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

INTRODUCTION

Flash was founded by four electrical engineers in the late 1990s with an idea of utilizing tech boom of that time period. The company was located in San Jose, California. Meanwhile, two more engineers the company, who bought the shares of the company and became part-owners of the company. During the year 2010, these 6 individuals held the top management positions of the company and still owned all the equity of the company.

The company has enjoyed significant success after its inception as it was working in a field that had high growth potential, but when the market reached at the level of maturity so the technology started to become more complex due to which the demand of removable and compact memory drives increased to a great extent. The Flash had diverted its focus on Solid State Drives (SSD), which was the fastest growing product in the storage market segment. These SSDs were mainly used in smart phones, data processors, laptops, etc. and increasing utilization of these electronic devices led to an increase in the usage of SSDs. In addition, it was anticipated that the market of SSDs would achieve the growth level of $5.3 billion by the year 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 storage technology was practiced for the fabrication of the flash memory components; these components comprised of 80% of company’s revenue. This technology is quicker, more volatile, uses less power and most importantly, it stores information even after the device is turned-off; whereas the remaining 20% of revenue comes from electronic components that are betrayed through the same channel.

It is always easy for minor companies to enroll into a fast rising market, but to suffer in such a market gets truly difficult when competitors are corporate giants. Likewise, 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 likewise a fact that with increased intensity of rivalry; comes low profit margins for companies that are working in a market segment.

The business model adopted by Flash Memory Inc. is to go on innovating as due to increased competition and continuously changing technology; the lifespan of the product is very low as the product becomes obsolete by year six of its first appearance in the securities industry. Sometimes, if a more innovative product is produced during that fourth dimension than the lifetime of the product is severely shortened that forces significant write-offs and profit reductions.

PROBLEMS STATEMENT

CFO of Flash Memory Inc. was handling the chore of discovering alternatives for financing the development of the companionship, as the company was facing serious shortage of finances. The current option of financing the company was by using bank loans to finance current and future operations; the bank was willing to loan 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 growth in 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 tolerances and needs for funds to be able to update itself to compete in the marketplace, but the current situation of Flash Memory Inc. is making finance hard to come by.

FINANCIAL ANALYSIS

The financial analysis enables us to see the current and future status of the company and the current needs of finance of the society along with consideration of investment decision of the society.

INCOME STATEMENT

The income statement forecasted for 5 years is given below, which shows consistent performance in the inaugural three years for the company but the last two years show a spectacular fall. The prognosis is based along the standards estimated and provided in the case in exhibit 3.

Forecasted data for the year 2013 and 2014 as provided in the case prove 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 controlling in a growing market and its merchandise has performed well in the first three years. The next two years have seen a 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 implies that the company has to hold back on investing in raw product so as to stay competitive and gain profits...............

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