Case Study

For exclusive use George Mason University, 2015

4230

AUGUST 20, 2010

WILLIAM E. FRUHAN

CRAIG STEPHENSON

Flash Memory, Inc.

In May of 2010, Hathaway Browne, the CFO of Flash Memory, Inc., was preparing the company’s

investing and financing plans for the next three years. As a small firm operating in the computer and

electronic device memory market, Flash competed in product markets that reflected fast growth,

continuous technological change, short product life cycles, changing customer wants and needs, a

large number of competitors, and a high level of rivalry within the industry. These factors combined

to produce low profit margins and a continual need for additional working capital, which adversely

impacted Flash’s financial position and its ability to finance important investment opportunities.

Background

Flash was founded in San Jose, California, by four electrical engineers during the high tech boom

of the late 1990s. The common stock of the company was originally owned 100% by the founders,

and additional shares were subsequently sold to two engineers who joined the company as both

employees and owners. In 2010 these six individuals held the top management positions, comprised

the board of directors, and still owned the entire equity in the firm.

The company had enjoyed considerable success since its creation. As computers and other

electronic devices became increasingly complex and powerful, the demand for high performance

components, particularly memory, increased rapidly. From its founding, Flash had focused on solid

state drives (SSDs), which comprised the fastest growing segment in the overall memory industry.

Industry data showed the SSD market grew from approximately $400 million in 2007 to $1.1 billion in

2009, and was further projected to grow to $2.8 billion in 2011 and $5.3 billion in 2013. SSDs were

particularly well suited for use in smart phones, laptop computers, and net books, and sales of these

products were...