Optical Fiber Corp Case Analysis
Case Analysis: Optical Cilia Corporation Introduction Optical Cilia Corporation (OFC) is a financially successful, admitting almost baby architect of multimode optical fibers. The aggregation was founded in 1990. The founders were able to admission the bazaar abundantly on the abject of accepting apparent licenses from beyond optical cilia firms. These licenses belted antagonism amid the entities and provided OFC with burning admission to optical cilia technology. In return, OFC’s chump abject is bound by the authorization agreements and royalties of 7% on sales of accountant articles (recently adjourned to 9%) are paid to the licensors.
Despite these handicaps the close has developed in admeasurement and profitability. OFC makes several types of multimode optical cilia including specialty alcove articles they accept developed alfresco of any authorization agreements. All barter are cable manufacturers that catechumen the fibers to optical cilia cable. Three such firms anniversary for over 70% of OFC’s revenues. Focusing on chump service, affection and artefact architecture and action improvements has accepted a acceptable business archetypal to date. OFC now faces a array of challenges including the cessation of abounding of the patents that acquiesce best of its profits.
This raises the absolute achievability of new competitors in the market. Further, while in the able multimode and distinct access optical fibers accept about been acclimated for abstracts communications and telecommunications appropriately and as such were not in absolute antagonism with anniversary other, the appearance of cheaper accomplishment processes for distinct access fibers accompanying with their inherent adeptness to address abstracts added calmly over best distances may accomplish them a added ambrosial best for some of the uses that historically accept advantaged multimode fibers.
OFC is at now at a basic breadth they charge adjudge if they are to break in the multimode cilia business only, activate bearing distinct access fibers as well, or alike admission the cabling business with a advanced affiliation strategy. Antagonism in the Optical Cilia Industry The optical cilia industry is conceivably best advised as two industries that are carefully related, the multimode cilia and the distinct access cilia industries. The multimode industry in which OFC specializes is actual competitive. The United States’ 2001 absolute optical cilia bazaar was about 3. 5 actor kilometers abandoned 330 thousand of which was multimode.
The amount of the multimode bazaar was $65 actor that year, abandoned a fifth that of the distinct access market. Within the multimode bazaar and a cardinal of cilia manufacturers. The basic rivals for OFC are the two licensors to whom they pay royalties. These firms are appreciably beyond and accept greater assets with which to compete. Further, they accept a aggressive advantage in that they are the recipients of adeptness payments rather than the close authoritative those payments. Additionally they are in a position to ascendancy the admeasurement of OFC’s bazaar assimilation at atomic with account to their accountant products.
OFC has responded by creating aerial affection articles and accouterment aberrant chump service. In addition, OFC has fabricated improvements to the basal architecture of some of the accountant fibers authoritative them, in a absolute faculty new products. The R and D administration at OFC has additionally been acknowledged at developing new and beneath big-ticket accomplishment processes, which has helped to account the added aerial of the adeptness payments. Finally, OFC has developed specialty fibers with medical, aircraft, aerospace and acute ambiance applications.
These new fibers will not be accountable to adeptness payments, antagonism from new entrants until patents expire years in the future, and about acquiesce college accumulation margins than addition optical cilia products. New entrants to the bazaar are a blackmail to OFC and all addition cilia producers. New firms charge argue with the aerial assets costs of this technologically ambitious and burdensome industry. One of the costs of optical cilia assembly is the R and D appropriate to accompany acknowledged articles to market. Amid 1999 and 2007 the patents for abounding of the basal fibers produced by OFC and its licensors will expire.
New firms entering the bazaar will be chargeless to aftermath the articles already able beneath those patents afterwards accepting incurred any R and D costs. These firms will additionally be chargeless from adeptness payments to licensors or any akin covenants such as those beneath which OFC operates. The industry in general, and OFC in particular, charge argue with the purchasing adeptness of its buyers. Optical cilia is adapted into optical cilia cable. In the United States there are twenty companies that accomplish this function. OFC sells over 70% of their cilia to aloof three.
The accident of any of these accounts could be adverse for OFC and places them in a anemic position back negotiating prices, at atomic back the articles are those which are readily accessible from addition multimode cilia producers. It is ambiguous that switching costs would be aerial for buyers. Favoring OFC and the optical cilia bazaar are the projections for added appeal for multimode optical fibers at atomic through the mid 2000’s. Sources of added appeal for multimode cilia are advancing to include: cable TV, undersea cables, bounded breadth networks (LAN) as able-bodied as accepted abstracts communications advance such as computer uses.
As acclaimed the distinct access optical cilia bazaar is abundant beyond than the multimode market. It too, is accepted to see cogent advance over the abutting several years. Distinct access fibers accept the advantage of calmly transmitting abstracts over connected distances, faster manual ante and addition adorable optical backdrop but until afresh accept been added big-ticket to produce. The appearance of cheaper assembly methods will acquiesce distinct access fibers to admission markets that were already bedeviled by multimode fibers.
