Items of interest in the documents:
1. Celestron paid $3 million to Sunny to help keep Meade afloat. If you think that a settlement in this case will raise prices consider that if Celestron is making advances to help Sunny keep Meade afloat--people who buy Celestron gear are paying for that.
2. The industry roughly categorizes itself as low and medium end and high performance.
3. The agreement between Synta and Sunny basically saw Synta forfeit the low end manufacturing (thus cutting off an alternative for low end telescopes to Orion) in order to concentrate in the middle and high end. This suggests that there is some basis to perceptions on these lists that Synta/Celestron/Skywatcher having been "doing very well lately" in quality production.
4. Explore Scientific is characterized as a small player, low end working with JOC.
5. Celestron/Synta/Skywatcher settled with Orion. Part of this appears to be that Celestron was unhappy with the financial advance to Meade and thought a continuation of such practices would raise issues with its auditors and its banks.
6. The annual U.S. sales of "recreational telescopes" are characterized as north of $100 million annually. In other words, the entire astronomy market is a rounding error for a company like Exxon (by way of example). I remember during the Meade acquisition I back-of-the enveloped U.S. sales as around $100 million so this appears to be broadly correct. I think all I did was add gross earnings of Meade and Celestron together and double them for "everyone else."
7. The overwhelming importance of credit in the industry. Most people don't know this but manufacturers advance inventory on credit with the expectation they will get paid back on the sales of what they have made. This came up for example during the Sears and Toys R Us bankruptcy proceedings when very critical to the (dis)continuation of the companies was the growing reluctance of manufacturers to advance inventory on credit. In any case it is a very old practice: Adam Smith discusses the importance of credit in making it possible for businesses to reduce the cost of inventory in Wealth of Nations.
Let us say you have $1,000,000 of inventory which is advanced to you on 90 days credit at 10%. 10% annually on $1 million would be $100,000, for three months it would be $25,000. So for $25,000 you get control of $1,000,000 in inventory which makes capital 2.5% of your total cost.
You never actually pay the $1,000,000. You get another $1,000,000 in inventory and continue to pay your $25,000 every three months on a rolling basis. This is why a change in interest rates can have a big impact on profitability, if you are in a thin margin industry and operating on borrowed inventory a rise in interest from say 10% to 20% becomes 5% of your expenses and eats into your thin margin. If a manufacturer raises your inventory borrowing cost but does not raise the cost to your competitors, then it is forcing you into a losing situation. If a manufacturer refuses you credit, you are in for very hard times and may be forced to cry "uncle." (As with Sears and Toys R Us, but it doesn't have to be a bankruptcy proceeding, maybe they just don't like what you're up to.)
It is also why VOLUME is so critical because you need to keep product moving to make expenses and pay the interest charges for your next delivery of inventory.
I once talked to a stamp dealer (postal stamp collectors, etc.) who had a $50,000 line of credit which he used to buy stamps he knew he could sell and had a rolling monthly interest cost on the $50,000 of borrowed money. When his bank decided to cut back his line of credit in order to reduce its exposure to unsecured loans, he was forced to cut back inventory, and without a variety of products to put into his newsletter he lost customers and got into a downward spiral. (This was in the days when you sent a snail mail letter to your customers.)
Anyhow one of the things in the suit is, specifically, the withholding of credit by Sunny and Synta. You wouldn't think that you can force someone into lending you money but it is in fact actionable if, as in this case, they are using it to force you to price according to their wishes.
Also mentioned in the documentation is a refusal of the companies to consider making products designed by Orion for Orion; and their proclivity for taking products designed by Orion and selling them under their own brand. Which of course is intellectual property theft and very much in the news.
The deeper picture here is the extent to which distributors can fall under the sway of foreign manufacturers bent on vertical integration and securing control over a market. There are far bigger stakes here than the telescope market. There has been a lot of discussion about how Google has tailored its product to get into the China market but the next step (this is, afaik, a prediction) will be how Google is being told to alter its product in the United States, as a "price" for having access to the China market (that of course is not manufacturing). Any company with a strong dependence on China manufacturing is potentially vulnerable, Apple for example, and who knows who else.
regards
Greg N
Edited by gnowellsct, 01 April 2019 - 06:34 PM.