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Electronic Engineering Business Plan
Executive Summary
Rosafarbenes Nilpferd & Sons Engineering, Inc. (RNSE) has established a strong foothold in a niche technology market for Product Category One* devices. The potential market demand of 180 million units far outstrips the capacity of present suppliers and is growing at a rate of 22% annually. RNSE’s success in taking advantage of this boom market is evidenced by its recent growth in sales and profitability. Sales are projected to grow from the first quarter of Year 1 total of $280,000 to $1,600,000 by the end of the first year, and to exceed $14 million by the end of the third year of operations. A similar growth pattern will cause before tax profits to rise significantly by the end of Year 1 and continue increasing through the end of Year 3. These results will be achieved without large additions to fixed assets. A relatively small banking facility will be needed in the form of a line of credit of $150,000-$200,000 to support the necessary growth in current assets, half of which will represent prime corporate receivables.
1.1 Objectives
While working to develop Rosafarbenes Nilpferd & Sons Engineering’s image as the premier maker of Product Category One devices with the latest cutting-edge technology, the measurable objectives are:
- Complete work to make RNSE’s products compatible with at least five of the most popular first-tier operating systems (by end Month 5, Year 1), and at least three others within one year.
- Complete a thorough website redesign and get out a quality mailer to 300 Value Added Resellers (VARs) (by end Month 6, Year 1).
- On the basis of a professional media analysis, arrange an effective advertising campaign in trade publications designed to target the telecommunications, industrial automation, and instrumentation sectors (by end Month 7, Year 1).
- Through networking and partnering with operating system developers, technology manufacturers, and other industry players, arrange at least five banners/links on a reciprocal basis with key market-related websites.
1.2 Mission
Rosafarbenes Nilpferd & Sons Engineering’s mission is to develop cutting-edge Product Category 1 solutions for appliance and equipment makers who, due to the fast pace of technology, are under pressure to get their products to the market quickly. RNSE achieves this by maintaining a small “think tank” style technical team, outsourcing the manufacturing, and keeping a marketing offering which caters to the more demanding Product Category One requirements, leaving the simpler high-volume and price-sensitive market needs to the competition.
Note: Proprietary and confidential information has been disguised or omitted from this sample plan.
1.3 Keys to Success
The demand and growth potential is so overwhelming that success in selling Product Category 1 devices is virtually assured provided a few key aspects are kept in mind:
- There is no problem in contract manufacturing the devices, provided a ready stock of components is available. Careful planning in ordering sensitive components is essential, and sufficient financing must be in place to support long inventory periods.
- Avoid time-consuming inquiries originating from outside the chosen market targets. Everyone is interested in Technology 1. It is important to weed through the inquiries and respond to those that fall within sales and marketing parameters (needs between 100 and several thousand units, designed for use with high-ticket sophisticated equipment).
- Move quickly to build a brand awareness for cutting-edge reliability. The market need for Product Category 1 devices is potentially so large that more competitors can be expected. It will be more difficult to build an image later.
Company Summary
Rosafarbenes Nilpferd & Sons Engineering solely owned by Becket Nilpferd, has been in the high-tech business since 1992. To capitalize on the growing demand for the Product Category 1 devices, the company recently shifted from offering consulting services to the development of the Technology 1 hardware and software. Its first prototype has been vastly popular with its clients and the company soon will start shipping the improved version of its device. The company positions itself as a developer of high-end devices and selectively targets telecommunications companies, as well as smaller industrial automation and instrumentation companies, that have strong demand for the high performance Product Category 1 devices.
2.1 Company History
Rosafarbenes Nilpferd & Sons Engineering was solely service-based for seven years, but as the market for Technology 2 systems began to appear, RNSE shifted its emphasis from consulting to the development of Technology 2 hardware and software. This explains why the Past Performance Table does not show inventory or accounts receivable in years 1997 and 1998. Consulting revenue dropped in 1998 as RNSE limited its consulting activities and began ramping up to produce its first product line which was introduced in 1999. Since then, earnings have increased dramatically from approximately $4,000 in 1998 to nearly $80,000 in 1999 which grew to over $110,000 in the first quarter of 2000.
*Note: Propriety and confidential information has been disguised or removed from this sample plan.
