A "fundamentally flawed" company cannot recover simply by shaving costs. What can management do to turn around such an enterprise?
In the last decade alone, many chip suppliers, distributors, OEMs, and contract manufacturers have disappeared, gobbled up by rivals for a fraction of their valuation at the beginning of the century. The turmoil continues today; companies like Research in Motion, Flextronics, Nokia, HP, and Dell are thrashing about in a never-ending search for market validation and growth. All have evaluated, or are in the process of evaluating, their presence in markets that propelled them to the top of their sectors but which have since gone soft.
Even Intel Corp., the perennial market leader in the semiconductor industry, is searching for its soul. It has spent billions on acquisitions it hoped would help transform its operations and reduce its dependence on the PC microprocessor business. It has faced stiff headwind, although unlike others caught in the same position, Intel has pressed ahead with both acquisitions and increased investments in R&D as well as next-generation manufacturing technology in the conviction these moves will help it beat the odds.
Others that were not as blessed with huge cash resources haven't been as fortunate. Advanced Micro Devices Inc. (AMD), for example, finally threw in the towel and sold its semiconductor manufacturing division after decades of toe-to-toe slugfests with Intel. Its sales and capitalization reflect the disappointing performance. AMD's annual sales are forecast to sink to $5.8 billion this year, down from $6.6 billion in 2011, while its market value of $2.4 billion makes one wonder why it ever was seen as a serious rival to Intel (market cap $113.3 billion).
What many of these companies share is failure to anticipate change or spearhead innovation in their markets. This is the definition of a "fundamentally flawed" company. Turning companies so seriously flawed around will be extremely difficult, and businesses that can be safely placed in this category will not even survive, no matter how savagely executives cut costs.
Bolaji Ojo is editor-in-chief of EBN, an EE Times sister site. This article was originally posted on EBN.com.