Industry C60304: Digby

Katie Guiheen, James Bello, Viola Hang, Gracious Adai

Industry C60304: Digby

The Strategy

Looking Back• Focus on 3 product groups

• Keep availability and awareness high

• Invest to increase efficiency

Looking Forward• Create new high end products to keep up with demand

• Don’t be afraid of large investments

• Use equity to finance new opportunities

• Cutting High End and Performance products• Focusing R&D investment in three segments

• Following industry standard in general• Staying in perceptual circle• Adjust according to age and other criteria

• Age consideration• High priority for Low End

• R&D cycle time• Low End last revise longer than expected -

2years• Discontinued current Low End product

Research and Development

      Traditional Segment (DAZE)        Round List Price Units Sold Market Share Promo Budget Cust. Awareness Sales Budget Cust. Access. Cust. Survey

0 $ 28.00 961 13% $ 1,000.00 55% $ 1,000.00 54% 181 $ 25.00 1416 18% $ 1,000.00 58% $ 1,000.00 50% 132 $ 24.00 1473 17% $ 1,400.00 72% $ 1,400.00 49% 413 $ 24.00 2652 28% $ 1,400.00 82% $ 1,400.00 46% 534 $ 24.00 2990 28% $ 1,400.00 88% $ 1,500.00 46% 525 $ 24.00 3547 31% $ 1,400.00 93% $ 1,500.00 46% 486 $ 24.00 3278 26% $ 1,400.00 95% $ 1,500.00 46% 457 $ 24.00 3554 26% $ 1,400.00 97% $ 2,000.00 53% 458 $ 24.00 4060 27% $ 1,400.00 99% $ 2,500.00 63% 46

Traditional Marketing

= Market Leader

= Sold Out

      Low End Segment (DELL)        

Round List Price Units Sold Market Share Promo Budget Cust. Awareness Sales Budget Cust. Access. Cust. Survey0 $ 21.00 1493 17% $ 900.00 52% $ 900.00 40% 121 $ 19.50 1657 17% $ 900.00 53% $ 900.00 34% 212 $ 18.50 1733 16% $ 1,300.00 66% $ 1,300.00 46% 193 $ 18.50 1672 13% $ 1,300.00 75% $ 1,300.00 45% 274 $ 17.90 1981 14% $ 1,500.00 86% $ 1,500.00 45% 355 $ 17.50 2661 17% $ 1,500.00 94% $ 1,500.00 45% 336 $ 17.50 3387 19% $ 1,500.00 99% $ 1,500.00 45% 217 $ 17.00 2494 13% $ 1,500.00 100% $ 1,700.00 37% 68 $ 17.00 1283 6% $ 1,500.00 100% $ 1,700.00 25% 0

Low End Marketing

= Sold Out

      Size Segment (DUNE)        

Round List Price Units Sold Market Share Promo Budget Cust. Awareness Sales Budget Cust. Access. Cust. Survey0 $ 33.00 307 15% $ 700.00 46% $ 700.00 42% 271 $ 32.00 423 18% $ 700.00 42% $ 700.00 35% $ 7 2 $ 32.00 527 19% $ 800.00 44% $ 800.00 28% $ 17 3 $ 32.00 743 25% $ 800.00 44% $ 800.00 24% $ 14 4 $ 32.00 1188 31% $ 900.00 48% $ 900.00 23% $ 15 5 $ 32.00 1559 34% $ 900.00 50% $ 1,200.00 26% $ 16 6 $ 32.00 1799 33% $ 900.00 52% $ 1,200.00 28% $ 16 7 $ 32.00 1210 19% $ 1,500.00 71% $ 2,000.00 38% $ 18 8 $ 32.00 961 13% $ 200.00 92% $ 2,300.00 45% $ 21

Size Marketing

= Market Leader

= Sold Out

Production Decisions

1 2 3 4 5 6 7 80

200

400

600

800

1000

1200

1400

1600

Traditional Low End Size

Units Produced vs. Units Sold• Units produced was based

off a calculation of our current market share increased by 2-3% with the new market forecast

