Mitel Analysis

Topics: Supply and demand, Costs, Variable cost Pages: 6 (1429 words) Published: July 2, 2010
October 15, 1995
Dear Kirk,

Thank you for the opportunity to be part of this exciting project. Per your request I have evaluated the options for enhancing the production capacity to maintain and further develop our market share.

The semiconductor market in business communication is expected to have a compound average growth rate of almost 18% over the next five years. Our current market share within this segment is slightly more than 7%, and management wants to see the share of the market double by the end of the century. Figure 1 represents the projected growth of the semiconductor market in business communication and Mitel Semiconductor over the next five years.


In order to obtain the management goal, we need to expand our production capacity. Four options are available to increase capacity, and they will be evaluated by the following factors: ➢ Cost of investment,

➢ Market demand,
➢ Fitness to the company’s immediate and long-term requirements, ➢ Risks involved,
➢ Overall operational benefits in each option.

Option 1: Status Quo
With this option, we would continue the production of 100mm wafers, but would increase the wafer capacity by 44,800 and decrease the line width from 1.2 micron to 0.8 micron.

• Upgrading would cost $10 million; relatively low compared to the other options. • The upgrade would be accomplished in eight months without a plant shutdown. • 100mm equipment could be purchased for low cost from other FABs switching to larger wafers, and we could train our own technicians for maintenance. • Profitability might be sustained for the near future by maintaining low production costs, provided we can obtain a supply of wafers. Negative:

• Wafer supplier indicated that they are going to convert to a larger wafer size. As a result of the reduced supply of 100mm wafers, we would have to develop in-house wafer-growing capability for an additional cost of $40-50 million. • Most equipment manufacturers no longer produce 100mm equipment, so obtaining spare parts and servicing existing equipment would be more difficult.

This option would not increase the current capacity substantially. We would be using the 100mm wafer size, and the wafer would have to be produced in-house for an additional investment. The total cost of investment would be $50-60 million. This option would require us to make another expensive conversion at some future date to meet the demand.

Option 2: Convert Bromont to Larger Wafers
This option would require production equipment changes to produce larger wafers. The line width would be decreased from 1.2 micron to 0.8 micron. The larger wafer size options would be: 150mm, 200mm, and 300mm. a) Conversion from 100mm to 150mm

• The capacity would be five times the current capacity. • Total cost of investment would be $35-40 million; relatively low compared to the other options. • Relatively short conversion time would be needed compared to 200mm and 300mm; would take two years without a plant shutdown. Negative:

• Although supply is plentiful and cheap at the time, it would not take long time for wafer manufacturers to stop producing 150mm wafers. • Another expensive conversion would be needed at some future date.

b)Conversion from 100mm to 200mm
• The capacity would be nine times the current capacity. • The useful life of the manufacturing plant would extend. Negative:
• The total cost of the investment would be $150 million. • Current equipment would not be used, and there is a limited supply of FABs. • Four years conversion time would be required.

c) Conversion from 100mm to 300mm
• The capacity would increase substantially and it would be 20.25 times the current capacity Negative:
• The total cost of the investment would be $250 million • The technology is...
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