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The following case has been provided for the Intra-NSU Qualifications of Corporate Gladiators 2016.
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FRAN K V. CE SPEDE S
AL ISA ZAL OSH
Cilkray Graphics
In late November 2013, Marcus Crosby, president of Cilkray Graphics, convened an emergency
meeting with the firms senior managers in order to respond to an unexpected development. Cilkray
sold three lines of specialized graphics processing units (GPUs). Each line targeted a segment of the
professional1 market for Hosted Virtual Desktops (HVDs).2 Grovex, Cilkrays key competitor, had just
announced the competitive products, including Cilkrays most advanced product line, the CP3000.
Industry rumors suggested that the GSpeeds price would be 20% to 30% below that of the CP3000.
Crosby and his team saw two options: Cilkray could drop the CP3000s price immediately. It could
also delay its planned release of its new CK300, scheduled for December 2013, in order to make its
products more competitive. Crosby and his team had to decide what Cilkray should do next.
1 The GPU professional market generally demanded greater software and hardware capabilities to support engineering while
Cilkray Graphics
GPUs were parallel processors that operated in tandem with CPUs and executed most graphics
processing demands. They freed CPU memory and increased a computers overall performance. GPUs
were widely used in graphics-intensive industries, including entertainment (e.g., for animation and
special effects), life sciences (e.g., for simulations), industrial design (e.g., for 3D modeling in the
automotive, air, and space industries), and video gaming.
Memory, as measured in gigabytes (GB). The more gigabytes, the more computing commands
the processor could receive and store simultaneously.
Processing Speed, as influenced by the number of cores within a processor. A processing core
was responsible for reading commands given to a computer, and for translating them into
computing actions. More cores within a processor increased performance.
As the use of virtual networks expanded, organizations needed to purchase more computer
hardware, thus introducing other criteria for evaluating products. For example, hardware components
generated heat and had to be stored in a climate-controlled environment. As the costs for storing and
cooling hardware increased, IT managers began to value hardware that lowered size and heat output.
4 Cloud computing refers to shared computer resources stored on remote servers and the software networks that allow multiple
Cilkray Graphics
Concurrent user capability: the number of workers simultaneously supported by a single GPU
Physical unit size: smaller units reduced storage costs
Heat dissipation: embedded self-cooling capabilities reduced cooling costs
Server compatibility: the ability for products to work seamlessly with a clients servers
Power efficiency: reduced power consumption lowered operating and heating costs
Product Evolution
In analyzing market segments, the Cilkray team had learned that processing requirements varied
between industries and job functions. A marketing manager for a financial services firm, for example,
needed only one-third of the processing power required by an auto design engineer. Crosby explained:
We could have produced one, flexible product line to serve all industries and job functions, but
only clients with the most sophisticated graphic programs would be able to afford it. We divided
the prospective market into three professional segments and imposed a memory/speed ceiling
on each segment, with improvements in new releases at a rate reflecting Moores Law. 5 In turn,
we configured our R&D to focus on each segment and our manufacturing in small-batch
processes geared to each segment. Our competitors have upheld our vision of the market.
In early 2011, the Cilkray team predicted that the market for lower-end products, those targeted at
Task workers (see Exhibit 4 for definitions of Task, Knowledge, and Power) segments, would plateau
and decline as GPUs became standard in low-end laptops and desktops. By late 2011, Cilkray therefore
shifted its focus away from Task products to the more complexand more profitableKnowledge
and Power markets. While it still sold Task products in 2013, the company predicted sales in this
segment would plummet by more than 60% by 2014. Crosby noted, We believe the low-end Task
segment will commoditize, and as a tech leader we want to devote our resources to the higher-end and
higher-margin segments (Exhibit 5 shows Cilkrays 2013 revenue and profitability by segment).
Product Development
A single product upgrade for a customer segment took engineering from three to six months,
depending on its complexity. Such upgrades accounted for most of Cilkrays R&D expenditures. At a
company meeting in June 2013, Crosby said:
5 Moores Law refers to a prediction made by Gordon Moore, cofounder of Intel, that processing speed would double roughly
Cilkray Graphics
We believe in the growth opportunity in the Power segment, as 3D modeling advances and as
remote access becomes widespread across industries and functions. Fortunately, our Power
product is best-in-class, as evidenced by the GPU Industry Associations coveted Industrys Best
award granted to us earlier this year for CP3000.
