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AEI technology

AEI technology Amtech is a pioneer in electronics transportation systems. The company began in 1983 when the US Department of Agriculture released the patent for an 11-year old radio beam system. The first use of this technology was in the field of livestock monitoring. This later evolved into traffic and inventory management. Today, Amtech focuses its research and technology development on two market segments: Automatic Equipment Identification (AEI) and Intelligent Vehicle Highway Systems (IVHS). AEI uses radio beams to track inventory by scanning an electronic tag that is attached to the car or cargo unit. IVHS was a by-product of AEI, in that it uses tags to automatically deduct toll payment as vehicles pass through a tollbooth. Amtech has established itself as the AEI industry leader by becoming the American Association of Railroad’s mandated standard. On the other hand, the IVHS market is filled with competitors competing for electronic toll contracts throughout the United States. AEI and IVHS are in place in both domestic and foreign markets. In the domestic market, Amtech is partnering with Motorola. It’s pursuing the foreign markets through alliances with Alcatel Amtech in Europe, Mitsubishi in Asia, and Sino-Amtech in China. Amtech has almost completed delivery of AEI system tags to the railroad companies, and the market isn’t showing much growth potential. Also, they have been unsuccessful in securing future contracts. Their stock price has witnessed a decrease from $33 to 10 in a span of three months due to the anticipation of decreased cash flow. Pressure has been mounting from the shareholders for management to take action to boost the stock price back to levels of expected growth. Amtech has the unique predicament of being caught in markets that are neither growing nor mature enough to provide a steady or growing revenue stream. § Have yet to determine proper allocation of resources for best possible return. § Strong competitive forces in the IVHS market. § Reliance on one product for critical revenue stream. § Product portfolio not diversified. § Opportunity to broaden market in AEI because of their market dominance. § Strong brand equity as the leader in transportation electronics. § Ability to tap into the IVHS market potential. § Foreign market presence through alliances in AEI and IVHS product lines. § Established distribution channels in foreign markets. § High debt capacity to finance future growth. § $50 million in cash and marketable securities. § Lack of diversification within client base. § Lack of focus within various IVHS market segments. § Market reactors- not market leaders. § Inability to secure contracts in vital markets. § Expansion of AEI market opportunity in intermodal transport. § European railroad market 5 times larger than US market § Market potential for IVHS in ATMS, ATIS, AVCS, APTS, and CVO. § Expected changes within government policy aimed at federal road spending enabling the conversion of current highways into toll ways. § Growing markets within Asia and Europe for IVHS – ATMS product. § Declining growth in AEI rail segment. § Strong competition for IVHS market from strategic alliances between large corporations. § Unable to determine cash flow generation in the IVHS market due to the uncertainty of the market potential. § Development of several foreign programs similar to IVHS deterring possible entry into foreign markets. Diversify both AEI and IVHS market segments. The AEI rail market is maturing, causing revenues from this sector to shrink for Amtech. Thus, there is a need to diversify the marketing strategy associated with AEI and apply it to other segments of the shipping distribution cycle. There is a growing opportunity within the IVHS market due to changing policies within the government. In 1997, the Clinton Administration is expected to announce new legislation aimed at revamping federal road expenditures. This new legislation in part would allow states to charge new tolls on existing interstate highways. However, there is stiff competition within this market, all of whom are hoping to take advantage of the projected $210 billion revenue stream over the next 20 years. If Amtech does not take an active role quickly, they will lose out on a potentially profitable revenue stream. § Reap the benefits of entering into the fast growing IVHS market segment. § Resources (financial and labor) are spread thin across all product lines. § Strong competition from large corporations in IVHS market. § Use the existing AEI rail technology to branch out into foreign markets. § Increase revenues in the European market through currently established foreign alliances. § Diversify AEI product line by extending its technology to the fleet and cargo ship industries. § Integrate shipping distribution cycle. § Continue to aggressively market the IVHS product line by targeting large municipalities. § Competitively bid for future contracts. § Offer state agencies a 90-day test phase designed to make toll collection safer and more efficient. § Ensure compatibility amongst different toll road systems running through each state. § Evaluate financial performance of each product. § Compare financial performance to anticipated forecasts. § Determine market share in AEI and IVHS markets. § Evaluate stock price appreciation. § Gauge market expectations and compare performance to market expectations. Diversify AEI market and divest IVHS division. Already well established in the AEI market, and the standard in the rail segment, Amtech has enormous potential in fleet, shipping, and security access markets. It became a market leader by combining innovation and technology. Amtech needs to focus its attention even more intensively in the AEI market in order to survive in the future. The IVHS market is extremely competitive, leading to the likelihood of a price war which will