Janis Pastars
Dr. Muhammad R.K. Chishty
Advanced Corporate Finance
2 March, 2015

Case 26 – Star River Electronics Ltd.

Introduction

Star River Electronics is a joint venture between England’s Starlight Electronics Ltd. and an Asian venture-capital firm, New Era Partners. Star River Electronics is based in Singapore, and its mission was to manufacture CD-ROMs as a supplier to major software companies. Star River Electronics has gained fame in the industry for producing high quality discs. As the optical and multimedia products became more and more popular in the mid-1990s, CD-ROM manufacturing industry experienced rapid growth during this time. Due to this effect, small manufacturers overreacted, creating oversupply that pushed prices down by as much as 40%. Consolidation followed as less efficient producers went out of business. Because of its superior reputation, Star River was able to survive the shakeout. While other CD-ROM manufacturers floundered, Star River’s volume of sales grew at a robust rate in the past two years. Unit prices, however, had declined because of increasing competition in the market and the growing popularity of substitute products, especially digital video discs (DVDs). DVDs had 14 times larger storage capacity and is a threat to displace CD-ROMs. Although, CD-ROMs still comprised 93 percent of all optical-disc-drive shipments in 1999, a study predicted that this number would fall to 41% by 2005, while DVD drives would fill the remaining 59%. Star River Electronics had begun to experiment with DVD manufacturing, but the production of DVDs still accounted less than 5 percent of the sales in year of 2001. With new installed capacity, company is hoping to increase the proportion of revenue from DVDs. Just after company’s CEO and director had resigned to accept a CEO position with another firm, a new CEO of Star River, Adeline