Tech startup: I really do make mobile phones!

Chapter 213 The Complete Optical Glass Industry Chain

In the afternoon, sunlight streamed through the floor-to-ceiling windows of the general manager's office at Orange Technology, casting long shadows on the floor.

Chen Mo had just finished a third-quarter financial review meeting for the Orange Group companies, chaired by Gong Yun. Back at his desk, he put down his laptop and rubbed his temples.
There was a gentle knock on the office door.

"Please come in!"

Zhou Yumeng told Chen Mo, "President Chen! Manager Lin wants to see you to report on recent investment and acquisition activities!"

Chen Mo waved his hand, and Zhou Yumeng understood perfectly.

A moment later, Lin Junfeng walked in with a thin and light laptop, his steps steady, his face displaying his usual calmness and efficiency.

"Mr. Chen, the series of acquisitions and investments you instructed us to follow up on have all made some progress. I'd like to give you a summary report."

"Okay, sit down!"

Chen Mo got up from behind his large desk and led Lin Junfeng to the reception area next door.

He skillfully took out the tea set, began boiling water, warming the cups, and rinsing the tea, his movements fluid and graceful.

"Let's drink and chat, take your time!" He pushed a celadon cup filled with clear tea towards Lin Junfeng.

Lin Junfeng accepted the notebook with both hands, thanked him, and, understanding that Chen Mo disliked beating around the bush, opened the notebook directly and got to the point.

"Mr. Chen, let me first report on a few of the simpler investment and acquisition cases!"

"The first issue is about taking advantage of the internal strife among Jinli's senior executives to acquire their practical patents at a low price!"

As Lin Junfeng spoke, a hint of sullenness appeared on his face, because he was the one who originally came up with the idea, but the result was not entirely satisfactory.

"Oh? How much did you spend, and how many useful patents did you get?" Chen Mo asked with great interest.

Lin Junfeng said with a hint of apology, "President Chen, perhaps my initial judgment was inaccurate."

After a detailed review, we found that out of the 211 patents under Jinli's name, only 5 were utility technology patents that were not related to appearance.

In the end, we spent 200,000 yuan and got it all.

One of them concerns a fingerprint chip architecture for secure encryption, and the other four relate to 3G/4G communication. These are all edge computing patents with limited value!

"Uh," Chen Mo chuckled and shook his head upon hearing this, "I never imagined that the former giant of knock-off feature phones would be so weak in terms of technological accumulation. Jinli really caught up with a good era!"

Lin Junfeng summarized: "In the past, their strategic focus was not on technological research and development at all, but on building market distribution channels."

Chen Mo waved his hand and comforted her, "It's alright, Manager Lin, it's not your fault."

Being able to recover four communication-related patents, even if they are only peripheral patents, is a good thing for us new players like Orange.

"Little by little, we'll accumulate a lot. We'll continue to look for opportunities in the future and try to accumulate more patents in communication technologies, so that when we grow bigger, we won't be blackmailed by patent trolls wielding their power."

"Understood!" Lin Junfeng nodded and noted it down, then reported the next item: "Next is the situation regarding ByteDance's Series A follow-on investment."

"Currently, the lightweight text community 'Neihan Duanzi' is developing very rapidly, with daily active users exceeding one million and registered users exceeding ten million, firmly holding the top position among similar apps."

Monthly revenue is approximately 60 yuan, with a profit of around 32 yuan, achieving self-sufficiency!

"Mr. Zhang has launched a Series A funding round, planning to use the funds to develop a news and information platform that combines text and images."

This time, he plans to release approximately 10% more equity, and has invited us, Hongshan Zhonghua, and Shunwei Capital to participate!

Chen Mo held the celadon cup and took a small sip of tea, somewhat surprised that Lei Jun had still gotten on board with ByteDance just like in his previous life.

This is not surprising, though. Zhou Shouzi, Zhang Yiming’s good friend, has now become close to Lei Jun, and everyone is saying that Zhou Shouzi is the “crown prince” of Xiaomai.

Yes! A future crown prince!
There are too many deposed princes in wheat!

Lin Junfeng then gave his report.

"After joint due diligence by the four parties, the current overall valuation of ByteDance's transfer is confirmed as: 7000 million yuan!"

After that, Lin Junfeng paused and added a sentence.

"In just five months, they raised 8 million from our angel round, and now our valuation has soared to 70 million!"

Chen Mo blew on the steam rising from his teacup and remarked, "The valuation of internet companies is as easy as inflating a balloon!"

