Gemini

Electronics Inc
SFAD CASE#01
Company Profile
Founded in: 2022
Origin Country: United State
Founder: Dr. Frank Wang (PhD
electrical engineering CIT)
Products: (Big Screen LCD TVs,
Plasma TVs)
Added Products (HD, BLU-RAY DVD
Players, Home Theatre Sound
System and Cable Sets)

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About Gemini Electronics
Gemini Electronics was a U.S.-based manufacturer
of televisions (TVs).
• US Market was influenced by the imported TV brands
like Sony (Japanese), Samsung (South Korea), LG (South
Korea)
• Wang Capitalizes the idea of local manufacturing of LCD
and Plasma TVs and market the best quality at much
lower cost then the established brands because of low
cost of transportation.
• First he cater primarily to big retailers Best Buy, Costco,
Sam’s Club, Walmart and Target who wanted to shorten
their supply chains by sourcing TVs in North America.
• Gemini would produce its TVs on a just-in-time basis
and pass on most of the distribution savings
(transportation and warehousing) to the consumer.
• This allowed Gemini to quickly build market share in the
U.S., Canada and Mexico by offering prices that were
considerably below the competition.

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The Success
By 2005 this strategy had proven to be a great success.
Gemini was the largest TV producer in the U.S. with a 35
per cent market share

• Major retailers quickly agreed to carry the brand

because of its reputation for excellent quality at an
affordable price
• They had added a number of additional products
such as DVD players (HD and Blue Ray), home
theatre sound systems and cable sets.
• The venture capitalists had taken the company
public in December 2004.

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 Threat
• In late 2009 a major threat emerged as
Gemini’s Korean and Japanese competitors
began lowering their prices to comparable
levels
• Of greater worry were a number of
technological trends. First, Sony announced
that it would introduce a 3-D TV by summer
2010, and other major producers were
expected to quickly follow.

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 Product Diversification

Gemini felt it would be able to produce 3-D TVs within 18 months,likely in time to meet the
expected growth in demand, Introducing video phones, Web browsing and e-mail
capabilities is something it can do now as all needed technology is available; in fact, the
company already has prototypes under development.

Growth Options
Option#1 (Geographical Expansion with same Option#2 (Products line extention and
Product Offering) diversification)
• One option was to continue to focus on TVs but to • He wished to develop Gemini’s product offering so
expand geographically into he could compete with Samsung, Sony and LG in all
⚬ South America market segments. Possibilities included
⚬ Europe and ⚬ smart phones
⚬ Asia. ⚬ e-readers and tablets
Wang felt that geographic expansion was wise ⚬ MP3 players
⚬ game machines
⚬ advanced audio systems and notebook
⚬ laptop and micro computers.

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Growth Options
Acquisitions/Merger/Internal expansion
• Gemini could design new products internally or
expand through acquisition.
⚬ Motorola had expressed interest in selling its cell phone
unit.
⚬ Palm had clearly stated it was looking to be acquired by
a firm with greater financial resources
⚬ Taiwan’s Acer was disappointed with its acquisition of
Gateway in 2007 and was rumored to want to sell
⚬ Bose had discussed merging its audio business with a
larger company that had greater access to international
markets.

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Gemini had a number of advantages over its Asian competitors.

• As a young and relatively small company compared to others in the industry, it was more innovative and less prone
to bureaucratic delays and in- fighting.

• The company was forced to greatly expand the number of administrative and sales personnel in 2006 and 2007, but
rapid growth soon improved efficiency.

• Southern California, despite inroads from other countries, was still the premiere location in the world for R&D in the
electronics industry. Gemini had been trying to take advantage of this by purchasing a number of patents from U.S.
universities and expanding its own R&D program. In 2009, Gemini opened a new research facility on the CIT
campus.
• Gemini’s production facilities were state-of-the-art as they were only a few years old. Assembly lines were highly
automated and could be quickly changed to produce different models, resulting in smaller inventories of work-in-
progress and finished goods to meet retailer demand

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OPERATIONS
• Due to the limited amount of electronics manufacturing being done in the U.S., Gemini still had to source many of
its parts from Asian contractors. This meant that larger parts inventories had to be maintained because of long
delivery times. In recent years, the company had been successful in sourcing a much greater proportion of their
parts in North America.

