Reference no: EM132876514
MGT Semiconductor Co. is a medium-sized semiconductor fabrication plant in Mountain View, California. The company has been in business for over 20 years, mainly producing computer chips for auto industry that are sold exclusively through its distribution network across the United States. Through the years, it has been gradually expanding its production capacity and consumer base. However, over the past 9 months, the company has been faced with an unprecedented and unanticipated increase in demand, which has cleared out all its storage facilities and exceeded its manufacturing capabilities. At this time, the demand continues to be extremely high.
The company has an existing storage facility specifically designed for long-term storage of unused chips (controlled climate, humidity, dust, etc.), which can be converted to a new production line. The new production line would increase the existing manufacturing capabilities by 50%. However, this would require a substantial investment in remodeling of the facility and purchasing of expensive equipment from a producer in Tokyo, Japan. To proceed with this option, it would be also necessary for MGT Semiconductor Co. to obtain a loan from a bank and hire additional staff. It is estimated that it will take at least 15 months for the new production facility to start producing.
MGT Semiconductor Co. leadership is faced with a dilemma. If they don't expand the current capacity, they risk losing the market share to competitors that are more flexible in adapting to higher demand. At the same time, the expansion is very costly and the long-term demand is uncertain.
You are hired by MGT Semiconductor Co. as a consultant to help make the right business decision and to come up with an action plan.
Part A Question:
How would you recommend for MGT Semiconductor Co. to proceed? Should it stay with the same production capacity or increase it as described above? Based on the knowledge acquired in the course, please provide a detailed explanation of the rationale for your recommendation. Please describe potential challenges MGT Semiconductor Co. could be facing as a result of your recommendation. State the challenges and explain how you would recommend MGT Semiconductor Co. to address each of those challenges.
Part B Question:
As an alternative to internal expansion, MGT Semiconductor Co. was just presented with an option to acquire a small-sized semiconductor company overseas. While this acquisition will allow MGT Semiconductor Co. to increase its existing manufacturing capabilities by 50% in just 4 months, it will be drastically more expensive than converting an existing storage facility to a new production line.
Should MGT Semiconductor Co. consider this acquisition project? Please base your recommendation on the analysis of the triple constraint and provide a detailed explanation of the rationale for your recommendation.