2.2 Company Ownership
Rosafarbenes Nilpferd & Sons Engineering was incorporated as a “C” corporation in the state of Freedonia in 1992. Becket Nilpferd is the founder, owner, and sole stockholder. The company is not publicly traded at the time of this writing.
Note: Proprietary and confidential information has been disguised or omitted from this sample plan.
2.3 Company Locations and Facilities
Rosafarbenes Nilpferd & Sons Engineering presently operates from two large offices located in Fezzaewyg, Freedonia. All manufacturing is out-sourced to contract manufacturers.
*Note: Propriety and confidential information has been disguised or removed from this sample plan.
Products
Rosafarbenes Nilpferd & Sons Engineering’s products are off-the-shelf ready platforms containing all the necessary infrastructure for Technology 1, so that appliance makers can immediately focus just on their own specific product applications.
3.1 Product Description
Rosafarbenes Nilpferd & Sons Engineering occupies an important segment of the “Technology 2 system” market. A Technology 2 system is any system that is physically incorporated into a product that performs a dedicated function or specific application. Consumer examples include kitchen appliances and home entertainment systems, whereas commercial examples are point-of-sale terminals, industrial process controls, etc. The button you press which toggles back and forth between total miles travelled and the trip mileage is an example of the many Technology 2 systems found in new cars.
RNSE specializes in the segment of the Technology 2 system market that relates to Technology 1. One example is the odometer as an ultra simple Technology 2 system that does not normally require communication. However, one can imagine a company with a large fleet of vehicles wanting accurate, up-to-date information concerning mileage for purposes of scheduling servicing, or checking routing distances. The Technology 2 device that would be needed here would require Technology 1. The “net” in this case would be a small, simple, closed net that would be comprised of the Technology 2 devices (called “smart” devices) connected to the vehicles’ odometer (satellites) and one central terminal (the server) located at company headquarters. There is a whole array of means to connect the satellites and the server. A wire would obviously be inappropriate here. A digital radio wave would be the likely choice. Each individual odometer device would have a discrete identifier, and would communicate to the server. Each would have the potential to communicate to and from anywhere on in the world. However, in our example, it being a closed system, the rest of the world would not be permitted to gain access to these identifiers.
RNSE makes these Technology 1 devices. The basic device (here called Product Wrasse), about the size of a credit card, is comprised of:
- A central processing unit (CPU). This is a very powerful chip supplied by Technology Manufacturer 1 which represents the computing brain.
- FLASH chip. This is memory capacity that does not die when power is turned off.
- SDRAM chip. Normal memory capacity.
- A Controller. This governs the data flow from the satellites to the server.
- RNSE’s proprietary Product Blennie.
- Other elements like voltage regulators, electrical conduits to connect chips and external hook-ups.
The Product Wrasse, described above, would be bought by original equipment manufacturers (OEMs) to incorporate into their appliance (such as an odometer). The unit might also be bought by an “integrator” who takes a basic odometer, plus the Product Wrasse, and adds some software to end up with a “smart” odometer which the market integrator then tries to sell to companies with fleets of vehicles that might have good need for this specialized product. RNSE would configure the Product Wrasse so that it is compatible with the operating system used in the appliance, and would build in whatever FLASH and SDRAM capacity are needed for the designed purpose of the smart odometer.
RNSE’s third product is an add-on to the basic Product Wrasse and is called the Product Damselfish. Going back to the odometer example: If the company with the fleet of vehicles would like to be able, once a certain mileage had been reached, to tell the driver: “Time for an oil change,” then the Technology 2 device would need to have audio capability. Some applications might even need a video screen and a keyboard (like an ATM) for user interface. These capabilities are available through Product Damselfish.
*Note: Propriety and confidential information has been disguised or removed from this sample plan.
3.2 Competitive Comparison
OEMs who want to benefit from the trend toward Product Category One their products, typically outsource their needs. This allows the OEMs to concentrate on the design and application of their specific appliance without having to worry about the Product Category One aspect. Outsourcing this part saves the OEM in development costs, and more importantly, saves time in getting the appliance to the market.
- Outsource Provider 1. The processor used is somewhat slower and parts costs are higher than with Technology Manufacturer 1’s CPU chip. This company, by virtue of its parent being a contract manufacturer-assembler of smart devices, is primarily hardware-focused. It would not be easy for Outsource Provider 1 to switch from Technology Manufacturer 2’s chip to Technology Manufacturer 1’s.
