Lexar Media: The Digital Photography Company? Case Solution
In response to these efforts, sales growth of Laxer grew in 2000. It rose from $7.6 M in 1998 to $88 M in 2000. There was approximately 35% increase in the sales of Laxer by 2000. Furthermore, Lexar has raised the extraordinary growth of $52 million. Moreover, the price per share reached to $8, and valuation was declared Â $472 million.
- What explains Lexarâ€™s low profit margin around 2000-2001, despite the aforementioned strength?
Financial Analysis of Lexar by2001
Lexar developed different strategies to cater the digital film market. It formulated various products that were relevant to the digital film industry. Furthermore, its products were modified with the technological advancement of the cameras. Moreover, it established its channels of distribution by utilizing merchandising stores. However, it got a decline in sales after 2000. In 2001, Lexarâ€™s financial performance was adverse. It is elaborated from Exhibit 1, that sales of Laxer were declined in 2001 by -28%. Revenue of the Lexar was also diminished from 71,790 to 51,708 from 2000 to 2001 respectively.
Furthermore, Gross Margin of the Lexar was lowered from 11,886 to a loss of-1,353. Gross profit margin was lowered due to the decrease in cost of goods sold. Percent of Cost of goods sold was much more than revenue. The revenue reported in 2001 was 51,708, and Cost of Goods Sold was 53,061.
Lexar also faced a decrease in total operating expense from 39,897 to 37,532. Hence, the loss from operations rose from 28,011 to 38,885. However, total other income decreased from 5,360 to 3,241 between 2000 2001.
From the financial statement of Lexar, it can also be derived that there was an increase in the expenses of Lexar. The expenses amounted to 73% in 2001 from 56% in 2000. Sales of the company also declined from -18% to -28% in 2000-2001. Gross profit of the company also diminished from 17% in 2000 to -3% in 2001.
Main reasons for the decrease in the revenue of Lexar were sales and the cost of goods sold. Lexar had invested largely in cost of goods sold than its sales hence, cost of goods sold increased by 103% in 2001.
However, a net loss of -44,402 was accounted in 2001, which was less than 2000. It has also shown in the Exhibit 2 that Lexar needs to lower its expenses regarding investment to the process of sales. It has developed its distribution channels, it would have to pay them annually. This will be difficult for Lexar to sustain in the market due to several expenses in numerous distribution channels. It should make a decrease in its channels of distribution and other expenses. Moreover, Lexar should develop strategies to increase its sales via focusing on its marketing and advertising activities.
- Suppose Eric Stang decides not to enter the USB flash drive market, as he feels that Lexarâ€™s competitive advantage in digital photography cannot be effectively transferred into that market, despite the similarity in the basic technologies. Provide, and elaborate on, five reasons for why he came to that decision.
Reasons of focusing the industry
Lexar can easily sustain in the industry with many advantages. Furthermore, main five strengths of the company have elaborated briefly.
1. Products and focus strategy
Lexar has progressed with its product development. It has created Shoot & Share software for the purpose of editing images. It has generated a package of software with a high capacity digital film…………..
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