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Medium Profitability

SEMI MATERIALS CO.

#Technology #Materials Manufacturing
ProHub Comment

This is a profitability case with dual focus on revenue growth and operating profit improvement for a semiconductor materials company. The case tests the candidate's ability to structure a complex business problem with limited industry familiarity and work with quantitative analysis to determine specific cost-reduction targets needed to meet targets.

Estimated Time 26 minutes
Difficulty Medium
Source IESE
10 / 100
Your client is the CEO of a semiconductor material manufacturer. The product they sell are ’lead frames’, which is a technology that emerged in the 1970s and is a core component to build electronic components such as ICs used in automotive solutions. The client is in Asia and most of their customers are global chip manufacturers for automotive and consumer electronics (NXP, IDT, etc….). The client’s company is a subsidiary of a global conglomerate, and the conglomerate’s HQ sets annual goals for all subsidiaries. among many parameters the most weight is given to OP (operating profit) and Revenue Growth. The client did not meet last year’s goal and is asking you, the main consultant, for ways to achieve this year’s (2020) goal.

Clarifying Information

  1. What is the goal? 2pp over the industry average (for OP and Revenue Growth)
  2. What is 2020 goal? What was the previous year’s goal/actuals? (refer to table above)
  3. Global presence: Client main office located in Taiwan, global business (80% of their revenue) done through local agents and distributors (commissions to these agents and distributors are 3% of the final price)
  4. Factory: one factory only in Taiwan (20-30% idle capacity, so they did not see the need of another factory)
  5. Main costs? 50% materials (Copper), 30% labor, 10% SG&A (including agent/distribution fees)
  6. Diversification: they are looking into new technologies/businesses, but it is forecasted to take at least 5 years for the revenue to materialize (currently new businesses is less than 0.5% of revenue)
Mock Interview
Interviewer

Your client is the CEO of a semiconductor material manufacturer. The product they sell are 'lead frames', which is a technology that emerged in the 1970s and is a core component to build electronic components such as ICs used in automotive solutions. The client is in Asia and most of their customers are global chip manufacturers for automotive and consumer electronics (NXP, IDT, etc....). The client's company is a subsidiary of a global conglomerate, and the conglomerate's HQ sets annual goals for all subsidiaries. among many parameters the most weight is given to OP (operating profit) and Revenue Growth. The client did not meet last year's goal and is asking you, the main consultant, for ways to achieve this year's (2020) goal.

You

Thanks. Before analyzing, I'd like to clarify a few key questions...

Interviewer

Good question. Let me provide some background information...

You

Based on this, I suggest analyzing from these dimensions...

AI Score
Structure Analysis Communication Business Sense Quantitative
Practicing...
Score coming soon
Practice this case with AI Mock Interview

Semi Materials Co., a lead frame manufacturer, missed its 2020 goals of 2pp above industry average for both revenue growth and operating profit. With current forecasts at 1% revenue growth and 11% OP versus targets of 2% and 13%, the candidate must recommend ways to achieve the targets by increasing revenue and cutting costs by specific amounts.

Key Insights:

  1. Structure should separate revenue growth initiatives from cost reduction initiatives to avoid overlap
  2. Quantitative analysis reveals need for $2.7M additional OPEX reduction when meeting 2% revenue growth target
  3. Agent and distribution fees (3% of final price) represent a significant cost lever worth exploring
  4. Lead frames business is mature with limited differentiation, so cost efficiency and customer focus are critical
  5. COVID-19 brainstorming component reveals semiconductor demand drivers (remote work, EVs) that could change forecast assumptions