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No. of Recommendations: 5
I wonder how this would look based on something like operating profit or free cash flow instead of revenue?

I was not aiming at precision and the two companies are so different that I doubt any more fine tuning would be helpful. There is a huge difference in philosophy for one, and in each company's position in their technology adoption curves.

When Henry Ford installed the assembly line Ford was vertically integrated. I believe they even had iron mining interests. Early on IBM was also vertically integrated from basic research to manufacturing and sales. MaBell owned Bell Labs, they created the "C" language to write the Unix OS to run their digital phone exchanges. Tesla is following the same path.

What happened to IBM? They figured that PCs were just toys so just as well to make then with off the shelf components. This is called "horizontal value chain" and it has lots of advantages over vertical integration but in IBM's case they gave away the business first to Intel and Microsoft, and later Dell and Compaq ate the rest of their PC lunch. In horizontal value chains you must own the key technology to become the giant leader and controller. All IBM contributed to the PC was its name. Intel was at the core of microprocessors and Microsoft at the core of the OS. In more general terms, innovators need to be vertically integrated to retain control. Mature industries are more efficient using horizontal value chains.

All the above to say that Apple by now is mostly mature and the crap is showing. Apple outsources manufacturing to FoxConn. All the noise about the Apple EV is going nowhere because Apple is looking for partners to build it (like Intel and MS building the PC?).

Safari on iPad

Rant over!


My objective was to try to make sense of Mr. Market's valuation of Tesla, is he thinking tulip bulbs or reality. From a macro point of view, the "S" and the "TALC" curves, Tesla made perfect sense to me, but was the price right? I think the Apple comparison says it is. I would not take it further.

Denny Schlesinger
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