Pure play

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A pure play company is a company that focuses only on a particular product or activity. Investing in a pure play company can be considered as investing in a particular commodity or product of a company. [1]

Contents

Pure play firms either specialize in a specific niche, or have little to no vertical integration. For example, a coffee shop may call itself a "pure play" restaurant, and a factory that only produces goods (not design or sell to consumers) may refer to itself as a pure play manufactory.

Vertical integration When a company owns its supply chain

In microeconomics and management, vertical integration is an arrangement in which the supply chain of a company is owned by that company. Usually each member of the supply chain produces a different product or (market-specific) service, and the products combine to satisfy a common need. It is contrasted with horizontal integration, wherein a company produces several items which are related to one another. Vertical integration has also described management styles that bring large portions of the supply chain not only under a common ownership, but also into one corporation.

E-commerce companies are often referred to as pure play retailers, as they sell only through the Internet.

E-commerce is the activity of buying or selling of products on online services or over the Internet. Electronic commerce draws on technologies such as mobile commerce, electronic funds transfer, supply chain management, Internet marketing, online transaction processing, electronic data interchange (EDI), inventory management systems, and automated data collection systems.

Pure play method

In finance, the "pure play method" is an approach used to estimate the cost of equity capital of private companies, which involves examining the beta coefficient of other public and single focused companies. [2]

In finance, the cost of equity is the return a firm theoretically pays to its equity investors, i.e., shareholders, to compensate for the risk they undertake by investing their capital. Firms need to acquire capital from others to operate and grow. Individuals and organizations who are willing to provide their funds to others naturally desire to be rewarded. Just as landlords seek rents on their property, capital providers seek returns on their funds, which must be commensurate with the risk undertaken.

Equity (finance) difference between the value of the assets/interest and the cost of the liabilities of something owned

In accounting, equity is the difference between the value of the assets and the value of the liabilities of something owned. It is governed by the following equation:

In finance, the beta of an investment indicates whether the investment is more or less volatile than the market as a whole.

Here, when estimating a private company A's equity beta coefficient, the equity beta coefficient of a public company B is needed; the latter can be calculated by regressing the return on B's stock on the return on the relevant stock index. The following calculation is then applied to return the beta coefficient of company A.

Linear regression statistical approach for modeling the relationship between a scalar dependent variable and one or more explanatory variables

In statistics, linear regression is a linear approach to modelling the relationship between a scalar response and one or more explanatory variables. The case of one explanatory variable is called simple linear regression. For more than one explanatory variable, the process is called multiple linear regression. This term is distinct from multivariate linear regression, where multiple correlated dependent variables are predicted, rather than a single scalar variable.

Unlevered Beta of B = Equity Beta of B / (1 + DEB × (1 − Tax RateB))
Equity Beta A = Unlevered Beta of B × (1 + DEA × (1 − Tax RateA))
where DEA and DEB are the debt to equity ratios of company A and B respectively. [3]

Pure play foundries

Pure play foundries such as TSMC and GlobalFoundries are foundries who do not have any in-house design capabilities but only fabricate the Integrated Circuits (ICs) for fabless semiconductor companies such as Qualcomm, Broadcom, Xilinx, Nvidia and others. [4] In contrast, Integrated Device Manufacturer (IDM) foundries such as IBM, NEC, Texas Instruments and Samsung provides both foundry design services and ICs fabrication. [5]

TSMC Dedicated independent (pure-play) semiconductor foundry

Taiwan Semiconductor Manufacturing Company, Limited, also known as Taiwan Semiconductor, is the world's largest dedicated independent (pure-play) semiconductor foundry, with its headquarters and main operations located in the Hsinchu Science and Industrial Park in Hsinchu, Taiwan.

GlobalFoundries is an American semiconductor foundry headquartered in Santa Clara, California, United States. GlobalFoundries was created by the divestiture of the manufacturing arm of Advanced Micro Devices (AMD) on March 2, 2009, expanded through the acquisition of Chartered Semiconductor on January 23, 2010, and further expanded through the acquisition of IBM Microelectronics on July 1, 2015. The Emirate of Abu Dhabi is the owner of the company through its subsidiary Advanced Technology Investment Company (ATIC). On March 4, 2012, AMD announced they divested their final 14% stake in the company, which concluded AMD's multi-year plan to divest its manufacturing arm.

Qualcomm American global semiconductor company

Qualcomm Incorporated is an American multinational semiconductor and telecommunications equipment company that designs and markets wireless telecommunications products and services. It derives most of its revenue from chipmaking and the bulk of its profit from patent licensing businesses. The company headquarters is located in San Diego, California, United States, and has 224 worldwide locations. The parent company is Qualcomm Incorporated (Qualcomm), which includes the Qualcomm Technology Licensing Division (QTL). Qualcomm's wholly owned subsidiary, Qualcomm Technologies, Inc. (QTI), operates substantially all of Qualcomm's R&D activities.

