Alphatec Case
Essay by people • July 15, 2011 • Essay • 1,151 Words (5 Pages) • 2,087 Views
History of Alphatech Group I
* Charn Usawachoke, founder
o Thai Chinese, born Bangkok
o Educated North Texas University
o Worked for Honeywell in the US before returning to Thailand
* 1989 Charn borrows money to buy part of an IC packaging plant from Phillips NC and to build a new factor in Chanchoengsao. Phillips agrees to buy 90% of output for five years. Production begins in 1991.
* Packaging of IC → imbedding the IC in the plastic board.
History of Alphatech Group II
* 1993
o IPO in Thailand, increased bank and public debt (increase leverage substantially)
o Acquisitions:
* Semiconductor assembly and test plant from National Semiconductor
* Telephone assembly and test plant from AT&T
* Tool and plastic die business
* Exhibit 3
o 1993 → substantial increase in borrowing
History of Alphatech Group III
* 1994 - grand strategy
o Creates Submicron, to be Thailand's first state of the art wafer fabrication facitliy at a cost of $1.1 billion. Initial financiaing includes $350 million of debt provided by 26 banks and finance companies.
o AlphaTechnopolis
* 4000 acres industrial park. Including electric power generation and water plant. Cost at least #750 million. Plans for hospital, school, university, etc.
History of Alphatech Group IV
* 1994-1996
o More acquisitions and investments
* Alphatech Shanghai, JV with Shanghai Industrial and Electric Holding Group and Microchip Technology (Arizona), low-tech chips.
* Alphatech Electronics USA - acquired Indy Electronics for $30 million
* Life insurance, equipment leasing, telephone equipment
* Alpha Memory
Mr. Chips
* 1995-1996
o Charn is the golden boy of Thai high-tech
o Alphatech receives Financial Mangemnnt Award from Asian institure of Management (1995)
o Electronic Business Asia Magazine names Charn one of Asia's top business executives (1996)
Business Strategy I
* What was Charn's plan as of 1989?
o Focus on subcontracting of semiconductor - economies of scale
o Global semiconductor companies sub-contracting packaging and testing functions to independent specialists.
o Independents offer cost savings due to economies of scale and scope
o SE Asia is attractive due to low labour costs.
* Was this plan well-founded?
o Yes, at the time.
Business Strategy II
* How did the plan change over time?
o The objectives became a lot broader and more ambitious and started to lose focus
o Rapid expansion
* Charn wanted to do everything. Design, fabrication, IC assembly and testing, product manufacturing and marketing
o Easy money. Charn was quite a persuasive person
o The insurance business was meant to generate cash upfront to support his main business??
Alphatech Financial Profile I (these figures were not accurate)
* Having two separate book keeping
* Highly leveraged company with low liquidity
* Decreasing assets T/O
o Booking of assets but not completed yet → no sales but the asset based increased
* Liquidity
o Very low interest coverage
* Net income was overstating by $1 billion
Alphatech Financial Profile II (with PW adjustment)
* ROE has gone way underwater
* Loan-to-equity doubled. From 1.10 to 2.01
What went wrong?
* Huge capital expenditure commitments but did not have the cash to support
o From 1994-1996 PPE grows by 182%
o PPE/Sales goes from 12% in 1992 to 33% in 1996
o 1996 CAPEX almost 2.1 billion THB
* Slowdown in business growth. Sales growth rates:
o 1992 - 108%
o 1993
o 1994
o 1995
o 1996 -
How did Charn react to the problems at ATEC?
* Cash and dash
o Extracts cash through continued dividend payouts (707 million THB in 1995-1996)
o Related party transactions, intercompany transfers, "tunneling"
o 3.95 billion THB unauthorized withdrawals 1994-1997
* Seeks subsidies from Thai Government. Krung Thai Bank becomes involved in early restructuring efforts.
* Hires Lehman Brothers to raise funds. LB discovers the dirty books and walks away.
Ownership structure: Alphatec Group
* A collection of companies related though Charn holding a controlling stake in all of them.
* No common parent company
Alphatec's Board
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