Star River Electronics Case Solution

Star River Electronics Ltd.

FIN 435

INTRODUCTION

Star River Electronics LTD was founded as a joint venture between two companies known as the Starlight Electronics based in the United Kingdom, and the Asian Venture Capital Firm, New Era Partners. Star River Electronics LTD was set to peruse producing only CD-ROMs and supply it to major software companies. Over time, it expanded its capacity by producing additional high quality discs. Around 1990s, there was a big demand for the CD-ROMs and in order to cover up the rising demand of the market, the small manufacturers started to enter to the same industry as Star River Electronics LTD. Overtime, the small manufacturers started to proliferate, which has created the surplus and pushed the prices down more than 40 percent. Thus, causing the small, and less efficient, manufactures to leave the industry. On the other hand, it was around that time that the competitors introduced newer storage devices called DVDs, which had 14 times more storage capacity than the CD-ROMs. Star River was able to get through those tough times by keeping a good reputation. The management at Star River predicted that in 1999, a big chunk of the total sales in its optical disc drive shipments of CD-ROM disk drivers would reach about 93 percent. Taking into count this figures, and the competitors’ success in the DVD industry started to make the first experiments by having five percent of its sales. On July 2001, Star River Electronics, LTD. was dealing with another challenge of having to replace the long time CEO of the company. In July 2001, a new chief executive officer (CEO), Adeline Koh (“Koh”), joins this small manufacturer of CD-ROMs and DVDs to discover that the firm is in the midst of a financial crisis that was induced by rapid growth. Koh would like to invest SGD54.6 million in DVD manufacturing equipment to build upon Star River’s sterling reputation. Furthermore, Koh must decide whether to invest SGD1.82 million in new...