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Monday, August 28, 2006

Eternal Technologies (ETLT) crouching tortoise, hidden mango

ETLT (combined links) on the news section of their website, just added a new entry. There's no press release about this stuff, just a website update.

Title: "Adjusting Direction of Business, Exploring and Expanding Fields of Development"

Hopefully the key word is "exploring" here. This is a lot of strange, unrelated stuff.

Tortoise Ranch
They go into detail about the huge demand for tortoise products in China (which I knew about already).
The tortoise breeding industry in China is still at its early developing stage and some Types of tortoises (such as alligator tortoise, stone shell tortoise and coin shell tortoise) breeding are at high profit stage.
Now here's the key part:
The tortoise farms we are going to purchase are located in Hunan and Hainan respectively. The farm in Hunan has sound and complete incubating room, breeding room, breeding pond and water sewage and purification systems. The farm in Hainan does not need incubating room [this makes sense given its climate] and thus saves cost and makes it more possible to go for larger scale development of good breed culturing. The mode of production for mature tortoises is “company plus farmers”, i.e. the tortoise farm will be responsible for providing upgrading of breeds, culturing of breeds, eggs laying, incubating, supply of tortoise breeds and technical guidance. The farmers will culture the breeds into mature tortoises and company will buy all of them at protected price and supply commodity tortoises to the market.
So let me get this straight: you're going to buy the farm, and then buy the tortoises from the farm at a "protected" price. Who's being protected here, the farmers or ETLT?
Taking stone shell tortoise for example, the purchasing price at the seller’s door is 560 Yuan RMB per Kg. The average weight of each tortoise is 1100 grams. Each sells for 616 Yuan RMB and each young breed cost 120 Yuan RMB. Taking away the cost, the profit for each tortoise is 400 Yuan RMB, so breeding of 2500 tortoises will yield 1 Million Yuan RMB in profit.
Will the price remain stable?
What are competitors doing?
What are the costs that competitors are experiencing?
Who pays the capex costs?
I have lots of questions on this.

Mango Plantation
Mangoes were introduced to China during the Tang Dynasty (long time ago) and is well established by now. I like this sentence:
China has planted mangos in southern Taiwan provinces....
Don't give them any of that "RoC" crap.
Each kilograms of Australian mango can be sold for over 60 Yuan RMB during the Chinese new year in Beijing [they mentioned Hainan early mangoes and the association with Chinese New Year with mangoes], and even 1 kilograms of gold mango can be sold for over 50 Yuan RMB. The output of mango per mu in our plantation can yield over 6400 kilograms and these are high return products. The market margin and potential for the supply of Hainan mango all over the country is considerable.

Specialty breeding and specialty planting must stress “special” environment and “special” kinds. Natural environment can not be substituted. Even if man-made environment is successful, it has too high cost and can not compete with natural environment. Special and good kinds require profound know-how and economic strength as the basis. This is the starting point why we choose specialty breeding and specialty planting.
It makes sense that the path toward making/keeping profitability is in the specialty areas and not just brute comodities. But then they follow it up with some weird stuff like this:
The second great leap is: with Yihai as breakthrough point, we have developed more scientific content electronic information products for civil use that have infinite market potential, short production cycle, fast upgrading capability and high return on investment.
I think that was supposed to go with the next section...

Micro Display
While they're doing the mango thing, they might as well throw in a consumer electronics bleeding edge device. This is the part that makes the least sense to me.

Basically, the digital display technology has been producing extremely small screens with high resolution (this has been going on for years, actually). If you take two of these basic building blocks, hook them up to a pair of eyeglass frames, and perhaps do some image processing to counteract weirdness that your eyes might perceive, then you essentially have a personal viewer. Eventually this stuff will be in 3-D.
This product is bound to be popular all over the world in a few years, and now it is the best time to enter into this field. Our company will provide these video program view selection units on transportation systems such as trains, vessels and long distance buses for viewer to select the programs they like for viewing and entertaining themselves. In China over 2 billion people travel by train each year, and the market for this unit can be expected. Considerable revenue can be obtained based on 0.5-dollar charge for 1 hour of use!
I can't help but think that if Bus Uncle had one of these, he never would have put on such a, now popular, show. My far-sighted prediction is that most cultural phenomenon will originate in China/India/Japan/Korea, circulate among the 2+ billion people there, and hardly anyone in the "West" will even know about it.
We have reached purchasing letter of intent with the company that researched and developed this product, and we are conducting commercial negotiations with the company. Official documents will be sighed in the near future. Once the purchase is successful, we will increase investment, go for large scale production and occupy the market quickly.
And then Toshiba/Sony/Etc. will come out with a real consumer electronics version and ETLT's product will be forgotten. Let's be serious here, the consumer electronics industry is big, complex, and already dominated by a giants. Maybe, just maybe, there's a chance that ETLT could strike the bullseye and win big. Yeah, and maybe I'm a Chinese jet pilot.

But it sounds to me like one of those things where you order some parts from Company A, order some eyeglass parts from Company B, hire a few engineers to make it all work, then use contract manufacturing to produce a few thousand and see if it takes off. If that's true, then it's a pretty low risk thing with a small chance of high reward.

The mango thing is probably not a bad idea. I have no idea about the tortoise thing, hopefully it's not a large investment. The microdisplay thing seems like a bad idea to me. If E-Sea hadn't been such a wonderful deal, I'd have real problems with all this stuff.

What I really want is a CEO who is always looking for ways to make money, yet has a good filter for picking only stuff that has a high chance of success. We seem to have the first part covered. I'm hoping E-Sea wasn't a fluke. The reasoning given for the mangos and tortoises seems to be thinking along the right lines.

I continue to own the stock.

Not eyeglasses but 3G device?

I have reread the news and it seems to me that while they refer to the microdisplay eyeglasses, they may be only doing so in passing and it is in fact a 3G broadcast device that they are planning. They seem to refer to the eyeglass displays as a reason why now is a good time for their "mobile video-broadcasting device" or "video program view selection units" as these products will "best reflect the application of (not ETLT?) microdisplay technology".

At the very least it is unclear if it is the glasses or something else or both...

I guess that we will find out in due course although I note that the previous mango news said that an agreement would be signed before the new year and it never happened at all.
The 3G is the protocol/method for delivery of the video while the X-Ray eyeglasses are the human interface. ETLT is probably looking at being involved in both (both parts are needed). Sigh. I also noticed that the Wal*Mart mangoes never happened so this, too, might be tentative and unlikely.

Odd as it may seem, I've actually written some software for an LCD display (not a microdisplay) within the last year. Nothing fancy by any means, but it was at the bit level. I've also been involved in audio hardware codecs. Creating something like ETLT is thinking about is not rocket science from a technical point of view. An EE with enough experience could easily put together a small team over in China to develop the thing. Making something basically work is easy. The marketing and sales are the hard parts. Making something people will take a risk in buying (not just consumers, but infrastructure providers like the bus companies and train companies and maybe even content providers) is not easy.

I think the market will view this information as a negative since it indicates the company is acting more like a startup with no direction and the stockholders are looking more like venture capitalists feeding money to a loose cannon. I'm not bailing out just yet, myself. But I'm certainly worrying a lot more.
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