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On December 1, 2017, vlookup90 commented on Selling Chinese Aircraft in a Protectionist US Climate :

It’s a very interesting market for the Chinese to try and penetrate – it seems as though in the majority of other manufacturing sectors that China has disrupted in the past 15 years, it has done so by providing a lower cost but lower quality product and often for more commodity-like goods. However, I think you rightfully point out that the aviation market lies in stark contrast to those traits, with heavy regulatory oversight enforcing strict quality standards. I am curious to see how China does when it its products are not able to compete just on price.

The main question that came to my mind when reading your article was how the end-consumer airline demand impacts this equation. The major US airlines all have customized, reconfigured, homogeneous fleets for specific types of aircraft / routes, which allows them to standardize both the product offerings they provide to clients and their maintenance / upkeep logistics on the aircraft. I would be curious whether the airlines believe there is any cost to adding an additional aircraft to their existing fleet composition (assuming that no airline fully switches their entire narrow or widebody choice from Boeing/Airbus to COMAC) due to either of these factors, and if so whether that would offset the lower price of the COMAC aircraft and thus lower the economic viability of COMAC’s products.

Very interesting read. One initial thought that I had was whether the timing and impact of this paradigm shift will be influenced at all when incorporating the technological capabilities of autonomous vehicles to execute the first- and last-mile portions of trips. For example, the first example cited in this memo only addresses the portion of the drive that the truck spends on the highway. Evidence to the current date suggests that self-driving technology has been significantly more successful at achieving progress on highways versus more smaller and more heavily populated streets, where all trips must invariably begin and conclude.

Another consideration is whether regulatory bodies, the trucking companies, and the customers will all be comfortable with the notion of goods being transported by autonomous vehicles, particularly for higher value goods that carry more risk of transportation mishaps. One alternative middle ground could be “partially” self-driving trucks, where a driver manually conducts first and last mile (ie. does all the non-highway driving), and the ADS only takes over on the highway (where I would assume accidents are more common during long hauls).

Finally, another consideration here to consider is that the general assumption seems to be that autonomous vehicles will naturally be better suited for electronic vehicles for a number of technological and logistical reasons. While Telsa has unveiled their plans for an electric-powered truck, this would beg the question of whether the necessary charging ecosystem existed for trucks to use, and again what complications that might engender if it requires the truck to exit the highway.

On December 1, 2017, vlookup90 commented on How Big is Amazon’s Opportunity in Healthcare? :

I completely agree with your prognosis that the downstream market seems as though it will be significantly more attractive to enter for Amazon than the upstream market. In addition to the current concentration among existing wholesalers and low profit margins, the manufacturing process could entail significant legal and regulatory exposure that I do not believe it is within Amazon’s core competency to manage.

On the other hand, I concur with your analysis that there should be an opportunity for Amazon to take share on the consumer side. It doesn’t surprise me that currently most consumers do not utilize direct shipping – existing pharmacists have an incentive to push consumers into the pharmacy where they generate higher margin sales and develop more stickiness through person-to-person pharmacist / customer relationships. I think the ultimate difference with Amazon though is the appeal to a consumer of rolling their medical purchases into their existing Amazon consumption behavior. I do think there is a difference between creating a Walgreens / CVS account just to order one recurring medication from them versus being able to add an order to your Prime checkout basket. Amazon might even have an opportunity to create a system where patients could have doctors place the order directly with Amazon (would be same to medical provider as sending the prescription to the customer’s pharmacy), which makes it even easier for the customer. The growing supply of generic drugs in the US makes this even more attractive, since brick-and-mortar pharmacies will not have the same value-add quality differentiation in the generic market that they might have in more specialized medications.

While Walgreens / CVS could respond to a shift in customer preferences by increasing marketing of their own direct shipping options, I think it is clear that Amazon would have significant advantages in terms of distribution economics. As part of their current business model, pharmacies are paying the working capital cost to hold inventory at local retail locations, but it is not readily clear that their inventory management systems would allow them to seamlessly utilize this inventory for home delivery. For example, whereas Amazon could centralize shipping logistics at their distribution centers, existing pharmacies would have to add some functionality to their existing operations for pharmacies to take brick and mortar inventory and package it for last-mile delivery, which the pharmacy then either has to contract or build out.

