Cherry on the brink: Iconic mechanical switch maker drowns in debt

Cherry's Precarious Position: A Beloved Mechanical Keyboard Switch Maker Teeters on the Brink of Bankruptcy

The once-revered name in mechanical keyboard switches, Cherry, finds itself in a dire financial predicament. The company's debt has reportedly surged past its equity, forcing a critical shareholders' meeting to discuss drastic survival measures. According to Heise Online, Cherry is contemplating the sale of one of its two primary business divisions – either its peripherals or its Digital Health & Solutions unit – as a lifeline to stay afloat. Crucially, the iconic Cherry MX switches, the very heart of their reputation, are classified under the components division, not peripherals. This means that the legendary MX switches themselves are not currently slated for sale to another entity, offering a glimmer of hope for enthusiasts.

The Fading Glory of a Patented Past

For years, Cherry enjoyed a near-monopoly thanks to its patent on the celebrated MX mechanical switches. This innovation was a cornerstone for keyboard enthusiasts, lauded for its tactile feedback and durability. However, the patent's expiration in 2014 proved to be a watershed moment. It unleashed a torrent of competition, with companies like Gateron, Kailh, and Outemu rapidly entering the market. These rivals now churn out switches that are ubiquitously found in a vast array of high-performance gaming keyboards. Cherry, meanwhile, appears to have faltered in its innovative stride. Competitors were quicker to introduce features like factory-lubed switches and Hall effect sensors, advancements that have reshaped the mechanical keyboard landscape. Even major players such as Corsair, Logitech, and Razer have long since developed their own proprietary switches, often manufactured by third parties, moving away from Cherry's offerings.

A Post-Pandemic Slump and Desperate Measures

While the COVID-19 pandemic initially provided a welcome surge in demand for Cherry, this reprieve proved fleeting. By 2022, sales plummeted by a staggering 50%, landing at a mere €41.2 million. Although the company saw a slight uptick in overall revenue in 2023, both its Digital Health & Solutions division and its core components business continued to experience significant declines. The gravity of the situation is underscored by the candid admission of Cherry's CFO, Juergen Yongma, who stated that selling off a portion of the business is the "only realistic path to survival." He explicitly noted that the company's low capitalization and a share price below €1 make it virtually impossible to bolster its capital through any means other than strategic mergers or acquisitions.

Cost-Cutting and Strategic Divestments

In response to these mounting pressures, Cherry is implementing stringent cost-cutting measures. Production of switches has been moved away from its main facility in Auerbach, Germany, and outsourced to manufacturing partners in China and Slovakia. Furthermore, the company has already divested its Active Key division, which focused on hygienic peripheral devices, for €21 million. To shore up its finances, Cherry has also secured an additional €23 million in funding and has received crucial support from its majority shareholder, Argand Partners. These actions signal a company in a fight for survival, desperately seeking stability in a dramatically altered market.