Production of these fibers requires big-ticket specialized accomplishment accessories and a cogent charge to R and D. The industry includes one of the OFC licensors. Acting articles for distinct access fibers accommodate microwaves, and satellites for telecommunications. Impact seems limited. Chestnut wire can be acclimated as a acting for the fiber-to-home and fiber-to-curb applications of either multimode or distinct access fibers but by the mid 2000’s the bargain amount of assembly of distinct access fibers will acceptable accomplish this the adopted best for these functions.
Finally, it should be acclaimed that suppliers are absurd to apply aggressive armament on the cilia eyes markets. The abstracts acclimated in the assembly of fibers are bolt of low amount such as glass, assertive gases and oxide particles. OFC Strengths OFC has abounding strengths. The close is financially able with almanac sales and balance for the aftermost year as able-bodied as added accomplishment capacity. Furthermore, there was a $20 actor balance for optical fibers in the aftermost year and orders are increasing. There was net assets of $6. 1million on acquirement of $48. actor in 2002. The Quick Ratio, a admeasurement of a firm’s adeptness to accommodated concise debt obligations (Current Assets – Inventories)/Current Liabilities = ($31. 0m - $6. 6m)/$12. 5 = 2. 0 is actual solid. Acknowledgment on disinterestedness (Net Income/Equity) = $6. 1m/$44. 0m = 13. 9% is additionally actual impressive. OFC has developed new specialty articles for medical, military, bartering aircraft, aerospace and astringent ambiance uses. These are acceptable to accept patents and will not crave adeptness payments and will be able from competitors for years to come.
The close has a array of options to accost the challenges of the alteration bazaar place. OFC has apparent licenses to aftermath optical cables that would acquiesce for advanced affiliation if they chose to move in that direction. Engineers at OFC accept been able to accretion new means to aftermath old articles added calmly abbreviation assembly costs. They accept additionally developed adaptations of absolute articles to actualize new and altered demands for those products. OFC is in an industry that is accepted to adore able advance for at atomic the abutting several years.
That appeal will appear from a array of industries abacus adherence to the market. The accessories bare to aftermath optical cilia is big-ticket and the adeptness ambitious creating, a about barrier to entry. Chestnut wire as a acting is almost big-ticket and as abstruse advances abatement the amount of optical fibers chestnut will become a non-entity. Conceivably best importantly, OFC has a able acceptability for quality, account and aggressive pricing. OFC Weaknesses OFC is a baby company. They were abandoned able to admission the bazaar by advantage of addition firms’ articles and authorization agreements.
Those licenses accept able OFC from antagonism but accept additionally bound the ambit of its chump abject and added cogent anchored costs in adeptness payments. Royalties will now access to 9% (after advantageous a one time $3 actor fee) on 85% of sales. Furthermore, while OFC is advantageous royalties to use these patents new entrants may anon be aggressive as patents expire. These firms will accept about no R and D amount and of advance no adeptness payments potentially acceptance them to aftermath at costs beneath those of OFC.
OFC charge additionally argue with a bound cardinal of buyers. Over 70% of sales are to aloof three cable producers. The adeptness of OFC to access prices to these ample purchasers is doubtful. If alike one of these barter were absent to an addition cilia optic ambassador the aftereffect on OFC could be dramatic. OFC operates in a aggressive industry that will become added so with time. Chestnut wire manufacturers will about-face to optical cable assembly to break relevant. Overseas producers, already sources of antagonism to OFC, are acceptable to comedy a beyond role in the future.
Finally, OFC’s success has been congenital on quality, account and innovation. One or added adversary can potentially action all of these. OFC’s Amount Competencies OFC articles multimode, aerial affection optical cilia for cabling companies that catechumen that cilia into cable for a array of abstracts communications uses. The close has a acceptability for low prices and able chump service. Abundant of their success can be attributed to their R and D program, which has developed amount extenuative assembly technologies as able-bodied as artefact innovations.
More recently, OFC has apparent itself to be an innovator, developing absolutely new multimode optical cilia articles that ample a array of altered alcove functions. To abide bearing and affairs multimode optical cilia successfully, OFC needs to adapt for added antagonism as apparent protections expire. As new entrants activate bearing abounding of the college aggregate OFC products, acceptable at lower amount accustomed their abridgement of R and D and adeptness expenses, OFC will charge to absorb added assets on developing decreased costs of assembly if they are to abide affairs those articles profitably.
They will charge to advance their focus on affection and chump service. In allotment that will crave connected artefact testing. They may ambition to explore, however, if testing 100% of articles as is accepted action is all-important or if testing samples from anniversary accumulation would serve as able-bodied and save money. OFC will charge to abide to abutment R and D to advance new articles and patentable improvements on absolute ones. Options Accessible for Advance Pursuit of Alcove Markets OFC has already approved an adeptness to advance bankable alcove multimode fibers. Previously created are fibers able to bear aerial radiation nvironments for nuclear reactor and aggressive applications, a cilia that can abide abysmal underwater submersion and a third advanced of aerial calefaction conditions. They accept additionally auspiciously experimented with a cilia able of transmitting UV ablaze and addition with altered medical and accurate uses. To abide their development affairs for specialty fibers will crave anniversary R and D spending increases of $400,000 and an added anniversary amount for three new agents accretion $325,000. Alfresco firms can be assassin to handle sales for 10% commissions.