- Outsource Provider 2. This company seems to be market-segmenting to concentrate more on the multi-media market represented mainly by ATMs and kiosks (such as betting kiosks) which require a keyboard and a screen for user interface.
- Outsource Provider 3. This company moved in the wrong direction from the start by using their own proprietary software which is built into their devices. This puts them at a real disadvantage. Their devices are the slowest, and the least flexible, but still fine for certain non-demanding purposes. The company has done some work for the HVAC market. Their lower price reflects their limitations.
- Outsource Provider 4. This company, located in Vancouver, in close proximity to Software Manufacturer 1, is primarily a software company made up probably of ex-Software Manufacturer 1 people. This explains their emphasis on the Technology 2 software. Despite Software Manufacturer 1’s operating system dominance in one market, the Technology 2 market is different. There are many widely-used Technology 2 operating systems. This company buys their hardware from Outsource Provider 1.
- Outsource Provider 5. Outsource Provider 5 is a European-based company. Its products are distributed and supported in America by a separate corporation in California. This extra layer may explain the added price. Specs are similar to those of Outsource Provider 1.
Rosafarbenes Nilpferd & Sons Engineering. RNSE has made a considered effort to offer the fastest CPU chip and to build in the widest range of capacity (from low amounts of FLASH and SDRAM up to high amounts). RNSE tries to make its units compatible with all the major top-tier Technology 2 world operating systems and will work with the second- and third-tiers as well.
*Note: Propriety and confidential information has been disguised or removed from this sample plan.
3.3 Sourcing
The chips and other basic building blocks used in Rosafarbenes Nilpferd & Sons Engineering’s Product Category One platforms can be purchased from a number of large distributors. Sourcing is not a problem, but order scheduling must be given careful attention. Shortages can occur, making it necessary to order well in advance and to stockpile in order to make certain that sales does not outstrip production.
3.4 Technology
Technology is moving at a rapid pace. The first commercial computer in the early 1970’s had a speed, measured in megahertz, of only 0.1 Mhz. Now computers are on the market that race at 1,000 Mhz. Although the speed may still increase, a bigger area for growth involves Technology 2 systems, (rather than personal computers) and especially the Technology 1 use of those Technology 2 systems. In a speech by Hewlett Packard CEO, Carly Fiolani, aired on television 4/18/2000, in the future nearly….”every appliance, yes, even the toaster, will be connected to the Internet.” Ms. Fiolani’s vision includes an “Information Utility” which, in her opinion, would work in a similar manner to the gas company, the electric or the water and sewer utility. For all of the 20th century, manufacturers have produced their appliances under a certain protocol of “assumed power.” They have taken it for granted that every consumer has a Power Service Provider (PSP) that supplies 110 AC to wall sockets all through the house. The appliance makers simply include a power cord and an appropriately sized plug. The consumer merely plugs the unit in and pays for whatever power he actually uses. The emerging technology now refers to another protocol of “assumed communication.”
In the future, appliance makers will assume that everyone has an “Information Service Provider,” and will build in Technology 1 right into every Technology 2 component that goes into each appliance. The consumer will expect it, just as he or she expects a 110AC power cord. He will plug in the appliance and register it with that Information Utility referred to by Ms. Fiolani. Let’s say the appliance is a VCR. Until now, we have had to program the VCR ourselves before we leave the house if we want it to record a program on TV that will air while we’re away.
We also have to hope we did it right and actually record the last round of the Masters Golf Tournament (and not end up with several hours of some home shopping channel). However, with the new protocol, we will be able, from wherever we are, to simply contact our Information Utility (which will have all our appliance records) and say: “Record the Masters for me today.” It will all be arranged remotely by the service provider and it will be included in our monthly bill. From any remote location, we’ll be able to turn our house lights on, turn down the heat, lock or unlock the house, turn off the hot water heater, sprinkle the lawn, etc. According to Forrester Research, Inc. of Cambridge, Ma., by the year 2002 7% of U.S. homes will have security systems, lights, heat, and appliances that can tap the Internet. This will be a $1 billion market alone.
