SICC 2016 business strategy case
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Case prepared for case competition at the UC San Diego Rady School of Management.
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SICC 2016 business strategy case
- 1. 1 2016 SICC CASE COMPETITION MAY 25, 2016 THE ROAD TO VALUE STRATEGIC ANALYSIS FOR FORESIGHT AUTO
- 2. 2 ALLISON NOEL SAPNA HEGDE CODY BECKER RJ NIEWOEHNER RADY SCHOOL OF MANAGEMENT UC SAN DIEGO 2016 SICC CASE COMPETITION
- 3. 32016 SICC CASE COMPETITION THANK YOU TO OUR SUPPORTERS!
- 4. 4 OPPORTUNITY CREATING VALUE AND MAKING A DIFFERENCE 2016 SICC CASE COMPETITION colleague father friend
- 5. 5 Establish a partnership with Mobileye to leverage expertise, market power, and OEM contacts Seek strategic alignment with OEMs and other Tier 1 & 2 vendors Continue to innovate on stereo vision expertise while monitoring evolving market trends 2016 SICC CASE COMPETITION RECOMMENDATION OPPORTUNITY FOR FURTHER GROWTH 1. 2. 3. + approx. $ 1.3 Billion ANNUAL REVENUE WITHIN 5 YEARS OF REACHING PROFITABILITY
- 6. 62016 SICC CASE COMPETITION TABLE OF CONTENTS Industry analysis and trends Company analysis Strategic alternatives Marketing plan Risk factors Financials Summary
- 7. 7 ADAS INDUSTRY DEVELOPMENT ERAS OF AUTOMOTIVE SAFETY TECHNOLOGY 1950-2000 Ph 2 Ph I ADASSAFETY & CONVENIENCE 2000-present 2016-2025 2025+ PARTIALLY AUTONOMOUS AUTONOMOUS Zzz
- 8. 8 ADAS INDUSTRY TRENDS GROWTH AND DIRECTION KEY DRIVERS OF GROWTH • Technological breakthroughs • New business models • Consumer interest penetration • Regulatory mandates • UN Decade of Action for Road Safety • Vision of autonomous driving 2016 SICC CASE COMPETITION ATTRACTIVE MARKET, RIPE WITH OPPORTUNITY $0 $20 $40 $60 $80 2015 2016E 2017E 2018E 2019E 2020E ADAS INDUSTRY GROWTH ($ BILLIONS) analyst estimates Strategy Analytics TechNavio ABI Research
- 9. 9 COMPANIES ACTIVELY PURSUING ADAS 2016 SICC CASE COMPETITION ESTABLISHED EMERGING
- 10. 10 FORESIGHT AUTO CORE COMPETENCIES AND DIFFERENTIATING FACTORS 2016 SICC CASE COMPETITION continuing R&D technology R&D superior technology raising money hardware agnostic FORESIGHT IS UNIQUELY POSITIONED TO… • Deliver differentiated value • Gain end-user trust • Work with any partner • Remain a strong innovator
- 11. 11 COMPETITIVE THREAT ANALYSIS BUYER POWER SUPPLIER POWER THREAT OF SUBSTITUTES THREAT OF NEW ENTRANTS COMPETITIVE RIVALRY 2016 SICC CASE COMPETITION BUYERS - MEDIUM - OEMs and Tier1 suppliers are large and command market power; many potential partners Foresight has a unique solution SUPPLIERS - LOW - Foresight has reliable access to human capital and parent company IP SUBSTITUTES - LOW - Capabilities of alternatives such as LIDAR, radar, ultrasonic, and IR are more limited NEW ENTRY - LOW - Development of Eyes On involved extensive R&D leading to patents barrier to entry in the near term COMPETITORS - HIGH - Industry is fragmented Lots of players Established partnerships & relationships THIS INDUSTRY IS INTENSELY COMPETITIVE & REQUIRES ESTABLISHMENT OF KEY RELATIONSHIPS
- 12. 12 ANALYSIS OF LEADING STRATEGIES CRITERIA #1: PARTNER WITH MOBILEYE #2: NETWORK BROADLY WITHIN ADAS #3 SMART PHONE DEV. MARKET Growth opportunity Mitigates competitive risks FIT Aligns with core competencies/values FINANCIALS Long-term stability & exit opps. Guarantee of high financial returns 2016 SICC CASE COMPETITION PURSUE STRATEGIES 1 & 2 + MONITOR SMART PHONE MARKET
- 13. 132016 SICC CASE COMPETITION CONNECTING WITH MOBILEYE Approach leadership with partnership proposal (VP of Automotive Projects, Advanced Technology, or R&D) Discuss capability improvement from integration of Foresight software–lower rate of false positives, improved maps based on crowdsourced data, improved tagging, etc. Seek opportunities to integrate within the party’s current OEM customer base 1. 2. 3.