Lin Junfeng smiled and continued, "According to the previous angel investment agreement, our 10% stake has priority rights and will not be diluted."

This Series A funding round raised 700 million RMB (corresponding to 10% equity stake).

Orange Technology led the investment, accounting for 50% of the Series A funding, or 350 million, and received 5% of new shares;

Hongshan Planting Flowers invested 30% (210 million) and received 3%;

Following up, Shunwei Capital invested 20% (140 million), receiving 2%.

He quickly outlined ByteDance's equity structure after the funding round:
Orange Technology: Original 10% (non-diluted) + New 5% = Total shareholding 15%
Hongshan Planting Flowers: Holding 3% of shares
Successor Capital: 2% stake
Mr. Zhang and his team: 80% shareholding (calculated after dilution)

"In other words, we now actually hold 15% of ByteDance's equity!" Chen Mo confirmed.

"Yes, Mr. Chen!"

"During this trip to Beijing, Mr. Shen from Hongshan Flower Planting even asked me privately if our Chengbao had any financing plans!"

Lin Junfeng's tone was somewhat subtle when he mentioned this.

"He verbally stated that he was willing to endorse Orange Treasure's valuation of $5 million!"

"Pfft!" Chen Mo almost spat out the mouthful of tea he had just taken a sip of: "How much? 5 million? In US dollars?"

This valuation is not the same as the 5 million that Pony Ma previously offered; it's a completely different currency unit.

In just over half a year, Chengbao's valuation has increased six or seven times, demonstrating the extent of the valuation bubble in internet companies.

No wonder everyone says that shareholders can only make money when internet companies go public; this bubble is just too big!

He quickly calmed down and thought about it.

Currently, Orange Treasure has almost monopolized the domestic Android app distribution market with its "App Treasure" service. Its own advertising platform and "Orange Pay" are also operating well, with monthly revenue exceeding 1500 million yuan and profits exceeding 800 million yuan. It is not short of money.

Most importantly, He Jian never mentioned Chengbao's financing needs.

"In response to Hongshan, we thank President Shen for his confidence and endorsement, but Chengbao currently has healthy cash flow and its business is in a period of rapid growth. We believe that now is not the best time to introduce external financing!" Chen Mo made the decision.

"Okay!" Lin Junfeng wrote it down.

"Next is helping Orange Smart acquire the self-balancing scooter patents from Sagwey!"

Lin Junfeng switched computer screens, his tone becoming slightly more serious.

"The other party's attitude is quite tough. They are unwilling to sell the patents separately and hope that we will acquire SEG Microelectronics as a whole!"

He paused, looking troubled.

"Mr. Chen, we lack experience and relevant qualifications in cross-border acquisitions, making the process very complex and risky."

It will likely require collaborating with a professional investment bank with extensive experience and a global network to complete this task.

Chen Mo raised an eyebrow: "Manager Lin, what do you mean?"

Lin Junfeng smiled and prompted, "I heard that you, Mr. Chen, are quite familiar with Ms. Lu Qingyue from Morgan Stanley's Asia Pacific TMT team, aren't you?"

These kinds of cross-border mergers and acquisitions are Morgan Stanley's forte.

We can directly entrust them with the operation; we just need to handle the bidding and the final decision!

Chen Mo pondered for a moment, then couldn't help but smile: "Miss Lu was right. As our business grows bigger and bigger, we'll have to deal with these international investment banks sooner or later."

"How much would it cost to hire Morgan Stanley to do this?"

Lin Junfeng had clearly done his homework: "The business team's preliminary estimate is that, including the acquisition price and investment banking commissions, legal and financial intermediary fees, the overall budget will be around 800 million US dollars."

"This is mainly because SEG Micro has some robotics technology assets in addition to its balance scooter business."

“Alright, although it’s much more expensive than just buying the patent!” Chen Mo nodded, and then continued.

"I understand. I will personally contact Ms. Lu from Morgan Stanley to discuss the matter."

Since we can't buy the patents separately, let's buy the entire SEG Microelectronics.

The brand remains in North America as a 'front,' while the technology and production lines are moved back.

From now on, Orange's hoverboards will be called "Orange" in China, but sold under the classic "Sagwey" brand in the US and Europe, with a drastic price cut from $20,000 to $2,000. We'll capture the market first!

"Understood, Mr. Chen. A high-end brand image combined with affordable prices is a good strategy!" Lin Junfeng agreed.

Affordable.
In any case, compared to the original $2 for a hoverboard, $2000 is indeed quite affordable for North American consumers!
If there's no market for $2000, you can still make money with $200!

