Dti Case Analysis

1.        DECISION MAKER:

We are looking the case from the perspective of DTI’s CFO, George Bell.

2.        PROBLEM:

DTI want to capitalize the opportunity to install RFID readers which requires an infusion of capital of $15-$20 million. The CFO of DTI needs to figure out the suitable method to raise capital. The CFO is trying to raise capital by either equity offering or by warrants.

3.1        SIZE-UP

As a pre-revenue company it does not have enough revenue generating contracts and was still trying to secure a base for recurring revenues. This uncertainty in revenues shows that DTI may not have sufficient cash flows to service required amount as debt. DTI was unable to provide prospective debtors with fixed collateral as security for a loan.

3.2        PRODUCT

DTI once offered both RFID tags and readers, in 1999, the company focused on the readers only.

3.3        FINANCIAL MANAGEMENT

Liquidity:

The liquidity indicates an asset or security can be bought or sold in the market without affecting the asset's price. We can evaluate company’s liquidity by calculating its current ratio and assets liability ratio (Appendix 1).

Profitability:

• From the exhibit 4 we get that the company is not profitable so far.
• With the growth of the industry, DTI has opportunity to get a positive net income in 2004 as expected.

Financial Capacity:

3.4        ENVIRONMENT

• RFID was a rapidly growing segment among the overall automatic identification and data-collection industry.
• It is expected that RFID solutions would become widely adopted in North America by early 2005.
• Cost issue. The largest cost issues, potentially reside in the required size of the database, their integration with a company’s current systems and the effective transmission of information.
• Resistance from suppliers and manufacturers (18m hard work + 15-18m).
• Cost of capital of 12%, could lose up to 155m in 10 yrs.

4.        SWOT ANALYSIS

Strengths:

• DTI had developed the first RFID reader that was able to read a variety of tags at different frequencies.
• Close relationships with several technology providers in the RFID space. (i.e. ETVG, who owned 28% of DTI)
• DTI was well positioned to capitalize on an imminent surge in RFID demand.

Weaknesses:

• Limited revenue on readers
• Suffering loss for the past few years

Opportunities:

• DTI was well positioned to capitalize on an imminent surge in RFID demand.
• Potential market of RFID

965m in 2002 (exhibit 6, segmentation), (RFID readers: 240m)

3.5b in 2008 (RFID readers: 800m)

Retail Supply Chain: DTI’s core markets, 91m in 2003 to 1.3b in 2008