While I don’t doubt that Amazon could capture market share in parts of this segment if they so chose, the first question I have is whether or not those revenues would actually be profitable. In a little bit of a catch-22, Amazon would be the most competitive on low-cost, generic drugs, but those are also the products with the lowest merchandising margin and thus might not leave room for significant all-in profitability after accounting for shipping. The second question I had was whether Amazon would open itself to legal or regulatory liabilities even if it only participated in the downstream retail function as you described.

On December 1, 2017, vlookup90 commented on Profits Starting To Wind Down: A Setback for Wind Turbines? :

I was surprised to see that the net result of lower wind energy prices would be negative pressure on profitability for turbine manufacturers like Vestas, given that the expectation would be the lower prices would increase demand for the product and thus be supportive for volume growth. While it’s reasonable to think stronger demand would lead to increased competition, I would have expected the percentage change in volumes to outpace any potential price pressure, especially if the major suppliers were collectively operating near capacity (in which case there would be no reason to see deflationary price competition).

This analysis leads me to believe that profitability is not suffering from increased supply competition, but rather from Vestas’s ability to efficiently scale their own production from an operational standpoint. It’s important to remember that failing to meet contracted production milestones for a manufacturer like Vestas can be incredibly costly, since utilities have usually already agreed to sell the expected energy production to local governments under long-term power purchase agreements (PPAs), and turbine manufacturers like Vestas generally agree to pay the generation company’s penalties if the power cannot be produced due to the manufacturer’s inability to meet the agreed upon timeline. I believe a few of the facts provided in your memo would support this interpretation – A) Vestas has chosen to invest in product development rather than R&D, and B) the commentary from management indicates that profits were hurt by production delays and increasing backlogs.

If the above is the case, then I actually believe that spending additional investment in R&D would not be the best solution. Rather, Vestas should spend money analyzing their own production process and identifying any structural flaws that would prevent them from growing production at a fast enough rate to keep pace with growing demand.

On December 1, 2017, vlookup90 commented on Will Cash Always Be King? What Does It Mean for ATMs? :

A very interesting read. While I initially thought that an opportunity might exist for NCR to expand the functionality / capabilities of their current ATM machines, upon further consideration I question whether this will drive meaningful growth for them. I would assume that the bulk of NCR’s business in this segment comes from building new ATM machines, meaning that expanding functionality will not change the usefulness of existing machines, and thus will not impact core consumer trends to use ATM’s (unless NCR pays to upgrade them, which I would assume would be very expensive).

However, a bullish outcome of the situation could be if banks felt that the upgraded systems were so much better and central to some core initiative of a bank to drive more in-person traffic at their branches, then there could be an off-chance where banks actually find it economically logical to pay NCR to upgrade their existing ATM footprint, which would create an enormous opportunity. Thus, understanding the banks incentives in this matter seem like a key question that would need to be further investigated in order to determine what the net impact will be on NCR.

On December 1, 2017, vlookup90 commented on Supplying the World’s Thirst for Data… Storage :

I completely agree that data will become an increasingly important part of the corporate ecosystem as technology continues to progress. As another commentator already mentioned, I believe that the advancement of artificial intelligence / machine learning software will be a primary driver of this acceleration. What I am curious to learn more about is:

1) what options currently exist for enterprise data storage (ie. data centers, cloud, etc)
2) what are the current primary drivers influencing how corporations choose between those options today (ie. price, access, value-add services, etc)
3) why IBM is particularly well suited versus competitors to meet the data storage needs of the future

Another interesting variable in this equation is the role that blockchain technology could play. For example, a number of companies have already begun emerging whose business model is paying individuals for their computing power while they are not using their computers – if this solution becomes technologically viable on a large scale, I am curious how that would impact the supply / demand economics of IBM’s data storage business.