I don’t follow Apple simply because I like their products, which I do. I also follow Apple because they’re an amazing example of a well run company at a huge scale. This is a company that knows how to convert capital into profit. Sometimes their investments take many years, but the payoff is huge.
My fascination with Tesla is similar but for the opposite reason. Tesla is a cautionary tale into how not to run a business. They are the complete opposite of Apple. Tesla is a company that seems unable to turn capital into profit. Investors have poured well over 10 billion dollars into this company and yet Tesla’s business of manufacturing cars returns almost nothing in return. When you subtract government regulatory credits there is no profit and free cash flow is negative.
It’s fascinating to watch companies that seem to make either all the right or all the wrong decisions. With Apple, you can typically guess what they’re going to do if you start to crunch profitability models. This is something I took a stab at a while back when looking at their Mac business. About a year and half ago I postulated that Apple might kill off the 13” MacBook Pro. Here is some of my conclusion at the time:
Even though Apple has been non-committal about bringing the new design to the smaller MacBook Pro, Apple could continue to produce the MacBook Pro line as it always has without dropping any models. However, like a financial Doctor Strange looking into the future, I don’t see any scenario where that doesn’t lead to reduced gross margins for Apple
Now in hindsight, I can give props to Apple for thinking outside the box. They did come up with one scenario that I didn’t think of which didn’t result in lower gross margins. They drastically cut the cost of manufacturing via a technological breakthrough.
It’s a manufacturing axiom that the less components which are in a bill of materials, the lower the cost of manufacturing. Less components means less labor, less tooling, less inventory, lower warranty costs, less time to assemble, and lower overhead. It’s a win on multiple levels.
The iPad Pro is a highly profitable product. And Apple took what they learned from the iPad and applied it to the Mac. It was a brilliant solution which I should have seen coming.
It’s fascinating to watch companies that seem to make either all the right or all the wrong decisions. With Apple, you can typically guess what they’re going to do if you start to crunch profitability models. This is something I took a stab at a while back when looking at their Mac business. About a year and half ago I postulated that Apple might kill off the 13” MacBook Pro. Here is some of my conclusion at the time:
Even though Apple has been non-committal about bringing the new design to the smaller MacBook Pro, Apple could continue to produce the MacBook Pro line as it always has without dropping any models. However, like a financial Doctor Strange looking into the future, I don’t see any scenario where that doesn’t lead to reduced gross margins for Apple
Now in hindsight, I can give props to Apple for thinking outside the box. They did come up with one scenario that I didn’t think of which didn’t result in lower gross margins. They drastically cut the cost of manufacturing via a technological breakthrough.
It’s a manufacturing axiom that the less components which are in a bill of materials, the lower the cost of manufacturing. Less components means less labor, less tooling, less inventory, lower warranty costs, less time to assemble, and lower overhead. It’s a win on multiple levels.
The iPad Pro is a highly profitable product. And Apple took what they learned from the iPad and applied it to the Mac. It was a brilliant solution which I should have seen coming.
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