000 -- cost less than half as much. Mr. Lee also hired back production and R&D staff that had left during earlier downsizings. But sales of the Summarit fared poorly as bargain hunters opted instead for second-hand Leica lenses sold by Leica dealers. The pipeline for other new products, including cheaper cameras manufactured with Panasonic, stalled. Mr. Lee also decided last autumn to boost the price of the M8, which had sold strongly since its 2006 launch but which he judged insufficiently profitable. He raised the suggested retail price to €4,800 from €4,200. Customers balked. After Leica's overall sales rose sharply in late 2006 and early last year, largely on M8 sales, they fell 16% to €38.2 million in the final quarter of 2007 from the year-earlier period. Managers said Mr. Lee set unrealistic targets and reversed course. After they told him Leica would be able to sell 5,500 Summarit lenses, Mr. Lee ordered a production run of 11,000. Leica sold only 6,000. Mr. Lee says Leica's traditional retailers didn't make enough effort to sell the new lenses. By early 2008, some managers shared their grievances with Mr. Kaufmann. They accused Mr. Lee of having belittled managers, calling them dumb farmers and other names during meetings. In late February, Mr. Kaufmann fired Mr. Lee. Employees say many managers popped champagne bottles to celebrate. Mr. Lee acknowledges some "heated moments" during his tenure and that he occasionally uttered "insults under my breath" out of frustration. But he says he never insulted anyone personally. He says the accusations against him are a "smear campaign" by "underperforming" managers who feared change. He points to success in cutting Leica's debt and putting the company in position to grow again. "I was trying to revive a company that's broken," says Mr. Lee. Mr. Lee's supporters say he was exactly what the company needed, but that he wasn't heeded. "He had to hear, 'That's not possible,' over and over again,'' says one employee. Mr. Kaufmann says the fired executive failed to win the support of most of Leica's employees, who, like other workers in Germany, hold seats on the supervisory board that vets management decisions. "Management's job is to get them behind you," says Mr. Kaufmann. Leica reported in August that revenue for its fiscal first quarter ended June 30 fell by nearly half to €26.999 million from the year-earlier quarter, and reported a net loss of €3.85 million. It reiterated that it expects a loss approaching €10 million for the fiscal year ending March 2009, and break-even or slightly positive earnings in the following fiscal year if sales of new products take off. Mr. Kaufmann estimates that annual sales have to climb by about two-thirds to at least €250 million to finance the R&D spending for Leica to survive in an industry that rolls out improved digital cameras every few months. Henry Posner, communications director at Manhattan-based B&H Photo-Video, says Leica's lenses are "spectacular" and its cameras "jewel-like." But he notes that excellent cameras are available for hundreds instead of thousands of dollars. When it comes to younger consumers, Leica typically is "not part of the conversation." But Mr. Kaufmann is optimistic that Leica will grow again. "I'm a long, long-term investor," he says.