Vic,
Deswell only has a 50.1% stake in Kwanasia (I'd like to see them take out the minority interests, but there may be very good reasons not to), but a 100% ownership in Jetcrown and 69% in Kwanta. Kwanasia's revenue growth and earnings benefit Deswell and it's the company we want to continue growth, but the big benefits come from Jetcrown (and Kwanta to a lesser degree). A cost savings for Jetcrown is 100% beneficial to stockholders.
I'm trying to understand how Jetcrown's business works. With your experience maybe you can tell me if I am making the right assumptions. As I understand it:
When Jetcrown signs a contract, it includes an amount for the mold, then a unit cost for the production of product. i.e $250,000 for the setup process, then $1.00 per unit with a 1,000,000 unit minimum. Deswell keeps the mold, but the customer technically owns it. Production of that product may cease, then be restarted as the customers inventory is depleted. Because the mold process is expensive, getting a customer usually means keeping that customer long term. Having a low cost and fast mold process can make a big difference in getting or losing a customer, particularly for small product orders.
If one has the most modern of machines, the process is computer controlled. This can resu;lt in much lower costs in the design and construction of the molds. In the production, except for feeding the machines, inspection and trimming of the product, very little labor is required.
If one can save the customer on the initial mold cost, they would be more likely to pay a higher unit price because it removes risk variables. Deswell would be protected by the initial minimum order quantity, but the real benefits would come from reorders.
Is this how it works? The only thing I'm sure of is the part where the customers own the molds that Deswell holds because that's in their report.
Thanks,
Ron |