• Invested in automation early• Exceeded competitors by 0.5

• Mitigated labor problems

• Invested in benchmarking

• Capacity didn’t follow industry demand or production• Low end was a constant

guessing game

• Focused on high ROA in traditional and size

• Looking forward:• Traditional largest success

• Increase investment in size and high end

The Margin ProblemTraditional

Low End

Size

1 2 3 4 5 6 7 80

1000

2000

3000

4000

5000

CapacityIndustry AvgProduced

1 2 3 4 5 6 7 80

1000

2000

3000

4000

5000

CapacityIndustry AvgProduced

1 2 3 4 5 6 7 80

500

1000

1500

2000

2500

CapacityIndustry AvgInventory

58%

42%

Capital Structure Round 8

DebtEquity

• Issuance of more Debt than Equity resulted in high interest costs

• Stock price hurt badly in early rounds, factor for issuing debt instead of equity

• Retired old debt with new debt, never tried to pay debt off early

• Repurchased 3.6M shares in round 8

Capital Structure

1 2 3 4 5 6 7 8

(5,000.00)

-

5,000.00

10,000.00

15,000.00

20,000.00

25,000.00

30,000.00

EBIT

Interest

Profit

• High Int costs in the later rounds hampered profits in combination with low contribution margins and less sales• Round 7: 9.5M Int Exp

• Decision in round 5 to raise 40M in debt drastically increased interest expenses

EBIT, Profit, Interest Expense

Thank you for your time.

Round Digby Industry Average Customer ExpectationTraditional pfm size age pfm size age pfm (21%) size age (47%)

0 5.5 14.5 3.1 5.5 14.5 3.1 5 15 21 5.5 14.53 4.1 5.6 14.4 3.6 5.7 14.3 22 6.5 13.6 2.7 6.2 13.7 3 6.4 13.6 23 7.1 12.9 2.1 6.6 13.3 3.1 7.1 12.9 24 7.8 12.2 1.8 7.3 12.7 2.2 7.8 12.2 25 8.5 11.5 1.6 8.9 11.1 2.3 8.5 11.5 26 9.2 10.8 1.5 9.1 10.7 2.8 9.2 10.8 27 9.9 10.1 1.4 9.7 10.3 3 9.9 10.1 28 10.6 9.4 1.4 10.2 9.8 3.1 10.6 9.4 2

Low End pfm size age pfm size age pfm (16%) size age (24%)0 3 17 4.6 3 17 4.6 1.7 18.3 71 3 17 5.6 3 17 5.6 2.2 17.8 72 3.5 16.5 3.5 3.1 16.9 6.1 2.7 17.3 73 3.5 16.5 4.5 3.2 16.8 6.5 3.2 16.8 74 3.5 16.5 5.5 3.5 16.5 7.4 3.7 16.3 75 3.5 16.5 6.5 3.9 16 5.7 4.2 15.8 76 3.5 16.5 7.5 4.5 15.5 5.4 4.7 15.3 77 3.5 16.5 8.5 4.7 15.3 5.5 5.2 14.8 78 3.5 16.5 9.5 4.1 15.3 6.5 5.7 14.3 7

Appendix A

Appendix B

Size pfm size age pfm size age pfm (43%) size age (29%)0 4 11 2.6 4 11 2.6 4 10.6 1.51 4 11 3.6 4 10.97 3.4 4.7 9.6 1.52 4.7 9.6 2.4 4.3 10.5 3.5 5.4 8.6 1.53 5.1 9 2 4.34 10.3 3.9 6.1 7.6 1.54 5.8 8 1.7 4.9 9.3 3.4 6.8 6.6 1.55 6.5 7 1.5 6.2 7.59 3 7.5 5.6 1.56 7.2 6 1.5 6.9 6.5 2.9 8.2 4.6 1.57 7.9 5 1.4 7.7 4.8 1.9 8.9 3.6 1.58 8.6 3.8 1.3 7.2 3.8 1.9 9.6 2.6 1.5