Science Technology Company 1985 Case Study Analysis Outline

 

MEMOO:

BILL WATSON, CEO

FROM:

 TOBY ODENHEIM, PRINCIPAL CONSULTANT

SUBJECT:

SCIENCE TECHNOLOGY COMPANY STRATEGIC SUMMARY 

DATE:

MARCH 20, 1985

Although industry growth for automated test equipment (ATE) and very-large-scale integration(VLSI) increased dramatically from 1978 to 1984, this growth is being outpaced by new entrantsand competitors. Global competition, which in many countries is propped up by governmental policy and price supports, is resulting in excess supply and rapidly falling prices. Thusobsolescence is a risk for many industry players, Scientific Technology Company (STC)notwithstanding. Equally concerning, when compared to key competitors, STC is lagging behindon a number of financial metrics including earnings growth, return on equity, and return onassets.To remain viable STC should adopt a two-fold strategy, focused on cost-savings and innovation,in order to maintain leadership in ATE and testing software, and strengthen their patents andintellectual property portfolio.

Cost Savings

STC must implement immediate cost-cutting measures to improve financial position and remaincompetitive in the face of increasing competition in both the U.S. and abroad. Specific cost-saving measures include:

Narrow core focus and concentrate on automated test equipment and software.

Havinga broad array of diverse product lines distracts the business from being best-of-breed in themost profitable sectors.

o

Sell off VLSI division and other secondary product lines that can command a good price.

o

Capture revenue from profitable but non-essential lines without further investment,harvesting as much profit prior to obsolescence.

Close Colorado plant and sell associated fixed assets

. While it makes sense to maintain both an east coast and west coast presence for manufacturing, sales and support, two separatefacilities in adjacent states results in added expense and excess manufacturing capacity.Outsource manufacturing if additional capacity is required.

Close unprofitable sales and service offices

. Rather than maintaining offices in over adozen international locations, close unprofitable offices and work through resellers andstrategic partnerships to support dispersed geographic locations in secondary markets.

Science Technology Company Essay

834 Words4 Pages

Science Technology Company

Bill Watson of Science Technology Company (STC) should not discuss the current 5-year financing plan prepared by Harry Finson, the chief financial officer, at the forthcoming board meeting. The industry that STC is in has short product life cycle, rapid technology obsolescence and fast growth with increasing competition. In fact,
STC’s strategy to survive the competition is to maintain leadership in
ATE segment and to further compete in the large scale integrated
(VLSI) circuits segment by chasing market share and spreading high R&D cost over large sales. However, the large sales growth seems to be more difficult to obtain with the newly added competition. Based on historical trend, level of…show more content…

Based on this comparison STC is much less efficient to its competitor. Industry growth among the many related sectors also sheds light on possible growth rates. The highest average annual growth rate of 20% in the computer sector and the lowest figure of 12% consumer products imply that a reasonable sales growth for the next couple years should be within the range of 12% to 20%.

The industry that STC is in has short product life cycle, rapid technology obsolescence, and fast growth. STC’s strategy will beat the competition by maintaining leadership in ATE segment and competing in the large scale integrated (VLSI) circuits segment by chasing market share and spreading high R&D cost over large sales volume. The growth of ATE segment is largely fueled by the growth of electronic products, but this success can be segment dependent. Although the ATE segment with 28% annual growth is exceptional, the success in the ATE segment cannot infer the same success in the VLSI segment. Despite the aid of ATE segment growth, the historical sales growth would still be approximately 12.8% from 1980 to 1984. This implies that STC, with a history of averaging around 12% sales growth, is unable to outpace the competition, and the 30% sales growth seems far out of reach.
Historical cost of goods sold for STC and three other primary competitors over the years is around 45% to 46% of sales; this shows that STC has not been able

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