When sales volumes are adequate, salaried OFC advisers can be acclimated instead. The adding as to back this makes banking faculty for the close is simple; back 10% of sales beat the bacon and account costs of the bare centralized sales force again sales should become an OFC operation. The advantage of alcove articles is the abridgement of antagonism and almost college margins. Advance Distinct Access Cilia Accommodation OFC could accept to admission the abundant beyond distinct access cilia market. It is estimated that this will crave a basic advance of $4 actor for new bulb and equipment.
It will booty a year for the new accessories to be operational. There will additionally be a appear one time R and D amount of $2. 5 million. This is a aboriginal year amount so it cannot be capitalized. It can analytic be affected that there will be added R and D costs activity advanced although apparently these would be appreciably lower than the antecedent expense. Entering the distinct access bazaar places OFC in antagonism with beyond firms than it currently faces with greater assets to advertise articles with thinner margins and would alter OFC assets from their amount business functions.
Forward Affiliation A third advantage for OFC is to aftermath optical cable. The appropriate apparent licenses are available. Two options for this advanced affiliation action exist. OFC can accomplish $5 actor in basic investments and plan on spending an added $500,000 annually for R and D or they can artlessly acquirement a cabling aggregation for an estimated $10 – 15 actor in basic expenditure. There is currently an balance accumulation of cable and cabling firms and several are in crisis of defalcation and so an accretion should be feasible. Advanced affiliation raises several concerns.
Regardless of the access taken, entering the cilia optic cable business will be big-ticket for OFC. This is a bazaar that is already experiencing an balance of accommodation so it can be affected that at atomic for some time to appear profits in the cabling industry will be squeezed. This is not a amount business action of OFC but to accompany cable assembly will be so big-ticket as to necessarily draw assets abroad from some of the firm’s amount activities, activities that are acceptable to be added assisting and entail beneath banking risk. Finally, one needs to accede that all of OFC’s barter are cable producers.
If OFC enters this bazaar they will become a adversary of their customers. It seems awful apparent that at atomic some of these optical cilia buyers will acknowledge in a castigating address and about-face to alternating suppliers. Best of OFC’s articles are not altered and can be supplied by their licensors. The three ample buyers would assume in a decidedly able position to abnormally acknowledge to any access into the cabling bazaar by OFC. OFC Action Statement In allotment a administration for the approaching advance of OFC several considerations should be kept in mind. First, OFC has been acknowledged in ample allotment because of its focus on quality.
Any efforts at advance should not appear at the amount of bearing aerial affection products. Second, the close charge abide to accommodate a aerial akin of chump service. This should accommodate admiration to customers’ needs for new articles and artefact appearance back those offerings are adequate with the firm’s vision, accessible or accessible adeptness and back economically viable. Finally, the close should abide to armamentarium R and D efforts to acquiesce for a connected activity of new articles and improvements to absolute ones in an accomplishment to advance a altered aggressive position in the market.
OFC has been acknowledged in aggressive adjoin beyond firms by alienated arch to arch competition. Initially this was able through authorization agreements alone. Later, the close was able to actualize altered improvements to absolute articles and processes that gave it an advantage. Best afresh OFC has created altered patentable products. These represent three altered means of alienated absolute competition. Despite their growth, OFC charcoal a almost baby close in the optical cilia amplitude and should abide to abandon absolute antagonism back possible, acumen that the bazaar is bedeviled by beyond and better-funded firms.
Recommendations OFC should break out of the cable bearing business. This bazaar is the atomic profitable, best big-ticket to admission and acceptable to accept the everyman acknowledgment on investment. It is additionally acceptable to aftereffect in backfire by accepted barter and bargain sales. The distinct access bazaar is abundant beyond than the multimode bazaar but as a aftereffect will accompany OFC in acquaintance with beyond firms that already accept the accessories and ability abject to aftermath these products. A baby close with bound assets should not leave its amount competencies abaft to booty on firms that are already in place.
OFC needs to abide to accomplish alcove articles whether they are improvements on old multimode fibers or new fibers with altered backdrop and functions. This close will never be a big amateur in the awful aggressive optical cilia industry, they accustomed too backward and don’t accept the basic to displace the ascendant firms. Accustomed that projections are for best of the added appeal for optical fibers to action through the mid to backward 2000’s OFC may appetite to watch for an appropriate time to advertise to one of these beyond entities, conceivably a distinct access cilia ambassador to whom the OFC artefact band would prove complimentary.
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