Product Category One appliances are not going to be reserved for simple on/off features. Now available on the market are many very sophisticated appliances such as a printer, a sewing machine with computerized embroidery capability, or data stream music. At the moment these are PC-dependent. Take a high-tech sewing machine like a Pfaff Model 7570. This machine with its Technology 2 system can perform complex sequences of operations including executing pre-programmed patterns and monograms and fonts. The difficult operations which are very user-interface intensive can be performed by the general-purpose PC into which the sewing machine (like a printer peripheral) is plugged instead of by the sewing machine’s Technology 2 system. If this user-interface capability had to be built into the Technology 2 system of the sewing machine, the cost of that machine would skyrocket.
Likewise, the MP3 player (data stream music) is extremely CPU-intensive. At the moment the encoding takes place on the general-purpose PC which allows the music player to have much lower requirements for CPU and memory. These devices are essentially one step removed from the Internet. Technology is moving quickly to remove the PC intermediary thus making the devices able to communicate directly with a content provider. Those capabilities of the general-purpose PC will be replaced by the Internet itself thus making the appliances more flexible, more portable, and less expensive. PCs themselves will metamorphose into very light-weight, very inexpensive units without hard disks and without extensive memory. All these aspects will be provided by the Internet itself.
Need to use “Winword”? Just log onto the Internet and download the program or any other software you want. And, it will always be the latest version. Need file capacity? That too, can be provided by the Internet. A user can move around the globe and access his/her files from a very portable laptop. If the laptop is lost or damaged there will not be a crisis. Simply buy another (for maybe $100). All your files are safe, located elsewhere. Forrester Research predicts that by 2002 43% of all “smart” products will be non-PC devices. According to International Data Corporation of Framingham, MA. by the year 2004 such appliances will exceed PCs.
Market Analysis Summary
The market for Product Category One devices is keyed to the production of Technology 2 microprocessors. Over 180 million 32-bit microprocessors are being delivered annually. Conservative estimates have the market growing at 22% annually. Some estimates are much higher. Market trends indicate that most, if not all, of these microprocessors will be wanting Technology 1. At the present time, the number of makers of off-the-shelf Product Category One devices is limited and unlikely to be able to fill the demand.
4.1 Market Segmentation
Statistics related to Product Category One devices are very difficult to find, and when found, usually outdated. A number of industry newsletters (Technology 2 Processor Watch, Microprocessor Report, Technology 2 Systems Programming) will give dollar figures from time to time for the total embedded market.
In 1999 the market was quoted to be $3.5 billion and expected to grow to $9 billion by 2003. The Product Category One devices sold by RNSE are connected to this total Technology 2 product market. The more products that are produced, the greater the demand for Technology 1. According to Jim Turley, Editor-in-chief of Technology 2 Processor Watch… “in 1997, more than 180 million Technology 2 32-bit microprocessors were shipped. This does not include the 32-bit microprocessors placed in the 80 million PCs, the three million MACs, or the approximately one million work stations.” Mr. Turley’s article goes on to state that if the low-end 4-bit and 8-bit microprocessors were included, the totals would be more than doubled. He estimates that there now exist about 35 low-end microprocessors in every middle-class North American home. It is, however, the 32-bit sector that is growing fastest. It is this sector that is most meaningful in projecting the market for RNSE’s products. Of this total of 180 million 32-bit microprocessor units, the market research firm of Information Architects, claims that the market is broken up roughly into thirds:
- Office Automation (34%). This included laser printers, faxes, feature phones, etc.
- Consumer (33%). Includes video games, portable games, CD players, and high-end audio visual equipment.
- Communications (28%). Includes network hubs, routers, switches, telephone infrastructure equipment.
- Automotive (3%).
- Military (1%).
- Other (1%).
Since the total dollar market is predicted to grow from $3.5 billion to $9 billion in the five years 1999-2003, we will assume a 22% annual growth rate over the next three years. Although the 180 million shipped 32-bit microprocessor data was for 1997, we have not made any growth assumptions for the period 1997-1999, but will apply the 22% annual growth during the next three years to the 1997 data. It is however highly likely that the market has grown substantially over that period 1997-1999.
In addition to the new Technology 2 microprocessors, there are hundreds of millions of older 4-bit, 8-bit and 16-bit boards that have already been sold. These too, although ignored in the market study, represent a potential demand for Product Category One devices retrofitted into many of those microprocessors.
