Optical Fiber Corp Case Analysis
Case Analysis:
Optical Fiber Corporation
Introduction
Optical Fiber Corporation (OFC) is a financially successful, albeit relatively small manufacturer of multimode optical fibers. The company was founded in 1990. The founders were able to enter the market largely on the basis of acquiring patent licenses from larger optical fiber firms. These licenses restricted competition between the entities and provided OFC with instant access to optical fiber technology. In return, OFC’s customer base is limited by the license agreements and royalties of 7% on sales of licensed products (recently renegotiated to 9%) are paid to the licensors. Despite these handicaps the firm has grown in size and profitability. OFC makes several types of multimode optical fiber including specialty niche products they have developed outside of any license agreements. All customers are cable manufacturers that convert the fibers to optical fiber cable. Three such firms account for over 70% of OFC’s revenues. Focusing on customer service, quality and product design and process improvements has proved a winning business model to date. OFC now faces a variety of challenges including the expiration of many of the patents that afford most of its profits. This raises the real possibility of new competitors in the market. Further, while in the past multimode and single mode optical fibers have generally been used for data communications and telecommunications respectively and as such were not in direct competition with each other, the advent of cheaper manufacturing processes for single mode fibers coupled with their inherent ability to transmit data more efficiently over longer distances may make them a more appealing choice for some of the uses that historically have favored multimode fibers. OFC is at now at a crossroads where they must decide if they are to stay in the multimode fiber business only, begin producing single mode fibers as well, or even enter the cabling
Optical Fiber Corporation
Introduction
Optical Fiber Corporation (OFC) is a financially successful, albeit relatively small manufacturer of multimode optical fibers. The company was founded in 1990. The founders were able to enter the market largely on the basis of acquiring patent licenses from larger optical fiber firms. These licenses restricted competition between the entities and provided OFC with instant access to optical fiber technology. In return, OFC’s customer base is limited by the license agreements and royalties of 7% on sales of licensed products (recently renegotiated to 9%) are paid to the licensors. Despite these handicaps the firm has grown in size and profitability. OFC makes several types of multimode optical fiber including specialty niche products they have developed outside of any license agreements. All customers are cable manufacturers that convert the fibers to optical fiber cable. Three such firms account for over 70% of OFC’s revenues. Focusing on customer service, quality and product design and process improvements has proved a winning business model to date. OFC now faces a variety of challenges including the expiration of many of the patents that afford most of its profits. This raises the real possibility of new competitors in the market. Further, while in the past multimode and single mode optical fibers have generally been used for data communications and telecommunications respectively and as such were not in direct competition with each other, the advent of cheaper manufacturing processes for single mode fibers coupled with their inherent ability to transmit data more efficiently over longer distances may make them a more appealing choice for some of the uses that historically have favored multimode fibers. OFC is at now at a crossroads where they must decide if they are to stay in the multimode fiber business only, begin producing single mode fibers as well, or even enter the cabling