- 14. 14 PRIORITIZING T1 PARTNERS TO NETWORK WITH 2016 SICC CASE COMPETITION TIER 1 SUPPLIER SOFTWARE PARTNER + + in-house PRIORITY in-house high high medium medium medium
- 15. 152016 SICC CASE COMPETITION Trend: OEMs and Tier 1s are looking for & investing in start-ups Action: Connect by getting involved with accelerators and incubators they participate in (e.g., speak at events) Clean Tech Open Sponsor list “Israel itself is a hotbed for innovation, Buczkowski said. Ford has scouts there on the lookout for new technologies” “Buczkowski cited Mobileye” CONNECTING WITH OEMs & TIER 1s
- 16. 16 PRIORITIZING T2 PARTNERS TO WORK WITH 2016 SICC CASE COMPETITION TIER 2 SUPPLIER DESCRIPTION PRIORITY high high high medium Strong and well established OEM relationships; lacks stereo vision Strong mobile presence; reference design expertise; looking for differentiation Strong expertise in facial recognition and real-time feedback Preference for open source
- 17. 172016 SICC CASE COMPETITION Trend: Chipset vendors are looking for differentiation and value-add Action: For example, talk with Qualcomms Advanced Optional Software Group CONNECTING WITH TIER 2s
- 18. 18 MARKETING PLAN 2016 SICC CASE COMPETITION NURTURE MARKET IDENTIFICATION CREATE SALES OPPORTUNITIESPOSITION Highlight uniqueness: • No false positives • Depth perception • Hardware agnostic • Military heritage • All-weather Capture opportunities in ADAS and partial autonomous technology Develop solutions for autonomous technology Get involved with accelerators and incubators Sustain key long- term relationships through exceeding expectations and expanding product offering Attend conferences and tradeshows
- 19. 19 RISK ANALYSIS 2016 SICC CASE COMPETITION POLITICAL ECONOMIC SOCIAL TECHNOLOGICAL ENVIRONMENTAL LEGAL Low risk: governments interested in furthering transportation safety High risk: intense competition can erode industry opportunities and profits Medium risk: consumer reactions are difficult to predict, and trust is easily lost Low risk: hardware agnostic with superior R&D and intellectual capital Low risk: climate change concerns could lower car use, but effect is likely small Medium risk: Errors could significantly harm users and lead to litigation – probability uncertain FOCUS ON COMPETING AGRESSIVELY TO MITIGATE LARGEST RISK
- 20. 20 $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 2019 2020 2021 2022 2023 PROJECTED REVENUES ($ MILLIONS) * PROJECTED 5-YR REVENUES TOP-DOWN MODEL • Market size: P&S Research; IndustryARC • Foresight share: 0.25% 1.0% • Market growth: 2% (auto industry) 2023 REV $1.3B 2016 SICC CASE COMPETITION KEY INPUTS & ASSUMPTIONS BOTTOM-UP MODEL • Base of installed cars: Frost & Sullivan • ADAS Market growth: IndustryARC • Market share: 0.25% 1.0% • R & D expenses: Mobileye * ** * * Top-down model estimates Bottom-up model estimates
