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Case #18
“NetLogic MicroSystems”
Stanford University Business Case E-94(June 2001)
Academic instructors who are registered with the publisher’s
website (http://www.hbsp.harvard.edu) may download the Teaching
Note E-94 TN (June 2001) for this case free of charge.
ABSTRACT
This case focuses on the challenges faced by a high-tech
startup company operating in a global setting. It addresses the
company strategies related to business growth, product
TEACHING OBJECTIVES
More skills than just technological know-how are required to
successfully lead a high-tech global startup company. This case
demonstrates clearly that leaders of technology-based companies
must be well versed in various management activities in order to
meet the encompassing challenges faced by global companies in the
SUGGESTED QUESTIONS FOR CLASSROOM DISCUSSION
1. In your opinion, what are the strengths and weaknesses of
NetLogic Microsystems so far as strategic planning is concerned?
2. Do you agree with the marketing and sales strategy adopted by
the company, and why or why not?
3. What do you like or dislike about the company’s financing
strategy? What would you do differently if you were its Chief
Financial Officer (CFO)?
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ANALYSIS
1. In your opinion, what are the strengths and weaknesses of
NetLogic Microsystems so far as strategic planning is concerned?
Strategic planning involves setting the future direction of
the company, in such a way that is consistent with its values,
What has not been clearly defined by the company is what it
would take to be able to go public successfully. Examples of such
criteria may include: (1) overall market size and growth rate, (2)
total number of design wins registered, (3) company sales per
Based on the case materials available, the company appears to
have conducted neither no external benchmarking nor industry or
market analysis. It is thus not known how large the market size
and growth rate are likely to be in the next 5 to 10 years for
the search chips on the Data Plane. This could become a serious
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customer’s input becomes a critical factor affecting the
commercial success of NetLogic Microsystems. In spite of this
understanding, the company does not have a well-planned strategy
on how to systematically get customer feedback other than by
The company is unique in its corporate strategy in that it
went global at the very start. It outsourced silicon
manufacturing to two foundries in Taiwan where it also teamed up
with a third firm in software programming. It also pursued sales
2. Do you agree with the marketing and sales strategy adopted by
the company, and why or why not?
Marketing management involves the strategies related to
product, price, distribution and promotion.
Product strategy defines the products, the specific features,
and the performance level of the products the company should make.
It also specifies how these products are to be made, either in
house or by contract manufacturers, as costs, time to market and
A pricing strategy addresses the method of pricing products.
Based on information available from the case materials, NetLogic
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Microsystems has no advantage or disadvantage in its product
price. For systems involving new technology, product features
such as reliability and technical performance are in general more
critical to customers than price. Still, the company needs to
know whether some of their global customers are price sensitive
and how the company can confer additional competitive advantages
in product pricing.
The company’s products must be sold beforehand in order to be
designed into a customer’s system. Thus, the company’s commercial
success is largely controlled by the “design wins” it can secure
and the bottleneck appears to be the selling activity upfront.
Its indirect distribution strategy denotes a constraint in the
sales process and switching the distribution strategy from one
that is indirect to one that is direct may be needed for Netlogic
Microsystems to overcome this constraint. As no sales data is
available for the global regions, it is impossible to evaluate
the relative effectiveness of the sales efforts that are
currently applied.
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3. What do you like or dislike about the company’s financing
strategy? What would you do differently if you were its Chief
Financial Officer (CFO)?
The company’s financing strategy typically follows that of
most start-up companies in that the founder contributes most of
the needed initial capital to prove the concept, then private
venture capital is solicited to complete the pre-commercial
development stage, and finally institutional capital is sought to
proceed with the commercialization.
Godinho put up the initial capital to get the company started.
The first institutional capital venture of $14 million consisted
One year later, the company secured another institutional
capital of $18 million at a valuation base of $100 million. While
the increase of company valuation from $30 million to $100
million speaks favorably for the company, the capital of $18
million raised was a disappointment as it lasted for only another
11 to 12 months; this was not sufficient to reach the projected
IPO date in 2002. The secured venture capital at a somewhat less
than desirable level can be interpreted as a sign of weak
confidence in the company on behalf of private venture sources.
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Obviously, the cash on hand should be economized as much as
possible. Certain measures such as (1) forgoing the capital
investment placed in AsianCo for now, (2) delaying the hiring of
some permanent systems engineers, (3) retaining a group of
qualified temporary employees, and (4) trimming some of the 60
employees of the company should be
considered.
4. Is the technology strategy of the company compatible with its
business strategy? Please elaborate.
During the early development phase, the company was focused
on developing a silicon-based search engine solution to perform
high speed packet forwarding and classification routines in
This change caused the company to take a riskier and more
vulnerable path as its product line had now been drastically
narrowed, even though it continued to pursue a segment projected
to enjoy a high growth rate. The results of company valuation, as
defined by the second round of institutional venture capital,
appeared to support the validity of this new corporate strategy.
5. Why did the company’s organizational structure experience a
major change in the years 2000? Was this change conducive to the
attainment of the company’s strategic goals?
Every start-up company goes through a number of corporate
phases. Initially, technical entrepreneurs with unique skills
development. Then, persons with strong business management
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6. Name three of the most urgent tasks the company should
accomplish in the next 1 to 2 years.
For NetLogic Microsystems, there is only one measure for its
corporate performance in the near term: successfully going for
IPO in 2001.
The company should pursue the three tasks enumerated below:
(1) contact potential underwriters to secure a set of IPO