SWOT Analysis of Psion Plc - Case Study Example

14-05-2007 Psion Plc. Overview: Psion is an international business organization with s in more than 80 countries and over 37 sales and support offices in 17 countries. At the end of 2006 there were 1,176 employees and contractors around the globe. Some 65% of employees were engaged in field activities including sales, technical support, sales administration and service and maintenance. The Group has a strong engineering and development activity, mainly in Canada, which accounts for a further 17% of the employees. The present business of the Group arose from the merger in 2000 of Psion's existing enterprise business with Teklogix Inc, then a quoted Canadian business, to form Psion Teklogix. Psion is estimated to be the third largest supplier in its chosen markets on a global basis. In certain territories such as France and specific market sectors, for example, ports, the Group has the leading position. The principal activities of the Group are providing mobile enterprise computing solutions, integration services and product support and maintenance to customers worldwide. The company has leading expertise in engineering, integration and ergonomics and design and delivers these high quality and rugged mobile computers to best-in-class standards. The Group provides enterprise solutions for the mobile work forces of larger corporations. Solutions require the implementation of complete systems including robust mobile computers, wireless networks, and automatic data recognition equipment and integration software. Psion produces mobile computing solutions, which delivers real-time access to enterprise data at the point of activity to improve business efficiency and productivity for leading enterprise around the world. Company has leading expertise in rugged hardware, integration, service and support. Strength: Psion has particular strengths in two major sectors: managing logistics in factories, warehouses and ports with local area networks; managing information for dispersed field forces over wide area networks. Core value to it's customers resides in the ruggedness and reliability of Psion products in often demanding environments, in the specialized knowledge of customer requirements and in the ability to supply, service and support its customers globally, is the main stay of the company in the global market. Company's strength includes Innovation in technology and in its products will continue for many years as a driver of productivity growth for customers. Company has leading expertise in rugged hardware, integration, service and support. Company's aim to leverage its reputation and brand to develop strong business relationships based on the quality of its offering, and proven ability to address customers' operational and logistics challenges, while delivering a strong return on investment for their businesses. The Group is in a good strategic position and has a strong management team that is well placed to target long-term growth with satisfactory returns to shareholders. The Group's range of hand held and vehicle mounted computers and wireless access points are designed for particular markets and applications are the main products and its main strengths. The principal design criteria include functionality; ruggedness and cost effectiveness has been the strengths of Psion. . Products are updated or replaced periodically, typically every 3-4 years. However, a customer may continue to use a device for many years and the Group provides maintenance programmes to continue the life of the product in use for as long as practicable. High volume terminals are designed to be highly configurable through the use of modular components or customizable where the terminal may have parts specifically incorporated solely for a particular customer. Company's ability to provide customers with a complete and distinct solution through hardware customization and the inclusion of third party products is one of the factors, which distinguishes it from its competitors and remains its strengths. Most field-based employees work from local offices in their territories as this promotes strong teamwork between sales people and their technical colleagues. Customers need good after sale service and support during the working life of their installation. A key part of its strategy is to provide superior repair, maintenance and support through the network of service centers. The company has strong HR policies, which motivates employees and enhances productivity. The Group has employee appraisal schemes in place that facilitate the review of employees' performance with their managers and which seek to identify training and development needs and opportunities. Confidential employee surveys are conducted periodically to enable employees to comment on all aspects of their work including their environment and job satisfaction in a confidential manner. A formal whistle-blowing procedure has been adopted to allow employees to raise any concerns in confidence that they may have about the conduct of their colleagues or senior management. The Group runs a number of recognition schemes for long-service employees and those who individually or in teams have made exceptional contributions in their work. Weaknesses: Apart from such strengths, company has developed certain weaknesses during the process. Last year company's profits had come down drastically despite increase in business. Operating profits and margins were not satisfactory though a much better performance was achieved in the second half. Gross margins in the year were 42.4% (2005 - 45.8%). Continuing operating profits (excluding re-structuring charges and the charge for share-based payments) were 9.2m (2005 - 9.0m), but after restructuring costs of 1.6m and other operating exceptionals, operating profits were reduced to 6.5m (2005 - 8.0m). After investment income and finance costs, profits before tax were 7.6m (2005 - 10.5m). The working capital of the Group was not effectively managed. Net working capital as a percentage of annualized sales in the preceding three months deteriorated from 11% in 2005 to 17% in 2006. The total outflow of working capital in the year of 18.6m was larger than justified by the growth of the Group. Procurement, assembly and the supply of product to its customers were not as efficient and cost-effective as they should be. Normally a significant proportion of company's spending on engineering is for new product developments, including enhancing existing products. In the second half of 2005 and the first half of 2006 company had to divert much of its engineering resource that would have delivered new product developments to re-designing our current products to meet the requirements of new EU regulations on the use of hazardous substances (known as RoHS) that have applied to sales of equipment in the EU since 1 July 2006. This was a very substantial undertaking - using approximately 34% of the available engineering hours in the first half of this year. Wherever it was practical and cost effective company enhanced its product specifications at the same time. While this project was successfully completed, it caused an interruption in the normal flow of new products. However, following the introduction of the re-designed products, engineers have been able to go back to work on designing new products. So these incidences shows company's weakness towards proper risk management abilities and future planning. Company is working in the area where technological changes and adoption is very fast and reputed and established brand names are in the field always pressurize and hit on this weakness. In 2006, the Group encountered problems in its supply chain and operations (planning, procurement, manufacturing and delivery). High rates of growth in 2004 and 2005 and staff