- 21. 212016 SICC CASE COMPETITION FINANCIAL RESOURCES REQUIRED Year R&D (Mil) SG&A (Mil) Data Source 2016 3.5$ 0.9$ Burn rate of $4.4 M/yr 2017 10.6$ 2.6$ Burn rate of $13.2 M/yr (tripled from 2016) 2018 31.7$ 7.9$ Burn rate of $39.6 M/yr (tripled from 2017) 2019 28.6$ 27.2$ 2020 59.9$ 59.9$ 2021 127.5$ 127.5$ 2022 174.0$ 174.0$ 2023 216.1$ 216.1$ % of expense based on 2013 Mobileye financial statement
- 22. 222016 SICC CASE COMPETITION RECOMMENDATION & MILESTONES Establish a partnership with Mobileye to leverage expertise, market power, and OEM contacts Seek strategic alignment with OEMs and other Tier 1 & 2 vendors Continue to innovate on stereo vision expertise while monitoring evolving market trends OPPORTUNITY FOR FURTHER GROWTH 1. 2. 3. + approx. $1.3 Billion Begin talks with potential partners Establish POC Secure first partnership Y1 – PRODUCT & MARKET FIT Expand offerings (e.g., AEB) Y2-5 – SCALE Secure additional partnerships Become a top 3 market leader ANNUAL REVENUE WITHIN 5 YEARS OF REACHING PROFITABILITY
- 23. 23 2016 SICC CASE COMPETITION MAY 25, 2016 THANK YOU!
- 24. 242016 SICC CASE COMPETITION DETAILED FINANCIALS 2015 2016 2017 2018 2019 2020 2021 2022 2023 Total WTP for ADAS features 1,210$ 1,210$ 1,210$ 1,210$ 1,210$ 1,210$ 1,210$ 1,210$ 1,210$ Global base of cars with ADAS (Mil) 25$ 28$ 32$ 37$ 43$ 49$ 57$ 65$ 75$ Total ADAS Revenue (Mil) 29,734$ 34,165$ 39,256$ 45,105$ 51,825$ 59,547$ 68,420$ 78,614$ 90,328$ ADAS Revenue for Camera solutions 6,839$ 7,858$ 9,029$ 10,374$ 11,920$ 13,696$ 15,737$ 18,081$ 20,775$ % of Camera solutions that are Stereo 1% 2% 5% 10% 20% 25% 30% 35% 40% ADAS Revenue for Stereo solutions (Mil) 68$ 157$ 451$ 1,037$ 2,384$ 3,424$ 4,721$ 6,328$ 8,310$ ADAS Market share for Foresight 0.00% 0.00% 0.25% 0.50% 3.00% 5.00% 9.00% 11.00% 13.00% Foresight Revenue (Mil) 0 0 0 0 71.5$ 171.2$ 424.9$ 696.1$ 1,080.3$ % of Revenue spent on R & D 0 0 0% 40% 35% 30% 25% 20% R & D Expenses (Mil) 4$ 11$ 32$ 29$ 60$ 127$ 174$ 216$ % of Revenue spent on S,G & A 0 0 0 38% 35% 30% 25% 20% S,G&A Expenses (Mil) 1$ 3$ 8$ 27$ 60$ 127$ 174$ 216$ Total expenses (Mil) 4$ 13$ 40$ 56$ 120$ 255$ 348$ 432$ EBITDA (Mil) -$ (4.40)$ (13.20)$ (39.60)$ 15.73$ 51.36$ 169.95$ 348.06$ 648.19$
- 25. 25 ADAS VALUE CHAIN THREE ROUTES TO THE OEM 2016 SICC CASE COMPETITION software vendor OEM1. 2. software vendor software vendor 3. tier 1 supplier OEM SoC vender tier 1 supplier OEM
Editor's Notes
- EU and US are mandating that all vehicles be equipped with autonomous emergency-braking systems and forward-collision warning systems by 2020. Recent McKinsey survey also suggests that car buyers are becoming even more interested in ADAS applications that promote comfort and economy, such as those that assist with parking or monitoring blind spots.
