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Science Technology Company - 1985

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Introduction

Science Technology Company - 1985 Advanced Financial Management Professor Clayton June 9, 2005 Chirayu Patel Dave Chen Ian Hoffman Tim Boyd 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 competition, and other related industry figures; It is suggested that a more reasonable 12.8% annual growth projection be used. ...read more.

Middle

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 to position itself well enough to obtain the unrealistic growth projection of 41%. ...read more.

Conclusion

The $66 MM in equity from common stock sales in 1982 and 1983 allowed STC to continue its operation without having to drastically reorganize its operations. Based on the conservative estimates STC's debt is increasing faster then sales, the additional debt would have to be financed by increasing debt service or increasing equity. It is strongly recommended that Mr. Watson continue to look toward ensuring the future of STC products by investing capital into R&D and technology. Technology advances so quickly that in order for STC to keep their share of the market, they need to keep up with technology and innovation in order to increase sales and profits. In short, STC is in need of a major overall to its operations, STC must increase cash to concentrate on R&D and sales growth, increase company efficiency and quality, and reduce receivables and inventory. Additionally, STC could benefit by outsourcing its manufacturing operations to reduce costs and improve its financial position. 3 1 Science Technology Company - 1985 6/9/05 ...read more.

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