The first time I purchased NTE shares was 1991. Koo was living in Burnaby, Canada. FYI, Burnaby is located next to Vancouver. Back then NTE had 6 million shares with Koo owning about 25%. The company in 1991 has about 60 million in revenue. Peter Kellog wasn't in the picutre back then. The shares were traded on Nasdag OTC.
Currently NTE is by far my largest holding with shares number approaching 6 figures and, I am semi-retired from managing supply chain for airlines.
Yes, I am very exposed here and I will be lying if I say emotionally I am not worried. The question is: Will Koo be able to manage this? Basically, where NTE goes from here is 100% depended on Koo and, this had been the case for as long as I have followed the company. As in life, there are peaks and valleys too with NTE-
1) Tele-Art Inc legal process in the early 90s
2) The Asian economic crisis in 1997
3) The tech bubble in 200-2001
4) The global financial tsunami from 2007/2008.
Each time, Koo mamaged to come out of these crisises looking pretty good. NTE share price went up 250% durIng a two weeks period in Feb 1992 and, it went up nearly 500% in a 5 month period in 2003, not too long after the tech bubble. I know this is the past. The bigh question is; will Koo be able to pull another rabiit from his hat this time around with JDI/Sharp.
What goes on with NTE/Apple/JDI/Sharp is nothing new in the world of supply chain. Since the begiining of civilization, customer wants to pay less for more. Thats OK if you're buying an ice-cream cone for your kid but when you're buying a service to assemble a highly innovated product with a 3 - 6 months life cycle (in terms of innovation) the story changes. For any company wanting to be in the running to compete for JDI's business it needs first to hire/train 10,000 staff and to invest USD 100 million in capital investment. All that for 3 - 6 months worth of potential non-secured work with JDI. Would you do it?
In the long run NTE will likely be fine. But in the short run things can get worse before they can get better. This time it looks Mr. Koo may have bet on the wrong horse by going all in with JDI, Sharp, Apple and moving almost all their assembly lines to produce LCMs for the companies.
True NTE had a couple of great quarters but Apple probably overestimated demand for the new iPhone 5 and underestimated how much market share they will lose to cheap android phones that are saturating the market. Their suppliers like JDI and sub suppliers like NTE most likely initially relied on those numbers and built capicity ahead to time based on them. Now they have to deal with the impact of order cuts and demands for lower prices.
Even if NTE loses the JDI/Sharp contracts they should eventually find business elsewhere. The question is would it still be for LCMs? There aren't that many major LCD panel suppliers for small/medium sized panels out there. In Japan you have JDI and Sharp. In Korea you have Samsung and LG. In Taiwan you got AUO and Cheimei Innolux. But NTE historically has done business with and have the strongest relationship with the Japanese. So they may not have the business relationships to land any major contracts with the Taiwanese or Korean companies.
Of course LCMs aren't the only business out there for EMS companies. But they may have a lot of equipment they have to sell or salvage if NTE moves to something else. Finding a new major customer and neogotiating a contract takes time. Plus setting up a new assembly line for new types of products can take a few months.and require new capital investments.
I knew of Mark since 1991 and, ever since Koo had taken Mark under his wings...
Mr. Koo is not an easy person to work with he is very specific with what he wants.
All these talks about NTE being a "China Scam" is puzzling to me. They got land and it might worth lots of money and it might not. However, selling the property makes no sense in China with 50% property transaction tax. Thats why developing and, subsequently leasing the property becomes the most viable option.
NTE has zero experience as a property developer and it is a concerning point. However, there are more ways than one to skin a cat and it is not written in stone that NTE must develope the property on its own. The talks about taking 3 - 4 years for NTE to realize the benefit from its land holding made no sense. Has anyone heard of royalties? NTE could easily license a seasoned developer to develope its land for royalties and this cenrtainly will not take 3 - 4 years. If the right deal comes around, Koo could be collecting royalties next month. Thats how it is done with airport authorities around the world. They allow you to develope a piece of raw land for inflight catering buildings, air cargo terminals, aircraft maintenance centers, retail outlets and etc and, collect royalties while maintaining land ownership. I am not saying this is the case here, I just to point that there are options.
Business is 100% about people. NTE was striving in the mid 90's when Apple was half a step from chapter 11 filing and it took a person back then by the name of Steve Jobs to rekindle the fire there. Now we have a person in Koo to steer our ship and we shall see. One thing for sure is NTE has options unless we truthly believe it is a "China Scam"