Business strategy

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BADM 693 (Team 4) Adeel Khan Arihiro
Yamamoto HsiangLing Shu Thiranop W.
URL www.sandisk.com
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Company overview

• Founded in 1988
• One of the worlds largest suppliers Removable
  Cards, USB Drives, Embedded products, and MP3
• Became a publicly traded company in 1995
• Recently, acquired M-system, an Israeli-based
  semiconductor company
• 
  

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Competitive Strategies

• Enable new market for NAND flash memory
• License its technology to the several other
  industry leading companies

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Competitive Strategies

• Invest with Toshiba in venture companies
• Sell its products globally to retail and OEM
  customers

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Performance Overview

• Liquidity
• Solvency
• Operating Efficiency
• Capital Structure

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Liquidity

• Current Ratio Quick Ratio
• Current Ratio - 4.73 vs. 1.6 (increasing)
• Quick Ratio 4.18 vs. 1.02 (increasing)
• Inventory Turnover
• COGS - 4.7 vs. 5.4 (increasing)

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Liquidity (contd.)

• A/R Collection
• Generous credit terms - Avg. 69 days
• Industry Average 52.69
• Z-Score
• 2.57 probably safe from going bankrupt
• Drop from 4.46 to 2.57 Caution!

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Solvency

• Cash Flow
• From Operations - 598 million
• From Investments - 798 million
• From Financing - 1.2 billion
• Net Increase - 818 million

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Solvency (contd.)

• Operations
• Write-off of acquired technology
• Net income Depreciation
• Share-based compensation

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Solvency (contd.)

• Investments
• Purchase of short-term and long-term investments
• Proceeds from sale of maturities and investments

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Solvency (contd.)

• Financing
• Proceeds from Convertible debt
• Proceeds from convertible bond hedge

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Operating Efficiency

• ROA 2.9 vs. 13.3 (decline)
• Decline in ROS (63)
• Decline in Sales/Assets (37)
• ROS 6.2 vs. 13.5
• Operating Expenses increased 129
• Increase in SGA
• Write-off of acquired technology
• Sales/Assets 0.47 vs. 0.98
• Assets increased faster than sales (123)
• Fixed Assets increased by 400

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Capital Structure

• Sandisk

• Industry

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Capital Structure (contd.)

• Leverage - 1.46 vs. 2.09
• Increased due to increase in Liabilities
• Negatively leveraged due to ROA (48)
• Times Interest Earned 30 vs. 10
• Sufficient level of interest coverage
• ROE 4.2 vs. 25
• Declining due to inferior ROA

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Overall Performance

• Liquidity - Satisfactory
• Solvency - Satisfactory
• Operating Efficiency Not satisfactory
• Capital Structure Satisfactory

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Breakeven Analysis

• Breakeven point 88

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Results of Surveys

• Companies
• SanDisk
• Kingston
• Sony
• PNY
• Lexar
• Memorex

• Competitive Attributes
• Storage Capacity
• Design
• Size
• Brand
• Features
• Color
• Price

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SanDisks Competitive Position

• Storage Capacity and Design are the most
  attractive attributes
• Size is the worst performance
• The highest price among competitors

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Business Strategy (Balance Scorecard)
Source www.nasdaq.com/.../200605/market_open_0510
06.stm
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Learning Growth

• Training Employee
• Cross-Training of both SanDisks employee and
  M-systems employee
• R D
• Combine the know-how of both companies
• Prepare for the data storage technology in next 5
  years and 10 years

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Internal Targets and Customer Targets (House of
quality)
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Forecasting by average trend
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Financial Targets
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Business Strategy Conclusion(Balance Scorecard)
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Acquisition target

• TERABEAM, Inc
• Holding company with two primary subsidiaries
• Proxim Wireless
• Ricochet Networks
• Proxim Wireless
• Pioneer in developing and supplying scalable
  broadband wireless networking systems for
  enterprises, governments, and service providers.
  Terabeam, Inc conducts its wireless equipment
  business through Proxim Wireless.
• Ricochet Networks
• Leading portable Wireless Internet Service
  Provider (WISP) with operational markets in
  Denver and Aurora, Colorado and San Diego,
  California. One of the largest WISP with a mesh
  network operating exclusively in a license-free
  frequency. The Ricochet technology provides a
  robust, fast, simple, and secure wireless
  Internet solution for both government and
  consumer use. Terabeam, Inc conducts its
  wireless service provider business through
  Ricochet Networks.

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Terabeam, Inc

• Founded in 1982
• NASDAQ TRBM
• Current market value - 45million
• Current book value - 31 million
• 263 employees

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Why Terabeam, Inc

• Current technology trend is geared mostly towards
  mobility
• IPOD vs. CD Players
• USB Key vs. CDR/Zip Drive
• Notebooks on campus
• Terabeam, Inc owns resources that Sandisk could
  use in the future
• End User Wi-Fi hardware - Proxim
• Existing Networks Ricochet
• Buying vs. Licensing (Cost Effective strategy)
• Example Jet Blue and Live TV

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Strategy

• By acquiring Terabeam, Sandisk could use the
  companys intellectual property to
• Maintain quality and have more control over
  product development
• Gain First-person advantage on future products

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