Optical Fiber Corp Case Analysis
Optical Fiber Corporation
Optical Fiber Corporation (OFC) is a financially successful, albeit relatively small manufacturer of multimode optical fibers. The company was founded in 1990. The founders were able to enter the market largely on the basis of acquiring patent licenses from larger optical fiber firms. These licenses restricted competition between the entities and provided OFC with instant access to optical fiber technology. In return, OFC’s customer base is limited by the license agreements and royalties of 7% on sales of licensed products (recently renegotiated to 9%) are paid to the licensors. Despite these handicaps the firm has grown in size and profitability. OFC makes several types …show more content…
The advent of cheaper production methods will allow single mode fibers to enter markets that were once dominated by multimode fibers. Production of these fibers requires expensive specialized manufacturing equipment and a significant commitment to R and D. The industry includes one of the OFC licensors. Substitute products for single mode fibers include microwaves, and satellites for telecommunications. Impact seems limited. Copper wire can be used as a substitute for the fiber-to-home and fiber-to-curb applications of either multimode or single mode fibers but by the mid 2000’s the lowered cost of production of single mode fibers will likely make this the preferred choice for these functions. Finally, it should be noted that suppliers are unlikely to exert competitive forces on the fiber optics markets. The materials used in the production of fibers are commodities of low value such as glass, certain gases and oxide particles.
OFC has many strengths. The firm is financially strong with record sales and earnings for the last year as well as increased manufacturing capacity. Furthermore, there was a $20 million backlog for optical fibers in the last year and orders are increasing. There was net income of $6.1million on revenue of $48.8 million in 2002. The Quick Ratio, a measure of a firm’s ability to meet short-term debt obligations (Current Assets –