changes led to higher costs and delayed deliveries to customers. Company lacks in improving operations management and reducing product costs. Company sell products that they design themselves but also third-party products such as printers or highly specialized tablet computers. Any change in mix between their products and third-party products affects average margins because company achieves a higher gross margin on its own products than on third party products. On such a vital issue company do not provide any further analysis of product margins, as this is commercially sensitive. The proportion of hardware revenue represented by third-party products was 14.8% in 2006 compared to 15.0% in 2005. Threats: Basically Psion is in such industry where threats always exist. The Group may be affected by step changes in technology or by rapid market acceptance of new technology solutions, which may render its current products, and solutions obsolete or uncompetitive. It may not anticipate all changes or may have insufficient resources to keep pace with developments. The Group's products are complex devices, which must perform to their specifications in arduous environments. Products may contain many hundreds of components each of which must be specified and designed into the product even if the product is supplied as a complete device from an electronic manufacturing services (ems) provider. Failure to manage the Group's supply chain well could lead to adverse financial consequences. The Group operates in markets and industries that are subject to specific regulations that govern the way that its business must be conducted. Recent examples include new EU regulations on the use of certain substances in electronic products and the disposal of waste electronic equipment, known as the WEEE Directive. Such regulations could adversely affect profit by increasing the costs of the Group either permanently or during the period of transition to the new regulations. Psion participates in the Automatic Information and Data Capture industry in the segment providing rugged mobile computers. Market surveys show Psion as the third largest Group in this market in which there are many competitors around the world. Products are available that compete directly or indirectly with Psion's products. Industry consolidation and new entrants - more likely in the less rugged category - may adversely change the competitive environment. In recent years the number of patents being applied for by, and granted to, technology companies has increased dramatically. From time to time the Group has received claims from organizations claiming infringement of their intellectual property rights. Psion does not knowingly infringe intellectual property rights and claims are often without foundation. Psion has succeeded in settling or defending past claims at limited cost but it may face additional claims in the future. It is no longer possible to obtain insurance against accidental infringement. The principal financial risk facing the Group relates to movements in exchange rates. The Group derives most of its revenues from currencies other than Sterling, principally Euro and US Dollars. Expenses are denominated principally in US Dollars, Euro and Canadian Dollars. Fluctuations in exchange rates between these currencies relative to Sterling may cause fluctuations in the financial results of the Group. The major risk in the coming years is a downturn in financial markets, which can adversely affect business investment. In the era of globalization and revolutionaries changes in communication technologies future is unpredictable as well as exciting. In future there may be numerous disruptive technologies may be developed or invented and which may have adverse affect on the company In anticipation to such condition company has to analyze the situation and must have contingency plans. Competitors of Psion are well known and established brand name companies like@pos.com; Handspring Inc.; Hewlett-Packard Corporation; Kontron Mobile Computing AG; LG Group; Minorplanet Systems Plc; National Datacomputer Inc.; NCR Corporation; Palm Inc.; Philips Electronics NV; Research In Motion Limited; Wyse Technology Inc., which are leading companies in their areas. They have brand value also. They are posing real threat to Psion. Opportunities: As we know that number of wireless communication device users basically mobile Internet users are increasing many folds. Industries as well as individuals using these facilities to improve their efficiency and productivity shows that Psion have great opportunity to grow enormously. The Group provides enterprise solutions for the mobile work forces of larger corporations. The demand for solutions of this type is widespread in the world both geographically and by sector. Demand in both WAN and LAN sectors has been good during the year. It is driven by long-term trends of globalization with more distributed field forces and distributed supply chains. These solutions drive productivity improvement for our customers and the long-term outlook for the automation of information 'in the field' is sound. Psion intends to grow organically in this important niche market but will look at acquisitions where they enhance value. The strategic opportunity for the Group in its markets is sound and durable. The Group provides enterprise solutions for the mobile work forces of larger corporations. Solutions require the implementation of complete systems including robust mobile computers, wireless networks, and automatic data recognition equipment and integration software. The demand for solutions of this type is widespread in the world both geographically and by sector. Security markets where there is an emerging need for hand held computers in personal identification applications such as passport reading or biometrics is an area, where opportunity for the company lies. Company's position in the Americas and especially the USA is relatively weaker than its position in Europe and company is continuing to develop sales processes in the Americas to accelerate growth there. So Psion have the great opportunities to grow in future in terms of its products requirements, customer's needs, market potential and positioning and company's technological, financial and inherent skills of its manpower strengths. Strategies: The Group is subject to risks and uncertainties relating to its future business, which might affect the financial performance of the Group. The management has to implemented systems to identify risks, to assess them and to ensure that reasonable mitigation plans are in place. Psion should minimizes the risk posed by the rapid changes in technology or by rapid market acceptance of new technology solutions which may render its current products and solutions obsolete or uncompetitive, by monitoring competitor activity and through improved research and development activities. Psion has outsourced component manufacture for many years and has successfully outsourced the complete production of the Work about Pro product. However, more key products will be outsourced to cut down the production costs drastically. In 2006, some 60% of hardware sales were made directly to the customer. The direct sales force is supported by pre-sales technical analysts in delivering the solution for the customer. The company to forge a long-lasting relationship with the customers should promote direct sales activities. References: 1. Psion Plc. Annual Report And Accounts (2006) available on the website www.psion.com [accessed on 13th May 2007]. 2. Information about Psion Plc. Available on website http://www.computerwire.com/home/search/new.asp [accessed on 13th May 2007]. 3. Information about Psion Plc. Available on website http://companies.jrank.org/pages/3425/Psion-Plc.html [accessed on 13th May 2007]. Read More