In its previous form, thanks to the efforts of domestic supply chains led by bosses from Jiangsu and Zhejiang, the cost of self-balancing scooters could be reduced to 600 yuan per vehicle.

Of course, now that SEG Micro owns the patent for its self-balancing scooters, Chen Mo won't let them do that!

Although Orange's legal department only has more than 30 lawyers, they still managed to establish themselves as the undisputed champions of Takihachi by stubbornly confronting Yu Dong and messing with Fang Chuanzi!
"Finally, there are two relatively important asset acquisitions!" Lin Junfeng's expression became even more serious: "Regarding the optical glass business and the micro cooling system business."

"First of all, there is optical glass."

This year, the entire glass industry is experiencing overcapacity and has entered a downturn. Many listed companies are divesting non-core or even loss-making businesses to recoup losses and shrink operations.

This presents us with a great acquisition opportunity!

Lin Junfeng pulled up several slides of the PowerPoint presentation.

"Currently, three companies have provided relatively clear solutions:"
Phoenix Glass: Its main business is actually real estate.

They are willing to sell their optical glass production line (including 3 coating lines), a 25-person R&D team, and a pool containing 12 optical coating patents.

The offer was 1.2 million, on the condition that we take over their existing customer orders of approximately 800 million by the end of the year and provide 6 months of transitional technical support.

Fuyao Glass: A well-known automotive glass manufacturer, which suffered losses this year.

They are willing to divest their optical glass division (including two precision die-casting production lines), a 40-person technical team (including five highly paid neon experts), and part of their specialty glass formulation library.

The quoted price is 9800 million, but this does not include existing customer resources (a separate confidentiality agreement is required), and we are prohibited from entering the automotive optics field for three years.

Qibo Group: A large glass group whose main business is float glass.

They are willing to sell their entire optical glass business asset package (including four melting production lines), a team of 50 people, and even the right to use a provincial-level optical materials laboratory.

The offer was 2.3 million, which included the transfer of relevant subsidies and qualifications, but they required us to retain the use of their original brand for three years.

Chen Mo clicked his tongue slightly as he listened to these quotes.

Although he wasn't particularly familiar with the optical glass industry, he didn't expect the initial investment to be so large.

"These prices don't sound cheap!"

Lin Junfeng adjusted his glasses and calmly analyzed, "Mr. Chen, you may not be very familiar with the market situation in the optical glass industry!"

"In fact, the offers from these three companies are already 'fire sale' prices, representing a third or even more discount compared to the actual value of their assets and previous investments!"

He further explained: "For example, Phoenix's 12 coating patents just helped Chrysanthemum solve the problem of glare on mobile phone lenses last year, and they are valued at 8000 million yuan on their own."

The neon expert team at Fuyao provided AF lens coating technology services for Sony last year, which would normally cost 300 million yuan a year, but now it's practically free.

Qibo's provincial-level laboratory receives 500 million yuan in government subsidies annually; they're even willing to transfer that qualification.
This is indeed a buying opportunity during an industry downturn!

As Chen Mo listened, he carefully looked at the documents and suddenly noticed a problem.

"Manager Lin, it seems like none of these three companies have complete production lines. None of them can cover the entire process from smelting and die casting to coating?"

Lin Junfeng sighed and explained, "President Chen, you've hit the nail on the head!"

"Due to the high technical barriers and risks, almost no domestic companies would invest heavily in building a complete optical glass production line."

People usually only specialize in one aspect.

Moreover, even international giants like Deutsche Foods, North American Containment, and ACG (Anime, Comics, and Games) don't have complete control over every aspect; many processes are completed through cooperation or outsourcing.

Many people are confused about the relationship between Chase and Shot.

To put it simply, SUT provides Zeiss with optical glass (raw material), while Zeiss is responsible for precision machining (milling, grinding, polishing, coating) and system integration!
There are similar processing combinations in China, such as Northern Boli + Shunyu Optics, and Huaxing Glass + Huarun Optoelectronics.

Lin Junfeng's meaning is now very clear: Orange Technology wants to enter the optical glass business, which can become a combination of Sulte and Zeiss, doing everything itself, from manufacturing raw materials into rough blanks and precision machining into optical components and optical parts, to integrating optical systems!
Chen Mo immediately fell into deep thought; the choice before him was clear.

They can either buy only a portion and become a "segment player" like others, or they can take this opportunity to buy the complementary assets and business lines of these three domestic companies and piece together a unique, even globally, full-industry-chain optical glass manufacturing capability.

The risks are, of course, obvious.

