ACCT3610 – Business Analysis and Valuation
Week 3 (Tutorial 2) – Inventec Case Study
1. Despite the growth of Inventec, there were a number of reasons why it was not very profitable. * Firstly, they were operating in a highly competitive market. This created pressure to reduce costs and offer the best price to clients, thus decreasing profit margins. * Inventec were operating in an industry that has rapid rates of growth and development in terms of products and product types, new types of hardware and software would be in and then outdated within a very short frame of time. * Clients that were purchasing products off Inventec were very price sensitive, and as there were many manufacturers competing for their business, they had the bargaining power to lower the price. This got to the point where manufacturers were making margins of less than 4%. * The ability to get a competitive edge was hindered by fast moving competitors who would copy Inventec to be back on a level playing field. This was evident in the movement of their manufacturing to China to lower costs and also in their move to sell notebook pc’s in China. * Pressure from clients also hindered Inventec’s plans to move into the market and make their own computers to be in direct competition with their clients, this would have had a higher profit return than what Inventec was pursuing as an OEM. Hence, although Inventec was returning high amounts of sales revenue and continually investing in new infrastructure, the nature of the business industry of having low margins made Inventec have low profits. 2. The drivers of average profitability of the ODM industry are sales from a wide range of products, MP3 players, PDA’s, servers and telephones. The ODM companies would also be developing new products and once these were developed and the company owned the intellectual property, this becomes a source of income due to the advantage they have over their competitors in...
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