Quote:
Originally Posted by axel77
Sorry but why does the size of a company have to do anything with profitably requires? If you can estimate an investment of X to have say 20% profit on investment return, its good, big company or startup company.
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Nope. The bigger you are, the bigger X needs to be, and the bigger the return needs to be.
Consider the Sony Clie PDA line. It was popular and well received. It was profitable. It was killed because it wasn't profitable
enough. Sony senior management looked at the investment required and the return, and concluded they could get more bang for their buck investing the funds in other areas.
Businesses enter and leave lines of business all the time based on such imperatives. Senior management is fundamentally an investment committee. They are responsible for Other People's Money, and their focus will be where it can be invested for the greatest return. (General Electric was known for buying and selling entire large
companies to produce the steady revenue and profit stream the market expected.)
When you are a division of a company, you not only have your own expenses to consider. You also bear a share of the overall corporate overhead to which you must contribute. This means a smaller company with less overhead can exist on sales and profits that would be deadly to a larger one.
A smaller company like Bookeen or iRex will exist happily on sales that would not be adequate for Sony. Sony makes and sells devices, and they need to make and sell a
lot of devices to make it worth their while to do it.
Semiconductor electronics is the classic capital intensive business. There are huge upfront costs in creating the capability to make the products. The biggest portion of the cost of a unit will be the overhead of the financing required to make it. The more you can make, the more you can spread the overhead, and the lower your units costs, and higher your profit on each unit will be.
This is Finance 101.
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Dennis