Case Analysis

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Case Analysis 1SanDisk Corporation

• Hitomi Kobayashi
• Tiina A. Maide Agnieszka MozdzenBrian Trevisan

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• Worlds largest supplier of flash memory data
  storage products
• Designs, develops, manufactures, and markets
  flash storage card products for a wide variety of
  electronic systems and digital devices
• Licenses its technology to a number of other
  industry-leading companies
• Has approximately 720 issued U.S. patents and
  more than 400 foreign patents
• The only company, worldwide, that has the rights
  to both manufacture and sell every major flash
  card format

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Innovative company

• 2004 - Introduces Cruzer Titanium the world's
  most rugged USB Flash Storage Drive
• 2004 - Introduces SanDisk Extreme III, world's
  fastest, highest performing flash memory card
• 2005 - Announces microSD world's smallest
  memory card

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Type of strategy

• Low cost advantage
• Strategy of maximizing the differential in
  production cost relative to the marginal producer

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• The key to low cost profitability is to
  develop
• Valuable, efficient production and delivery
  capabilities
• Rare among the competition producers
• Costly to imitate by competitors

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Competitive advantages

• Supply chain
• Strength in growing tradition of innovation and
  standards creation
• Cost advantages - intellectual property
  ownership, patent claims and manufacturing
  know-how
• Obtaining strong retail - broad range of card
  formats
• Leading market share
• Leads the worldwide market share in removable
  flash cards and USB flash drives
• Maintains second place in the market share for
  U.S. flash-based digital audio players

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Performance overview
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Liquidity and Solvency
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• Shows a company's ability to pay its current
  obligations from current assets
• Values of 1.0 or greater are preferred
• Values less than 1.0 indicate the firm is not
  liquid
• Based on current ratio we can say that the firm
  is liquid and liquidity is improving

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• If inventory fails to turnover, could this firm
  meet its current obligations with the readily
  convertible assets on hand?
• A value of less than 1.0 indicates a dependency
  on inventory or other non-cash current assets to
  liquidate short term debt
• Values of 0.5 or greater are preferred
• SanDisk is liquid and does not depend on
  inventory turnover

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• Shows how many times the inventory of a firm is
  sold and replaced during an accounting period
• Larger values are preferred
• When compared to an industry average, a low
  turnover tends to indicate that the company is
  carrying excess inventory
• Inventory Turnover is not fine (worse than
  average) but improving (indicating an effective
  sales strategy)

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• Indicates the average number of days it takes the
  company to convert receivables into cash
• Large values indicate generous credit terms
  (which may increase sales), or lack of control
  over collections

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• Net cash flow from operations in 2007 598,063
• Net cash flow from financing in 2007 (978,061)
• Net cash flow from investing in 2007 1,197,288
• Overall, the firm is generating more cash than it
  consumes
• Net cash flow is in a satisfactory condition and
  is based on a sustainable profile

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Conclusion Liquidity and solvency is in
satisfactory condition
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Operating efficiency
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• Shows the overall efficiency of management in
  generating earnings given the total amount of
  assets in the companies per 1.00 in assets
• Large (positive) values are preferred
• SanDisk is less efficient in earning a profit on
  each dollar of assets than the industry average
  and is declining (-48)
• Return on assets fell due to the decline in
  return on sales

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• Net profit margin
• Measure of the efficiency in generating profit on
  each dollar of sales
• A positive value is necessary to conclude the
  firm has achieved a competitive advantage
• It must not only be positive but it must exceed
  5, due to "ordinary profit" requirements
• Return on sales fell (-63) due to the increase
  in operating expenses

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• Assets turnover ratio
• Indicates the extent to which management is
  efficient in its use of all the company's assets
  to produce sales
• Large (increasing) values are preferred
• SanDisk is not relatively efficient in producing
  sales given their size in assets their
  efficiency is deteriorating (-37) due to assets
  growing at a faster rate than sales

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Conclusion Operating efficiency is not in
satisfactory condition
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Capital structure
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• The more debt financing a firm uses in its
  capital structure, the more financial leverage it
  employs

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• Values above 1.0 indicate the firm is leveraged
• Larger values indicate greater financial risk,
  more debt than equity
• SanDisk is leveraged, but the level is low
  compared to the industry average
• Leverage increased, primarily due to an increase
  in liabilities (268)

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• SanDisk is negatively leveraged
• Increasing leverage will decrease ROE

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• The firm has a sufficient level of interest
  coverage safety

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• Indicates efficiency with which managers use the
  owners equity investment to produce earnings
• Larger (positive) values are preferred
• Any increase in ROE performance due to leverage
  is off-set by the risk associated with leverage
• Return on equity is worse than the industry
  average performance
• This ratio fell due primarily to the decline in
  return on assets

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Conclusion Capital structure is in
satisfactory condition it is not hurting the
performance of the firm
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Industry segment analysis
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Flash drive segment rankings in primary
competitive attributes
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Most Important Attributes
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2nd Most Important Attributes
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3rd Most Important Attributes
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Overall position

• 1st in storage size
• 3rd in quality
• 3rd in reliability
• 3rd in durability
• 2nd in speed
• 3rd in brand
• 6th in price

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Business strategy
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Balanced Scorecard
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• Increase the value of the firm
• Target Industry Value
• Since ROA affect the value of the firm, we can
  set the target to ROA of the industry value
  (13.3)
• To hit a target .
•     1. Increase ROA
•     2. To increase ROA, the company has to
  decrease COGS, SGA, or both

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62.0
2.9
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6,967,783
2.9
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6,967,783 ?14,245,373
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Corporate strategy
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• Transcend Information, Incorporated
• Headquarters Taipei, Taiwan
• Founded in 1988
• Chung-Won Shu, CEO
• Global
• California, The Netherlands, Germany, Japan, Hong
  Kong, China, and The United Kingdom

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• Products
• Flash drives (USB)
• Flash cards
• Portable hard drives
• RAM (computer memory)
• Digital photo albums

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• Certified by numerous hardware producers for
  compatibility
• Total quality control concept
• First memory module manufacturer in Taiwan
• Second company in the world to receive the ISO
  9001 certification

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Low cost or differentiation advantage?Horizontal
or vertical?Value chain activities?
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• Stick to their business strategy low cost
  advantage
• Horizontal integration
• Acquiring another company in the same business
• Eliminating a competitor
• Achieving a broader market and economies of scale
• Goals congruent with SanDisks business strategy

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Value chain diagram
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• Ten cost drivers related to value chain
  activities
• Economies of scale
• Learning
• Capacity utilization
• Linkages among activities
• Interrelationships among business units
• Degree of vertical integration
• Timing of market entry
• Firms policy of cost or differentiation
• Geographic location
• Institutional factors (regulation, union
  activity, taxes, etc.)

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Sustainability of the competitive advantage
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• Additional patents, licenses
• New markets open in additional countries
• Access to Chinas economy Asian markets
• TQC and ISO cert an asset

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• FSA ANALYSIS
• excel spreadsheet data