Case Studies |
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| Photonics Automation | |
| Cable TV Ad Insertion | |
| Integrated Circuit Distribution | |
| Electronics Market Forecast | |
| Bread Distribution |
Photonics Automation
Problem:
A precision motion company entered the Photonics Automation market with the
expectation that the market would grow from $100 million to several billion
in five years. Although forecasts by numerous industry research firms and
investment banks supported this, the market collapsed a year later. Senior
management needed a fresh outlook on the market before continuing to invest
heavily in engineering, manufacturing and sales infrastructure.
Process:
We used a two-phase process to determine the real size of and growth opportunities
in the Photonics Automation business.
Phase I — Data Collection and Analysis
We conducted a full review of historical data on photonics automation sales,
as well as sales of related downstream products. We examined sales of photonic
components and products made using these tools; sales of telecommunications
equipment that incorporated the components; and sales of telecommunications
carriers that were users of telecommunications equipment.
Our analysis revealed that there were purchasing bubbles throughout the food
chain:
a. |
Telecommunications carriers, which historically purchased equipment equal to roughly 18% of their revenues, were purchasing equipment at a rate nearly twice this - at 30%. The carriers were anticipating continued growth in the dot.com marketplace—growth that never materialized. |
b. |
Telecommunications equipment manufacturers were buying components at nearly 160% the rate they needed to, fearing a shortage of components in anticipation that robust growth would continue. |
c. |
Photonic component companies were buying equipment at roughly the rate of 1.2% of industry revenues. However, the bulk of the equipment was sold to companies that were not yet even in production. |
From
this analysis, we determined that the automation market was 2.5 times
as large as it should have been.
Phase II — Forecast Development
We developed estimates of the amount of inventory that was still in the system
and how long it would take for this inventory to either work its way out of
the system or become obsolete. Based on discussions with component manufacturers,
equipment manufacturers and telecommunication carriers, we estimated that the
inventory would not work its way out of the system for another three years. Therefore
it would not be until the fourth year that sales would get to a nominal level,
or 40% of the peak level of 2000. In addition, based on expected carrier
growth rates, it would take an additional four years until demand returned
to 2000 levels.
Result:
Based on this analysis, management determined that the market was not large
enough to justify its investment and decided to discontinue its photonics
automation business and divest it. This decision eliminated large operating
losses, brought the company to profitability and allowed senior management
to focus on growing its core precision motion businesses.