The one-time investment is huge; acquiring all three companies would cost close to 4.5 million yuan. Moreover, the industry is currently experiencing a downturn, which means expanding against the cycle and incurring a heavy asset and personnel burden.

Moreover, they're in the high-end glass sector, meaning they're directly competing with international giants right out of the beginner's zone!
However, it must be said that the opportunities are also enormous, and Chen Mo came up with a plan.
It's worth noting that in 2011, Jingdongfang's global LCD TV panel shipments were 2550 million units, monitor panel shipments were 1576 million units, and notebook computer panel shipments were 1410 million units.

All the optical glass substrates used in Jingdongfang's screens are sourced from North American companies such as Korn Ferry, German companies such as PT. and Japanese companies such as Asahi.

The three companies earn at least $15 billion annually from Jingdong, and this figure is increasing by 20% every year as the global screen market recovers.

If Orange Technology can produce optical glass with comparable performance but lower cost, it could snatch orders from Crystal East, and even ask Sanjing if they need optical glass substrates.
After all, Sanjing doesn't manufacture optical glass substrates itself; it still uses North American Kangning and Deguo Xiaote products.

It's quite interesting that Sanjing doesn't use products from Asahi Kogyo.

Once Orange Technology successfully secures glass substrate orders from the world's two largest screen manufacturers, it will have a strong advantage in cost control and technological synergy, and is expected to snatch a large share of the optical glass market from the global optical glass manufacturing giants.

Without a doubt, as long as domestic technology makes breakthroughs, foreign countries will not need to intervene administratively. Coupled with the cost advantages of the entire domestic industrial chain, domestic manufacturers will basically dominate any industry in terms of cost!

With a feasible and successful contingency plan in place, Chen Mo's confidence was strengthened.

If all else fails, Chen Mo can just swallow his pride and beg his superiors!

Practice makes perfect, and the squeaky wheel gets the grease!

If Jingdongfang provides about one-third of the orders, Orange Optics can survive.

Moreover, if we miss this industry downturn, the cost of future consolidation could be several times higher than it is now, and we might even face collective obstruction from the industry.

After thinking for a long time, a resolute look flashed in Chen Mo's eyes.

"This is a rare opportunity! Let Orange Technology find a way to get a loan and buy up all the optical glass businesses of these three companies that we can!"

Seeing Lin Junfeng's surprised expression, he continued, "We have to give it a try!"
Let's see if Orange Technology, which has the only complete optical glass industry chain in China, can snatch a piece of the pie from Xiaote, Kangning, and Xuxiaozi by relying on its advantages in self-developed technology, cost, and rapid response!
Even if it turns out that this path is too difficult and we fail, at worst we can transform into their OEM manufacturer and not lose too much money!
But if we succeed, it will be of great significance; we'll have directly seized a small segment of the global manufacturing industry!

These words were spoken both to Lin Junfeng and to encourage himself.

As the high-tech mobile phone R&D system continuously introduced Chen Mo to completely unfamiliar fields of technology, he had to keep moving forward to avoid having the technology but no production capacity, which would be ridiculous!
Lin Junfeng was impressed by Chen Mo's courage and nodded solemnly.

"I understand, Mr. Chen! I will immediately organize a team to conduct in-depth negotiations with these three companies to strive for the best price and terms!"

"Finally, this one!" Lin Junfeng's tone was more relaxed: "The acquisition of the micro cooling systems business!"

"You know HYC mobile phones, right?"

Their business is declining in China, and in order to recover, they are preparing to sell the entire business and team of their subsidiary, Micro-Sheng Electronics, which is involved in heat dissipation technology.

The offer was straightforward: 800 million yuan!

Chen Mo was very satisfied with the price: "Hmm, this is good. HYC's heat dissipation technology is quite well-known. Acquiring it will be of great help to Orange Technology in developing a micro-cooling system for mobile phones!"

After finishing his report, Lin Junfeng closed his notebook.

Chen Mo personally poured him more tea and praised him, "Manager Lin, you and your colleagues in the business team have worked very hard. You did an excellent job with clear thinking and a solid plan. I will tell Sister Gong to give your business team a special bonus!"

Lin Junfeng smiled and picked up his teacup.

"Then on behalf of the business team, thank you, Mr. Chen!"

After seeing Lin Junfeng off, Chen Mo silently thought that Chengke had now gathered micro motors, gyroscopes, optical glass, and micro cooling systems, clearly moving towards the field of high-end precision manufacturing!

He truly looks forward to seeing Orange Technology, once it reaches its full potential, become a global giant in precision manufacturing!
(End of this chapter)