Mitel Analysis
October 15, 1995
Dear Kirk,
Thank you for the opportunity to be part of this exciting project. Per your request I have evaluated the options for enhancing the production capacity to maintain and further develop our market share.
The semiconductor market in business communication is expected to have a compound average growth rate of almost 18% over the next five years. Our current market share within this segment is slightly more than 7%, and management wants to see the share of the market double by the end of the century. Figure 1 represents the projected growth of the semiconductor market in business communication and Mitel Semiconductor over the next five years.
[pic]
In order to obtain the management goal, we need to expand our production capacity. Four options are available to increase capacity, and they will be evaluated by the following factors: ➢ Cost of investment, ➢ Market demand, ➢ Fitness to the company’s immediate and long-term requirements, ➢ Risks involved, ➢ Overall operational benefits in each option.
Option 1: Status Quo
With this option, we would continue the production of 100mm wafers, but would increase the wafer capacity by 44,800 and decrease the line width from 1.2 micron to 0.8 micron.
Positive: • Upgrading would cost $10 million; relatively low compared to the other options. • The upgrade would be accomplished in eight months without a plant shutdown. • 100mm equipment could be purchased for low cost from other FABs switching to larger wafers, and we could train our own technicians for maintenance. • Profitability might be sustained for the near future by maintaining low production costs, provided we can obtain a supply of wafers.
Negative:
• Wafer supplier indicated that they are going to convert to a larger wafer size. As a result of the reduced supply of 100mm wafers, we would have to develop in-house wafer-growing capability for an additional cost of $40-50 million.
Dear Kirk,
Thank you for the opportunity to be part of this exciting project. Per your request I have evaluated the options for enhancing the production capacity to maintain and further develop our market share.
The semiconductor market in business communication is expected to have a compound average growth rate of almost 18% over the next five years. Our current market share within this segment is slightly more than 7%, and management wants to see the share of the market double by the end of the century. Figure 1 represents the projected growth of the semiconductor market in business communication and Mitel Semiconductor over the next five years.
[pic]
In order to obtain the management goal, we need to expand our production capacity. Four options are available to increase capacity, and they will be evaluated by the following factors: ➢ Cost of investment, ➢ Market demand, ➢ Fitness to the company’s immediate and long-term requirements, ➢ Risks involved, ➢ Overall operational benefits in each option.
Option 1: Status Quo
With this option, we would continue the production of 100mm wafers, but would increase the wafer capacity by 44,800 and decrease the line width from 1.2 micron to 0.8 micron.
Positive: • Upgrading would cost $10 million; relatively low compared to the other options. • The upgrade would be accomplished in eight months without a plant shutdown. • 100mm equipment could be purchased for low cost from other FABs switching to larger wafers, and we could train our own technicians for maintenance. • Profitability might be sustained for the near future by maintaining low production costs, provided we can obtain a supply of wafers.
Negative:
• Wafer supplier indicated that they are going to convert to a larger wafer size. As a result of the reduced supply of 100mm wafers, we would have to develop in-house wafer-growing capability for an additional cost of $40-50 million.