inevitably lower margins. There are numerous competitors within this market compared to AEI. Many of the competitors are large corporations with the ability to pursue the strategy of absorbing great losses in order to gain market share. Amtech will have greater difficulty in finding an immediate boost to the revenue stream. § Lump sum payment from IVHS divestiture boosts bottom line. § Frees up capital formerly devoted to R&D for IVHS technology to broaden AEI product line. § Focus resources by increasing R&D. § Integration of product shipping cycle through ships, trucks, rail (intermodal market control). § Increase market share for AEI products. § European railroad market opportunity 5 times larger than domestic market. § Association of American Railroads standards were adopted as European standard in 1993. § Maturing domestic market for AEI railroad product line § Lost opportunity in IVHS market-domestic and international § Companies revenue solely dependent upon AEI product line. § Finding a buyer for the IVHS division. Approach competitors who are looking to increase market share and have the ability to fund the acquisition. § The capital generated by this sale will go to fund the diversification of the AEI market through intermodal transfer. § The intermodal transfer will consist of a large network involving shipment of products via water, roadways and railway. § The diversification of the AEI market through intermodal transfer will allow Amtech to become a dominant player not only in the AEI rail division, but also in the entire product delivery cycle for foreign and domestically produced goods. § Evaluation of all foreign alliances based upon sales and revenue growth. § Forecast amount of new contracts required to sustain a revenue stream and compare it to the current revenue stream. § Gather information through surveys, sales force, and direct customer contact to determine customer satisfaction. Diversify AEI and partner with another company for IVHS. With the AEI market relatively untapped in other areas of shipping, it only seems logical to incorporate the technology into the intermodal transport market. However, there is still a great deal of opportunity available in the IVHS market. In order to alleviate any possible capital constraints, it seems prudent to establish a minority partnership within the IVHS market. As a minority stakeholder, Amtech will be able to focus its attention more on the AEI market and allow the majority partner to run the day-to-day operations in the IVHS sector. This strategy will allow Amtech to take advantage of both markets. § Won’t miss IVHS growth opportunity § Insourcing of capital from partner § Allow focus on broadening AEI product line § Majority partner runs day-to-day operations § Revenues will be split with partner § Immediate returns on investment may not occur § Possible incompatibility with partner, limiting effectiveness of alliance § Broaden market to integrate intermodal transportation through a marketing campaign that targets shipping and fleet companies 1. Contact company management to establish relationships and set up contracts. 2. Send out service representatives to potential and existing clients 3. Promote viability of intermodal transport through brochures, direct mailings, industry associations and publications, etc. § Once contracts are settled, increase production and distribution of tags and scanning devices § Establish monthly market share and financial performance goals 1. Begin contacting potential companies to partner with in IVHS and develop specific partnership requirements 2. Once partnership is set-up, begin to coordinate resources to develop the most efficient method of competing within the market 3. Gage market expectations with partner 4. Aggressively bid on IVHS contracts 5. Establish a powerful presence in the market Both product markets will require Amtech to forecast the amount of new contracts required to sustain a revenue stream. Foreign alliances will also be evaluated on a regular basis based upon sales and revenue growth to determine their feasibility. We have established the following strategies for each product line: § Maintain customer service and direct sales force marketing to the fleet, ship and rail companies § Evaluate contract acquisition and overall strategy monthly § Determine whether quarterly goals have been attained § Compare market expectations to company’s performance § Maintain relations with state governments to ensure future sales contracts § Continue market research to discover evolving market opportunities Due to declining revenues, stockholders have seen their investments rapidly drop in value. Stockholders are placing a large amount of pressure on Amtech management to implement revenue-generating projects. After a detailed analysis of the three proposed strategies, Amtech feels that it would be prudent to implement Alternative 3. This would allow for a focused strategy in the IVHS and AEI markets. Amtech would avoid having its resources too thinly spread over multiple product lines as in Alternative 1. This first strategy aggressively pursues both markets without the aid of a partner. With Alternative 3, a capital infusion for the IVHS market from a future partner would negate Alternative 1’s shortcomings. In addition, Amtech could focus more intently on integrating the AEI shipping distribution cycle, while its partner takes advantage of the IVHS market opportunities. In Alternative 2, the sale of the IVHS division would result in a short-term gain, but it would harm long term viability of the company. There will eventually be problems with the maturation of the AEI intermodal market, which will lead Amtech back to their current situation. Essentially Amtech will have the best of both worlds—enhanced IVHS opportunity due to its partnership with a larger company, and its own expansion into new segments of the AEI market. Bibliography:

Word Count: 1772