• Being a new American TV brand in an industry that had long been dominated by Asian producers, Gemini had a hard
sell trying to convince major retailers that their products were worth carrying

• All appreciated the low costs and fast delivery time, but none were sure whether the customer could be convinced to
buy this new brand. To compensate, many retailers demanded more generous credit terms than Net 30, which was
standard in the industry. Interest was also not charged on overdue accounts.

• Market research indicated that most Americans did not realize that Gemini TVs were made in the United States, so in
early 2009 the company felt it was in a financial position to begin advertising this point heavily in TV spots.
Previously, its advertising was limited to funding product ads in store flyers.

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CHALLENGES
• Venture capitalists funded Gemini’s start-up with a number of rounds of financing beginning in fall 2002, and by
late 2004 they had accumulated a 45 per cent equity stake.

• After just three years, the decision was made by the venture capitalists to take the company public in an IPO.

• Wang owned the remaining 55 per cent of the company and was very concerned about losing control.

• Subsequent to the IPO, the company adopted a policy of paying no dividends and financing all growth with debt; no
new common shares would be issued.

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GEMINI FINANCIALS
• Gemini had a $500,000,000 line of credit with Wells Fargo Bank to finance seasonal variations in net working
capital — the loan had to be 200 per cent secured by inventory and accounts receivable. All land, plant, equipment
and some patents were financed with term loans.

• These loans were negotiated with a number of banks so Gemini could diversify its funding sources. To comply with
the line of credit and term loans, the current ratio had to be kept above 1.5.

• All inventory purchases were on terms 2/10, Net 60, and most suppliers charged interest at 12 per cent per annum on
any overdue amounts.

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GEMINI FINANCIALS
INCOME STATEMENT 2005 2006 2007 2008 2009
Sales 2,142,659,000 5,413,625,000 8,671,715,000 12,175,476,500 13,664,714,160
Cost of Goods Sold 1,323,957,000 3,120,000,500 5,032,513,200 7,886,796,000 8,974,149,576
Gross Profit 818,702,000 2,293,624,500 3,639,201,800 4,288,680,500 4,690,564,584
Operating Costs
Selling and Distribution 212,340,640 545,980,400 854,300,000 934,532,230 1,001,234,530
R&D 93,640,450 220,340,340 365,660,340 476,350,230 785,774,340
Administration 95,003,300 405,340,300 832,740,300 999,453,230 980,340,500
Amortization 81,414,429 122,465,588 187,929,165 288,216,088 394,440,051
Operating Profit 336,303,182 999,497,873 1,398,571,995 1,590,128,722 1,528,775,163
Interest 53,251,456 145,434,234 288,898,584 277,686,944 329,923,700
Earnings Before Taxes 283,051,726 854,063,638 1,109,673,411 1,312,441,778 1,198,851,462
Taxes 99,068,104 298,922,273 388,385,694 459,354,622 419,598,012
Net Income 183,983,622 555,141,365 721,287,717 853,087,156 779,253,450

INCOME STATEMENT
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GEMINI INCOME STATEMENT (Value: 000)

