Sub-Micron Devices Inc.

When an in-house manufacturing division of a high-tech company is asked to supply computer chips to an external customer, should it accept the offer?
Tim Baldenius, Stefan Reichelstein  | Spring 2010
Accounting
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In 1996, the ASIC division of Sub-Micron Devices received an inquiry from a potential customer: could ASIC produce 3 million custom chips a year, at a price of $40 a chip, for Western Digital? ASIC had started as an in-house supplier for Sub-Micron's system division, but began selling to external clients in the late 1980s to take advantage of its excess capacity - a move that changed ASIC from a cost center to a profit center. This case gives the perspective of ASIC's controller and his assistant as they discuss the merits of Western Digital's proposal, and asks students to decide whether the offer should be accepted.

Case ID: 100101

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