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#Written by David Tam, 1996. #
#davidkftam@netscape.net Copyright 1999#
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David Tam
Tuesday, October 25, 1996.
Business Press Review
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Brethour, Arthur. "Overseas sales propel ATI to record gains".
The Globe and Mail. Friday, October 25, 1996. B2.
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Revenue, profit and cash flow records at Thornhill-based ATI Technologies
reached an all-time high in the 1996 fiscal year due to their successful
business strategies. Their efforts involved expanding overseas sales and the
move to higher-margin computer graphics chips manufacturing. Profits for the
fiscal year ended August 31, 1996 were $27.3 million, or $0.58 a share. This
was a 72 % increase from the previous year when earnings were $15.9 million, or
$.34 a share. Revenues increased from $359.7 million last year to $446 million
this year. Cash flow increased from $61.5 million to $19.3 million. The
opening of offices in Japan and Europe this year helped to increase the portion
of revenue earned from overseas from 35 % to 55 %. Graphic component chip
sales accounted for 22 % of their revenue, compared to a 9 % portion in 1995.
ATI plans to focus on higher-margin component chip development, with a goal of
its revenue contribution to 50%.
The business strategy developed by ATI presents several examples of the
concepts we have learned in our lectures. During the infant stages of ATI,
they produced modems, VGA graphics boards, and other computer peripherals.
These products were better than average, especially its graphics boards, which
had began to gain reputation. Slowly, ATI realized its strength in this area
and began to focus on this aspect. They had realized their market niche and
began to specialize in this area. Eventually, they stopped manufacturing
modems and other peripherals. By concentrating on graphics board development,
the company became known in the computer industry for producing one of the
world's best graphics boards, in terms of both raw graphics performance and
quality.
After become famous for its graphics boards, ATI applied the concepts of
responding to changes in the market and the industry. They observed that heavy
competition in the PC hardware industry in general began decreasing the profit
margins on all computer hardware and peripherals. Also, the competition in the
graphics board industry was increasing. With these conditions in mind, ATI
decided to further increase their specialization by focusing on the graphics
chip itself and not the entire graphics board. By specializing in developing
the graphics chip, they rapidly advanced this "core" technology, at a rate much
higher their competition. They then sold these very advanced, high performance
graphics chips to their existing competition. These chips have a very high
profit margin and as a consequence, ATI was very successful in escaping the
potential problems that most hardware manufacturers currently face. This
example is a direct application of the concept of specialization. Small
businesses should expand vertically(specialization), not horizontally
(diversification).
ATI also presents a fine example of the benefits entering the international
market. In the new article, ATI cites that foreign sources account for 55 %
of its revenues.
(
geocities.com/siliconvalley/campus/9640/2ndYear) (
geocities.com/siliconvalley/campus/9640) (
geocities.com/siliconvalley/campus) (
geocities.com/siliconvalley)