Flash Memory Inc. Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

INTRODUCTION

When four electrical engineers came together with an idea of utilizing tech boom during the late 1990’s so the company, Flash came into being that was located in San Jose, California. Later on, two other engineers joined the company and company’s shares were sold to them, which made them part-owners and employees of the company. During 2010, these 6 individuals held the top management positions in the company, top position on the board of directors and still held all the equity of the firm.

The company enjoyed significant success after its inception by working in a field that had high growth potential, but as the market started to age and mature; the technology also started to develop and started to become more complex due to which the demand of removable and compact memory drives was at large. Flash had diverted its focus on Solid State Drives (SSD), which was the fastest growing product in the memory market segment. These SSDs were particularly used in smart phones, computers, laptops etc. and increasing use of these technologies led to an increase in the use of SSDs. In addition, it was predicted that the SSDs’ market will achieve $5.3 billion of growth in 2013.

Flash had specialized itself in the designing and manufacturing of SSDs, which were sold to distributors, retailers and most importantly to original equipment manufacturers (OEM). Flash memory technology was used for the manufacturing of the flash memory components; these components comprised of 80% of company’s revenue. This technology is faster, more volatile, uses less power and most importantly it stores data even after the device is turned-off; whereas the remaining 20% of revenue comes from electronic components that are sold through the same channel.

It is always easy for small companies to enter in a fast growing market but to sustain in such a market becomes really difficult when competitors are corporate giants. Similarly, the memory segment was dominated by Intel and Samsung along with small firms competing in the same segment such as Micron Technology, SanDisk Corporation and STEC Inc. Furthermore; it is also a fact that with increased intensity of rivalry; comes low profit margins for companies that are operating in a market segment.

The business model adopted by Flash Memory Inc. is to keep innovating as due to increased competition and continuous changing technology; the life of the product is very small as the product becomes obsolete by year six of its introduction in the market. Sometimes, if a more innovative product is produced during that time then the life of the product is severely shortened that forces significant write-offs and profit reductions.

PROBLEMS STATEMENT

CFO of Flash Memory Inc. was handling the task of finding options for financing the growth of the company, as the company was facing severe shortage of funds. The current option of financing the company was by using bank loans to finance current and future operations; the bank was willing to lend the finance up to 70% face value of the receivables of the company, which the company had almost utilized.

Since, Flash Memory Inc. is operating in a high growth market with continuous changes and development to technology; hence, factors like short life cycle of products, changing technology leading to a change in customers’ wants and a group of large competitors push the company to small margins and needs for funds to be able to update itself to compete in the market, but the current situation of Flash Memory Inc. is making finance hard to come by.

FINANCIAL ANALYSIS

The financial analysis enables us to understand the current and future position of the company and the current needs of finance of the company along with consideration on investment decision of the company.

INCOME STATEMENT

The income statement forecasted for 5 years is given below, which shows consistent performance in the first three years for the company but the last two years show a dramatic decline. The forecast is based on the standards estimated and provided in the case in exhibit 3.

Data forecast for the year 2013 and 2014 as provided in the case show that the sales of the company will decline to $128 million in 2013 and $105 million in the year 2014 even though the company is operating in a growing market and its product has done well in the first three years. The next two years have seen reduction in sales; this is mainly because if the company does not produce an innovative product consistently then its sales will decline for the company leading to lowered profit for the company. This means that the company has to keep on investing into new product so as to stay competitive and earn profits......................

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