The 33% consumer share of the market is characterized by high production runs and price-sensitivity. VCRs and MP3 players are good examples of products in this consumer market segment. Similar comments can be made concerning the office automation market segment as well.
The third large sector of the market, telecommunications (28%) does not appear to be as price sensitive nor are production runs as large. It is this sector that has so far accounted for the majority of Rosafarbenes Nilpferd & Sons Engineering’s sales.
The other category, representing only 1% of the total, probably includes various industrial automation products as well as testing and instrumentation. These fields, although small in relation to the three major categories, still accounts for over two million microprocessors placed in high-ticket equipment, nearly all of which will need Internet connectivity.
4.2 Target Market Segment Strategy
Rosafarbenes Nilpferd & Sons Engineering plans to concentrate on the telecommunications segment of the market (28% of total market) as well as the industrial automation and testing and instrumentation segments (1% of total) as these sectors are most likely to have more demanding requirements which are suited to RNSE’s premier, cutting-edge of technology architecture. These sectors are most likely to be installing the Product Category 1 devices into high-ticket item instruments and appliances, thus making these clients less price-sensitive in relation to the high-volume consumer (MP3 players, Palm Pilots, etc). VARs and OEMs (Fortune 500 as well as venture capital start-ups) connected with these market sectors are the most attractive target customers for RNSE.
4.2.1 Market Needs
The market, whether it is a maker of telecommunication switches, industrial automation equipment, or a VAR with a time and money-saving idea for a specific industry, wants to concentrate on its special product and bring it to the market place as soon as possible–hopefully ahead of the competition. They want to out-source the Technology 1 need because they know that trying to engineer it themselves would be more expensive and slow down the launch of their end product by six to nine months. Some Technology 1 needs, for example, an inexpensive 4-bit microprocessor lodged in a thermostat, can be satisfied without spending $350-650 for a Rosafarbenes Nilpferd & Sons Engineering Product Wrasse. This need would be satisfied by one of the low-end devices (like Outsource Provider 3). RNSE needs to focus on the customers with the more demanding requirements for Product Category One.
4.2.2 Market Trends
The market trend is to add Technology 1 to just about everything, leading eventually to a view of the future well-expressed by the CEO of Hewlett-Packard (see the section on Technology). The trend is moving so quickly that the market is having problems keeping pace with the demand. Reports of component shortages among chip makers have been in the business news. For the foreseeable future, we can expect Technology 1 products to be a sellers’ market.
4.2.3 Market Growth
The market for 32-bit microprocessors totalled $3.5 billion in 1999 and is expected to grow to $9 billion by 2003. This amounts to a 22% annual growth rate (see the section on Market Segmentation). In 1997 180 million 32-bit microprocessors were delivered, not counting those that were used in computers and work stations. A 22% growth rate comes to an additional 40 million annually. Nearly all of these (180 million plus 40 million annually) will need Technology 1. The total unit sales projected for Rosafarbenes Nilpferd & Sons Engineering in the third year will amount to only .00014 of that. In the absence of more specific market data, we have projected market growth at 22% for every segment of the Technology 1 market, although it is likely that some segments will grow faster than 22% annually and others perhaps less.
4.3 Industry Analysis
The industry encompassing Technology 2 microprocessors, the operating systems housed in them, the makers of components used to build them, and the people developing software to make special applications possible is quickly mushrooming into one of the world’s largest industries. To be successful in marketing a Product Category One device it is essential to understand the patterns and major players in the industry.
4.3.1 Competition and Buying Patterns
Currently, demand for the Product Category One devices outstrips supply. With the trend of adding Technology 1 to almost any appliance, demand will continue to grow. The variety of offered platforms and configurations of such devices lead to the market fragmentation where no incumbent company holds a major market share. For low-end devices, pricing is one of the major factors. However, for high-end devices, such as the products supplied by Rosafarbenes Nilpferd & Sons Engineering, high technical specification and flexibility with major operation systems are more important.
4.3.2 Main Competitors
The main competitors for Rosafarbenes Nilpferd & Sons Engineering’s products are listed in the section on Competitive Comparison. The listed competition is unlikely to even come close to satisfying a small portion of the demand for Product Category One devices indicated by market research. One hundred, eighty million 32-bit microprocessors being delivered annually with a projected growth rate of 22% is a huge market for Technology 1, not to mention the billions of microprocessors already delivered in stock configuration. Obviously, much of the Technology 1 will be done by internal engineering. But this option has serious drawbacks for the company trying to develop this feature on its own. First, its engineers have to examine hardware and software options, which, given the number to choose from, could take months.
