Optical Fiber Corporation

Optical Fiber Corporation SWOT ANALYSIS Environment Fiber optics is a new technology that uses rays of light instead of electricity to transmit information over optical fibers at very high speeds. The optical fibers are usually thin strands of glass that are combined into cables and used to send information and computer data in the form of pulses of light. The optical fibers provide much clearer transmission than conventional copper cable and satellite links. The world market for optical fiber continues to grow rapidly, with shipments increasing 14 percent from an estimated 7. million kilometers of fiber in 1990 to approximately 8. 0 million in 1991. The demand for multimode fiber is predicted to continue to expand through the mid-1990s, with some market analysts indicating that 15 to 20 percent annual growth over the next three years is reasonable. Strong demand is expected for singlemode and multimode fiber to be used in cables for local area networks, telecommunications, cable television (CATV), and transoceanic fiber-optic systems. Industry About 20 companies are involved in the manufacture of optical cable in the United States.

It is a highly competitive industry requiring sophisticated design and engineering capabilities. As the market for optical fiber expands, copper cable manufacturers will extend their product lines to include fiber-optic cable. Facing increasing competition, these cable companies will prefer extremely responsive optical fiber suppliers. The ability of OFC to provide excellent customer service has enabled it to establish business relationships with some copper cable manufacturers. Competition OFC specializes in multimode fiber for data communications and telecommunications markets.

The markets are extremely competitive and OFC’s main rivals are the two licensers to whom it pays royalties. Each has substantially greater resources and operating experience. To date, OFC has been successful because of the licensing requirements that limit competition and because of its competitive advantages of outstanding customer service, product performance, and competitive pricing. The Firm Itself Several years ago OFC entered the fiber optics industry by obtaining patent licenses that allowed it to manufacture and market optical fiber and cable.

Current success with record sales and earnings and the addition of 30 percent more manufacturing capacity. Order backlog for the company’s optical glass fiber products has already reached $20 million and was steadily increasing. Marketing Strategy OFC primarily markets its optical fibers through direct sales made by a small sales and marketing department. The company also advertises in trade publications, distributes product brochures and other technical material to its mailing list of potential customers, and demonstrates its product at technical conferences and trade shows.

Its present customers are cable manufacturers that purchase optical fibers and assemble them into fiber optic cables for resale to manufacturers, distributors, and other customers such as government and military facilities, colleges and universities, CATV, and telecommunications and broadcasting firms. In 1992, approximately 70 percent of the company’s sales were made to three large cable manufacturing companies, one of which was a firm that was licensing OFC to produce and market optical glass fibers. PRIMARY ISSUE/PROBLEM

Several years ago OFC had entered the fiber optics industry by obtaining patent licenses that allowed it to manufacture and market optical fiber and cable. In return, the license agreement obligated OFC to pay royalties to the patent holders based on its sales of the licensed products. Beginning in 1989 and continuing into 1997, some of the basic patents on the optical fiber technology would begin to expire enabling the entry of new competition to manufacture and market some of the same products that OFC was successfully marketing.

Expiration of the basic fiber optics patents over the next several years posed a serious threat. It would certainly mean new businesses offering comparable fiber-optic products and competing for the same customers. Both executives wondered what OFC could do to continue to differentiate its products and preserve its competitive advantage in the marketplace. PERIPHERAL ISSUES/PROBLEMS Continued growth was also an important priority of management. However selecting the most desirable combination of marketing opportunities was somewhat complicated because of a recent regulatory development.

In 1992, a landmark decision by the FCC allowed CATV operators to provide telecommunications services bringing them into direct competition with the telephone companies. The decision was expected to encourage CATV operators to upgrade and build fiber-optic net works to handle telecommunications. In response, the telephone companies were acquiring CATV systems as a way of offering video services to preserve and expand their market position. ALTERNATIVES 1. Current emphasis on medical, military and commercial aircraft, aerospace, and specially coated fibers for installation in severe environments.

Expansion into additional product development and marketing would enable OFC to expand its sales of fibers to specialty markets. 2. Recently, engineers had been successful in reducing the costs to manufacture OFC optical fibers.. With continuing expenditures for research and development (R&D), it was likely that further cost reductions could be achieved. 3. Historically, OFC’s expertise has been in the production of multimode optical glass fiber for short-distance, high-speed data communications.

Recently, company had been contacted by prospective customers singlemode fiber to be used in long-distance communications systems. Possible development of a product line. 4. Possess patent licenses to produce fiber-optic cable from strands of optical fibers, however has not done so. Instead it has pursued the strategy of selling optical fibers to the companies that assembled them into cables. Thus, can integrate forward and begin selling cable in addition to glass fiber. Can be performed via internal product development or acquisition. BEST ALTERNATIVE

Since management was confident that an excellent business can be located which would permit OFC to quickly enter the cable market with products and the necessary manufacturing and marketing capability they should do so. Since rapid expansion of the cable industry over the past several years and a weak economy had resulted in a temporary oversupply of cable (thus, a number of good businesses were looking for buyers to avoid bankruptcy or liquidation). Industry experts estimated the cost to acquire a cable manufacturer at between $10 million and $15 million.

This is quite plausible with OFC’s healthy cash position. This acquisition should occur quickly before the economy recovered and the supply of fiber optic cable came back into balance with demand. This will allow OFC to gain instant access to both single and multi-mode without the prerequisite internal R cycle time. It would also pose an excellent value at a time when industry firm price tags are beaten down. These features would aid OFC in protecting its existing niche while expanding into new emerging markets.

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