Victor Yoarian, a wealthy individual who prefers to keep a low profile, recently purchased a 10% share in Teletech Corporation, a telecommunications company based in Dallas, Texas. He is now requesting to hold two seats on the company’s board of directors. Teletech Corporation describes itself as a provider of integrated information movement and management.
The firm had two primary business segments: Telecommunications Services, providing long-distance, local and cellular telephone service to business and residential customers; and the Products and Systems segment, engaged in manufacturing computing and telecommunications equipment. Margaret Weston, the Chief Financial Officer (CFO), is responsible for presenting to Yossarian the decision of whether to close the Products and Systems Segment, which represents Teletech’s entry into computer production.
The firm has achieved a 9.10% return on capital for the year 2004. The Products and systems represent only 3.4% of the net assets of $16 billion of Teletech Corporation, whereas the Telecommunications sector accounts for $11.4 billion. However, the company’s performance in the stock market and industry indexes for telephone, equipment, and computer stocks was unsatisfactory.
Securities Analysts have commented on the firm’s underwhelming earnings growth, specifically highlighting the rising competition in telecommunications and the disappointing performance in the Products and Systems segment.
Conclusion
What was the appropriate hurdle rate for both segments?
Teletech has two segments: Products and Systems and Telecom Services. Telecom Services, which is a basic necessity for both personal and professional use, will remain at low risk. The Products and Systems segment, on the other hand, carries higher risk due to its focus on new products.
Given the ongoing development and competition in the computer industry, it is prudent to enter this sector. Computers are indispensable for both work and entertainment in today’s society, despite the associated risks. However, these risks are necessary to achieve favorable returns. In 2004, statistics show that this industry yielded a profitable return of 11%. Given the current market trends, implementing appropriate strategies is likely to lead to further profit growth.
Was Yossarian convinced that the products and Systems segment was failing to meet expectations?
Despite not being a significant source of revenue compared to other segments, it is crucial for the company to prioritize the Telecommunications segment due to market changes. The telecommunication industry has advanced from voice telephony to live video conferencing, giving an advantage to telecommunication companies. Teletech can establish a competitive edge in this industry by providing consumers with a comprehensive package that includes the required hardware for accessing this technology.
What is the appropriate response by Teletech to the raider?
Teletech must present factual information, including statistical data and projected analysis, to support the decision not to close the segment. This should be supplemented with an examination of market trends and consumer behavior, particularly regarding the purchase of the entire package, including both services and hardware. By offering both components, Teletech can provide consumers with a one-stop solution for their needs.
