Financial Instruments and Markets: A Casebook

23

DigaMem Inc.

At the end of the day on January 15, 1998, Brad Simpson, the president and CEO of DigaMem Inc., sat in his office at the corporate headquarters in San Jose, California. On his mind was the $27.3 million his company needed to continue its research and production. On his desk was a pile of messages, the returned calls and e-mails from various bankers and large-scale investors. The collective message of the stack had a grim theme and had confirmed Simpson's suspicion: DigaMem was, once again, in a financial crisis. Fortunately, Simpson had seen DigaMem through hard times before. With the future of the company's semiconductors looking brighter than ever, he felt confident that this situation was only another bump on the road to stable profitability. Factories overseas were preparing to produce millions of DigaMem's chips to serve as memory components for devices ranging from air-bag controllers to Smart Cards. Companies were quickly developing new products to take advantage of DigaMem's promising technology. On the other hand, the company's loans were approaching maturity, and market conditions for new financing were worsening. Traditional sources of funding for the company were drying up. The company needed an influx of capital fast and, in this extreme environment, it would have to bend to meet investors' terms.

THE SEMICONDUCTOR INDUSTRY¹

Types of Chips

Semiconductor chips were electronic components made of materials that shared insulating and conductive electrical ...