Pure play E-retailers

Advantages

Compared to traditional retail stores, pure play e-retailers can serve a wider audiences without physical boundaries and distance. Pure play e-retailers target specific customer groups without the high cost of obtaining information from these groups. [6]

Disadvantages

Compared to companies that integrate both offline and online, pure online internet retails do not have brand recognition and reputation at the start-up stage so it lacks customer bases. In addition, pure plays' customers are unable to touch, examine and test real products before buying them. Furthermore, online shopping experience lacks human contact with consumers which is considered as an effective way to respond to questions, provide professional advice and motivate purchases. [6]

Pure play gets physical

Beginning in 2015, Amazon.com customers in mainland UK with pickup codes can get the order at collection lockers distributed in shopping centers and commercial blocks. [7] Amazon also opened its first physical stores Purdue University campus in Indiana in 2015. [8]

By 2015, Simply Be had sixteen physical stores. [9]

Net-a-porter Launched a pop up window shop and apply image recognition technology to enable customers to find video content of the clothes and the online shop. [10]

In 2015, Kiddicare, a childcare brand, announced plan to open 12 stores in the UK. [10]

Ocado launched a virtual shopping wall at One New Change, Birmingham's Bullring shopping center and Bristol. Customers can shop by using Ocado's “on the go” app to scan product's barcode on the wall. [11]

eBay opened an inspiration shop in New York in 2011. [12]

See also

Further reading

Related Research Articles

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In microelectronics, the foundry model refers to the separation of a semiconductor fabrication plant operation (foundry) from an integrated circuit design operation, into separate companies or business units.

Online shopping is a form of electronic commerce which allows consumers to directly buy goods or services from a seller over the Internet using a web browser. Consumers find a product of interest by visiting the website of the retailer directly or by searching among alternative vendors using a shopping search engine, which displays the same product's availability and pricing at different e-retailers. As of 2016, customers can shop online using a range of different computers and devices, including desktop computers, laptops, tablet computers and smartphones.

Ocado British online supermarket

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Wesfarmers Australian conglomerate

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Retail apocalypse Period in the 2010s where many North American brick and mortar retail stores have closed or struggled

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References

  1. Law, Jonathan (2014). Dictionary of Finance and Banking. Oxford: Oxford University Press Print Publication. ISBN   9780199664931.
  2. Cox, Larry A.; Griepentrog, Gary L. (1988). "The Pure-Play Cost of Equity for Insurance Divisions". The Journal of Risk and Insurance. 55 (3): 442–452. doi:10.2307/253253. JSTOR   253253.
  3. R, Fuller; H, Kerr (1981). "Estimating the Divisional Cost of Capital: An Analysis of the Pure-Play Technique". Journal of Finance. 36 (5): 997–1009. doi:10.1111/j.1540-6261.1981.tb01071.x.
  4. "What does pure-play or IDM mean with respect to semiconductor foundries classification? - Quora". www.quora.com. Retrieved 2015-11-01.
  5. Mutschler, Ann Steffora (2008). "Pure-play foundries comprise 84% of market, IC Insights says". Electronics News. Australia: Reed Business Information Pty Ltd, a division of Reed Elsevier Inc.
  6. 1 2 Kim, Eonsoo; Nam, Dae-il; Stimpert, J.L. (2004). "The Applicability of Porter's Generic Strategies in the Digital Age: Assumptions, Conjectures, and Suggestions". Journal of Management. 30 (5): 580. doi:10.1016/j.jm.2003.12.001.
  7. "Amazon.co.uk Help: About Amazon Locker". www.amazon.co.uk. Retrieved 2015-11-01.
  8. Johnston, Chris (2015-02-03). "Amazon's first bricks-and-mortar store opens in Indiana". theGuardian. Retrieved 2015-10-25.
  9. "Simply Be Store Locator". www.simplybe.co.uk. Retrieved 2015-11-01.
  10. 1 2 "Do pure-play etailers need stores?". Retail Week. 2011-11-04. ISSN   1360-8215 . Retrieved 2015-10-24.
  11. "Window Shopping..." www.ocadogroup.com. Retrieved 2015-11-01.
  12. "eBay and Jonathan Adler Partner to Open "the eBay Inspiration Shop" – 24/7 Shoppable Storefront Powered Exclusively by eBay Mobile | Business Wire". www.businesswire.com. 2011-10-20. Retrieved 2015-11-04.