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BALANCE SHEETS 2005 2006 2007 2008 2009
Cash 310,630,300 790,419,373 1,437,227,573 1,366,526,361 1,413,474,400
A/R 316,972,950 758,988,750 1,201,094,250 1,328,523,975 1,503,560,340
Parts Inventory 253,578,360 607,191,000 960,875,400 1,062,819,180 1,201,345,530
WIP Inventory 26,789,180 45,354,460 66,650,675 75,640,210 89,575,400
Finished Goods Inventory 359,340,630 960,187,250 1,451,230,215 1,605,660,505 1,805,340,520
Total Current Assets 1,267,311,420 3,162,140,833 5,117,078,113 5,439,170,231 6,013,296,190
L,P,&E, Net 710,727,625 812,956,891 1,317,388,220 2,281,077,095 3,363,891,508
Intangibles 103,416,660 411,698,984 561,903,428 601,083,781 580,509,006
Total Assets 2,081,455,705 4,386,796,708 6,996,369,761 8,321,331,107 9,957,696,704
A/P 422,630,600 1,011,985,000 1,305,530,320 1,509,430,300 1,564,430,450
Current Portion of LT Debt 147,920,710 341,394,916 607,184,919 651,847,287 785,532,620
Total Current Liabilities 570,551,310 1,353,379,916 1,912,715,239 2,161,277,587 2,349,963,070
Long-term Debt 739,603,550 1,706,974,582 3,035,924,595 3,259,236,437 3,927,663,101
Shareholders’ Equity 771,300,845 1,326,442,210 2,047,729,927 2,900,817,082 3,680,070,533
Total Liabilities and Equities 2,081,455,705 4,386,796,708 6,996,369,761 8,321,331,107 9,957,696,704

BALANCE SHEET
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GEMINI BALANCE SHEET (Value: 000)

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 SALES ANALYSIS 2005 2006 2007 2008 2009
TV-LCD
Unit Price $1,640 $1,485 $1,425 $1,250 $1,070
Unit Cost $950 $835 $819 $810 $702
Quantity 250,000 2,620,000 4,889,600 8,560,300 11,230,388
TV-Plasma
Unit Price $1,340 $1,100 $1,000 - -
Unit Cost $850 $700 $646 - -
Quantity 1,080,000 830,000 530,400 - -
DVD-HD
Unit Price $250 $240 $225 $180 $140
Unit Cost $145 $134 $125 $120 $112
Quantity 240,000 1,400,000 2,010,000 1,400,000 350,000
DVD-Blue Ray
Unit Price - - $275 $220 $185
Unit Cost - - $175 $161 $138
Quantity - - 330,000 1,580,000 2,890,000
Cable Sets
Unit Price $105 $100 $100 $95 $95
Unit Cost $45 $45 $43 $40 $41
Quantity 245,600 399,400 854,300 1,298,700 1,654,200
Home Theatre
Unit Price $570 $570 $570 $550 $520
Unit Cost $350 $355 $355 $350 $335
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Quantity 350,300 410,500 956,500 1,367,500 1,745,000
 Industry Averages Vertical Analysis (%) Vertical Analysis (%)
Key Financial Ratios 2009 Income Statement 2009 Balance Sheet 2009

Current Ratio 2.84X Sales 100.00 Cash 4.54

Cash Ratio 0.05X Cost of Goods Sold 62.00 Accounts Receivable 8.34

Parts Inv Turnover in Days

32.26 days Gross Profit 38.00 Parts Inventory 5.48
WP Inv Turnover in Days 7.89 days Operating Costs WIP Inventory 1.34

FG Inv Turnover in Days 188.33 days Selling and Distribution 10.89 Finished Goods Inventory 31.99

A/R Turnover in Days 30.44 days R&D 7.01 Total Current Assets 51.69
Land, Plant & Equipment,
A/P Turnover in Days 11.11 days Administration 8.34 41.34
Net
Cash Conversion Cycle 192.81 days Depreciation 4.35 Other Assets 6.97
Fixed Assets Turnover 2.42X Operating Profit 7.41 Total Assets 100

Total Assets Turnover Debt Ratio 1.00X Interest 2.31

0.50X Earnings Before Taxes 5.1 Accounts Payable 11.23

Times Interest Earned 3.21X Taxes 1.79 Current Portion of LT Debt 7

Gross Profit Margin 38.00% Net Income 3.32 Total Current Liabilities 18.23

Operating Profit Margin 7.41% Long-term Debt 31.5

Net Profit Margin 3.32% Shareholders’ Equity 50.27

Return on Assets 3.32% Total Liabilities and Equities 100

Return on Equity 6.60% 17

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