Our sales focus through years end will be to leverage the CP3000 to increase our market share
in Power. Our engineering team will upgrade the performance of our Knowledge product,
CK200, in anticipation of upcoming improvements to Knowledge products. We plan to launch
the improved CK300 in early December, 2013, so we have three months to deploy and distribute
it before the industry conference in March 2014. In addition to boosting memory and speed, it
will slightly reduce heat output and push compatibility from 60% to 75%. We will incorporate
those advances into the CK300 release in December.
The companys vice president of engineering, Lawrence Barrett, commented: Our improvements to
cooling and compatibility for the CK300 came too late. They should have come in 2012, before our
competitors were able to do so. Our focus on memory and speed contributed to our success, but led us
to be reactive in other important metrics.
Product Distribution
Cilkray employed both direct and channel sales efforts to distribute its products globally. Its inhouse GPU sales teams sold directly to customers. Yet, given the fragmented nature of the end market,
the range of capabilities required, and capacity constraints, it also relied on channel partners. These
included small independent shops, leading global IT consultants such as Accenture and IBM, and
various hardware and software providers. The larger players offered distribution, pre-sale, and aftersale support capabilities. In general, manufacturers with less complex products relied more heavily on
channel partners than they did on direct sales channels to sell their products. Typically, the sales cycle
lasted between three and six months and included installation and post-installation support.
Cilkray also authorized distributors to sell its products; these partners sold the companys products
as part of their own product and service portfolios. Both types of channel partners, IT firms and
authorized distributors, managed the installation of new computer hardware and educated their clients
on how to run and maintain these systems. Cilkray required its channel partners to keep current on
new product releases and to participate in quarterly conference calls that announced updates and
product developments. It also discounted products sold to channel partners by 35%.
By 2013, all of Cilkrays GPUs earned high industry and customer ratings for post-installation
performance and reliability. However, a third-party survey of IT managers and partners revealed that
many customers, especially within the Power segment, believed that Cilkrays products were
unnecessarily complex and time consuming to install. Numerous partners contended that they would
be more inclined to recommend Cilkrays products if they were more user-friendly, especially in terms
of installation. Cilkrays engineers disagreed with these criticisms. Barrett explained, Im sure these
complaints come from clients and channel partners who fail to leverage our great training.
Cilkray Graphics
Table 1
Manufacturer
Cilkray
Grovex
XLRush
Product Name
Memory
Limit
(GB)
CT30
CK300 (planned)
CP3000
GK250
GSpeed3000
XLK450
XLP1000
8
16
32
16
32
16
32
Processing
Speed
(Cores)
400
700
1,120
600
1,450
800
1,000
Heat Output
(Watts)
400
500
600
400
500
550
500
Size
(Inches)
16
14
16
13
12
15
16
Price
$2,000
$4,000
$8,000
$3,400
$5,600-$6,400a
$4,600
$8,000
Grovex
Grovex, a manufacturer of computer processors, based in Raleigh, North Carolina, was the leading
vendor of processors for manufacturers of low- to mid-range desktops and laptops. Its CPUs provided
average reliability at a reasonable price. With pricing typically 10% to 15% lower than that of its
competitors, the company had a wide distribution network made up of hundreds of IT consultants and
third-party resellers.
The manufacturer produced its first standalone GPU in 2009, to add basic graphic and video
support for low-end computers in the Task segment. It introduced its first GPU in the Knowledge
segment in 2010; and its stated goal for the Knowledge segment was to enhance virtual processing for
small businesses through remote collaboration and graphics processing. Grovexs products were
simple for end users to install, and were compatible with most server infrastructures. By 2013, the firm
held 65% of the global Task market. Its manufacturing process was configured for mass production,
and its share in this segment supported the scale required for its production approach.
XLRush
In 2013, XLRush was Cilkrays main competitor in the Power market, with 43 percent of global
market share. Headquartered in South Korea, XLRush had focused mainly on supplying Asian
technology firms. In 2012, the company launched a Knowledge product, the XLK450, to supplement its
Power product. XLRushs products were compatible with 25% of server infrastructures. Its effort to
expand geographically in 2012, however, had failed. Prior to the GSpeed announcement by Grovex,
Cilkray had focused on preventing XLRushs penetration of new industries and geographic markets.
Cilkray Graphics
eventually trade up to higher-performance segments, but did not expect it to have anything
significant now. Wed thus planned our next Knowledge releasethe CK300for December,
with the price unchanged. I did not think Grovex could develop a Power product until at least
2015, and not for less than $7,000. The GSpeed will likely be closer in price to our CK300 than it
is to the CP3000. Product cycles in this industry are relatively short, but engineers at Grovex
made technology breakthroughs in materials and circuitry in an extremely short time.