- R&D & superior technology: Years of research and development led to a unique and superior solution. Software integrates data from two cameras to deliver superior depth perception, works in all weather, and has by far the lowest rate of false positives, which is KEY in establishing consumer trust. This technology is military grade, not easily replicable and is protected by patents. Hardware agnostic: Flexible, customizable, can work with anyone. Ability to raise money: Stable – will , able to fund continued R&D. So after looking at the industry, we spent a good bit of time examining Foresight as a company, and we identified a couple key core competencies. R&D – gained from Magna BSP Super Technology – stereo vision systems are more capable and having the thermal component is a big advantage Being hardware agnostic lends a lot of flexibility Finally, the company has a proven model for raising money and can
- Five forces So for supplier power, Foresight already has access to human capital and IP, so we see that as low. There isn’t really a threat of new entry, the market is already saturated with entrants, and it would several years to catch up with the current players. We also viewed substitute threats as lower, mostly as we move towards automated cars, it is most likely the technology will require a stereo solution Now the buyers are different. Our buyers are Tier 1 and 2 players, and they command a lot of market power, but we think Foresight has a unique solution, so this can mitigate these threats. Lastly, the most significant threat is that the industry is fragmented, and honestly, difficult to segment and understand. There are a lot of players, and a lot of people already have established relationships. Our take-away is that a priority needs to be establishing these relationships. Much like business school, a lot of this industry is about who you know.
- Growth opps: All three offer significant growth opportunities – Foresight is relatively small, and getting into OEMs via Mobileye, who’s a partner with nearly all OEMs, would allow for significant growth. Tying up with OEMs themselves or a Tier 1/2 player that’s tied up with OEMs already would also allow for growth, but is a slightly less promising avenue since you’d need to effectively start from scratch. Entering the smart phone market would also mean a potential for high growth because smart phone ownership is nearly universal. Competitive risks: Main competitive risks are the threat of competing solutions and buyer power. Partnering with a large player like Mobileye would help Foresight gain power in the market relative to competitors. Building relationships with other Tier 1/2s would too, but chances are that this route would generate less power than going through Mobileye. Being in the smart phone business would make Foresight more valuable in the competitive landscape but they’d still be a small player competing with a large pool. Aligns with competencies and values: Partnering with Mobileye or other OEMs/Tier 1/2s would allow Foresight to stay within their core competencies – the use case of their software is the same there, whereas it’s more of a stretch to make software for the smart phone use case. Smart phone hardware isn’t yet at a place where Foresight’s solution would be effective (cameras are limited, e.g.). Long-term stability and exit opps: Partnering with Mobileye and networking with other OEMs/Tier 1/2s would be a stable strategy in the long run. The pace of change in the auto industry is slow relative to smart phones, so a working solution in these markets would last longer and be easier to keep up with in the long run. Guarantee of high financial returns: With Mobileye, would get access to much of the market. High returns so long as the negotiated licensing revenue or purchasing amount is reasonable. With other players, returns are more uncertain, but also high if you tie up with a few key players. With smart phones, unclear what the financial returns would be due to high uncertainty since the hardware isn’t near ready in any phones.
- So we’ve already identified several of these pieces, but we wanted to present a unified marketing plan that is mostly made up of 4 pieces. Foresight should position as the most capable technological solution They should continue to drive the trend towards autonomous vehicles and capture unique market opportunities as they present themselves Create sales opportunities by attending externally hosted events where possible, as Cody mentioned and finally Continue to nurture the relationships. Remember, these relationships are the key to mitigating some of the most serious market risks.
- When we’re discussing risk, we identified a couple of different areas, but really only 2 significant categories. The first is legal, as we move towards autonomous vehicles, there is a fair bit of uncertainty when it comes to who will be liable for crashes in the future, so this is kind of an unknown for the time being. The other is just as we’ve said many times up to know, this is economics in it’s purest form, high competition erodes industry profits, so Foresight has to innovate, differentiate and compete to maintain their market share.
- #1 is dominated by MobileEye