- Will the component support the input/output (I/O) requirements needed by the product?
- Do separate add-on components need to be designed and manufactured?
- Which operating system vendors support the component?
- Does the hardware vendor support the operating system (O/S) vendor?
- What about integration of the hardware and software?
After months of evaluation, and spending $25,000 on a leading real-time operating system (plus another $10,000-$20,000 buying and building hardware), more months will pass building, debugging, and integrating the operating system with the software. More time is spent writing the application. An engineer (who is an expert in the chosen operating system) will need to be hired, and each year another $5,000 will need to be spent in O/S upgrades and software. Keeping up with protocols and standards will also take time away from development efforts. In the end, hundreds of thousands of dollars can easily have been spent just on the task of adding Technology 1 to the product internally. The end product, now including Technology 1, will have been delayed getting to market by six to nine months. This delay to market aspect is the strongest deterrent to attempting to engineer one’s own Product Category One device.
*Note: Propriety and confidential information has been disguised or removed from this sample plan.
4.3.3 Industry Participants
There are several major components in the industry:
- Microprocessor Manufacturers
- The sheer variety and quantity of microprocessors is huge in relation to desktop computers. There are only a few choices with desktop computers as Technology Manufacturer 1’s MMMM architecture increasingly dominates. But with microprocessors there are NNNN, PPPP, QQQQ, MMMM, and RRRR which represent only a tiny fraction of the total volume of microprocessors shipped each year. Even if we restrict the count to only 32-bit chips, there are more than 100 different microprocessors currently on sale. This does not take count of the all the different speed grades or packaging options. These 100 different microprocessors represent more than a dozen instruction-set architectures and more than 30 different vendors worldwide. Some of these manufacturers have large sales forces and large marketing budgets. The ability to attract the attention of one of these large manufacturers is key to marketing Product Category One devices. If the Product Category One device uses an Technology Manufacturer 1 chip, Technology Manufacturer 1 has a vested interest in pushing its CPU customers to use that particular device.
Operating Systems
Microprocessors must have an operating system in order to function. Again, unlike the desktop market where DDDD dominates, there are many competing operating systems. So many in fact that they are graded as “First Tier,” “Second Tier,” etc. When a manufacturer of an automated milling machine chooses an Product Category One device, he will want one that is compatible with his chosen Technology 2’s operating system. In fact, the first time he hears about a particular Product Category One device it is likely to be through the salesman who sold him his operating system. If the operating system is GGGG, marketed by Software Manufacturer 2, for example, the salesman will recommend only Technology 1 devices that are compatible with GGGG.
Market Integrators
Market Integrators are often referred to as value added resellers (VARs). There are countless VARs who develop special applications which are usually industry-specific. For example, Reseller 1 is a VAR engaged in software related to building maintenance. This involves Product Category One thermostats and other building maintenance connected equipment in large office buildings. These VARs are heavy users of Product Category One devices.
OEMs
Original Equipment Manufacturers have quickly recognized the importance of adding the power of the Internet to their equipment, for example, the manufacturer of an automatic scale for use in a production line. The scale will weigh every packet of tea passing along the belt to check that the weight is within certain tolerances. If not, the packet is removed from the line by compressed air. By adding Technology 1 to the scale, the scale’s activity no longer needs to be visually monitored by a human in the production hall, but can be remotely monitored from a central location. This is especially interesting for a factory with a dozen production lines. The same evolution is having an impact on almost every type of equipment. The OEMs are important customers for Product Category One devices as the device adds very little cost relative to the ticket price of the equipment.
*Note: Propriety and confidential information has been disguised or removed from this sample plan.
4.3.4 Distribution Patterns
There are large established distributors of microprocessor chips, and other components. It is possible that one, or all, of these distributors may consider offering an Product Category One device soon with a few limited configurations. However, the main distribution channel for RNSE’s products is direct. The buyer may have heard about RNSE through an Technology Manufacturer 1 salesman, or through an operating system salesperson, but the sale would be handled directly. Most inquiries come initially via telephone or email over RNSE’s website.