Scenario 1
Scenario 2
CP3000
Price
GSpeed
Price
Estimated
Cilkray
Market
Share
Loss
$8,000
$8,000
$6,400
$5,600
30%
60%
Should we lower the price of one or both products (for Knowledge and Professional markets)
and, if so, by how much?
Should adjustments to price be made in advance of, or after, the GSpeed release?
Cilkray Graphics
Should any reductions in price be made globally or only in selected markets? Historically, some
channel partners report different reactions to price in different markets. For example, in Europe
and some other non-U.S. markets, they say that sales support and customer service are often
more important than price.
What other steps might we take besides (or in addition to?) price adjustments in order to reduce
any potential losses in market share?
Option 1: Stay the CourseContinue with the planned releases of the CK300 and the new improved
CK200 for Knowledge in December. Nina Collins (Cilkrays VP of sales) reported $5.6 million in
advance orders from the internal sales force and through resellers. Based on advance order
rates, Nina projects CK300 sales will increase revenues by 25% in 2014.
Option 2: Platform Up Launch improved and more competitive CK300 in March 2014. We can
postpone the launch of the CK300 in order to reduce heat further and improve compatibility so
that those metrics match those of the GSpeed. Im 75% confident that this approach will add
only three months to the CK300 launch schedule, although it will delay delivery to pre-order
clients. This platform will still not match GSpeeds memory, speed, and simultaneous users. We
should enhance sales support and customer service efforts if this approach is employed.
Option 3: To the Wall Beat Grovex by June 2014. We can accelerate development to compete
directly against the GSpeed, but doing so will require at least six months of engineering support,
valued at roughly $10 million. The team can advance heat reduction and cooling solutions, but
Im less confident in our ability to reduce unit size, which is important because smaller units
reduce storage costs. And, Im only 60% confident that we can achieve memory and speed
performance that equals that of the GSpeed. Again, this path will require 100% of engineering
resources for the next six months. All engineering work on the CK300 and other projects, like
support for custom product applications for direct and channel accounts, will cease. We would
not launch the CK300 in December, and the new product might not be ready by June 2014.
Cilkray Graphics
Exhibit 1
Year
Units Shipped
2010
2011
2012
2013 (Projected)
2,600
7,200
25,200
102,845
Exhibit 2
2013
Unit
Share
Forecasted
Growth
Rate 1318
Product
Prices
(2013)
Characteristics
Sample Industries
and/or Functions
Task
Financial, basic
technology, education,
government, health care
59%
76%
0.8%
$1,500
$2,500
Knowledge
Graphic design,
marketing personnel,
engineers, and architects
33%
21%
12.3%
$3,500
$4,500
Power Users
Supercomputing and
scientific research
Game developers, 3D
modeling, scientific
modeling, animation
8%
3%
50.2%
$6,000
$8,000
Segment
Exhibit 3
2013
Revenues
Manufacturing Costs
Marketing
R&D
Depreciation
$ 32,701,892
$ 17,967,098
$ 1,981,057
$ 6,867,397
$
981,057
$ 46,763,706
$ 25,122,949
$ 3,402,911
$ 9,820,378
$ 1,402,911
$ 4,905,284
$ 7,014,556
Cilkray Graphics
Exhibit 4
Product Name
Target Market
Performance
Price
CT30
Memory: 8GB
Speed: 400 Cores
Simultaneous users: 610
$2,000
CK300
Memory: 16 GB
Speed: 700 Cores
Simultaneous users: 816
$4,000
CP3000
Memory: 32 GB
Speed: 1,120 Cores
Simultaneous users: 48
$8,000
Source: Case writer estimates derived from comparable software company financials
Exhibit 5
Segment
Task
Knowledge
Power
% Units
8,682
5,822
1,688
Total
% Revenues
54%
36%
10%
Gross Margins
23%
54%
23%
32%
43%
44%
Market
Share
11%
26%
56%
Projected
Annual Unit
Growth Rate
0.8%
12.3%
50.2%
16,192
Exhibit 6
Market Share
Total Units
Task
Knowledge
Power
Total
77,720
22,110
3,015
102,845
Cilkray
11%
26%
56%
16%
Grovex
XLRush
Othera
65%
50%
0%
60%
8%
43%
3%
24%
16%
1%
21%
Cilkray Graphics
Questions
1.
2.
3.
4.
5.
6.
Rules
This case has been provided to the students of North South University as their qualification for Corporate
Gladiators 2016 to be held in United International University. Please read the instructions carefully.
Solve this case and email your solution in a PowerPoint Presentation of Maximum 15 slides attached
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Deadline: 11:59 P.M. Friday, June 17, 2016
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Each of the team members name, NSU ID, contact number, and email address in a table with the
team leader on top
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