Coyote Blog

Most of you are familiar with the razor and blades strategy:  Give away or sell the razor below cost to ensure years of profitable razor blade sales.  We had a great example of this at AlliedSignal (later Honeywell) Aerospace where we pretty much gave Boeing the brake assemblies for the aircraft plus a free spare plus I think we put some cash in the box as well, all to get decades of guaranteed high price brake replacement business (courtesy in part to government regulation which made is extraordinarily difficult to the point of being impossible for anyone else to produce aftermarket parts).

So what I don't understand is, why is this company proposing to sell only the razors while inevitably leaving the blade sales to someone else:

The UK's biggest bookstore chain has announced that it will start selling Kindles alongside other digital services from Amazon. Waterstones stores will let Kindle owners digitally browse books in-store and link up with special offers, tying into the chain's plans for substantial renovations that would also include dedicated digital book areas and free WiFi.

One buys the books right from the Kindle interface.  I understand the issue that browsing books online is less satisfying than in a book store (but much more convenient), but I am not sure how they are going to make money.  Are Waterstone Kindle's coded to give Waterstones a share of each purchase?  I can't find anything like that in the media reports, but I would certainly demand that at Waterstones.  If not, this is like selling gift certificates for your competitor.

I will confess to being a book store free rider.  I shop airport book stores but if I see something I like, pull out my iPad at the gate and buy it.  Yes, I understand the appeal of physical books and it frankly pulled at me for years.  But having just gone on a trip with 100 pages to read in the third Game of Thrones book, the relief I felt in having both the third and fourth books on my iPad rather than carrying both physically  (think 800 pages or so each) was great.

It would be impossible to trace all the ways taxpayer money ends up in the coffers of solar manufacturers like First Solar.  Most of First Solar's money has been made selling panels in Germany to solar plants that, by law, can rape electricity customers with prices 10-15x higher than the market price for electricity.  First Solar also benefits more directly from direct subsidies, loan guarantees, "retraining" subsidies and even government Ex-Im Bank loans to sell panels to itself.  While First Solar vehemently denies it is a subsidy whore, it is telling that when Germany began to cut its solar feed-in tariffs, First Solar's stock price fell from over $300 to around $20.  Just watch day to day trading of First Solar stock, it does not move on news about its efficiency or productivity, it moves on rumors of changes in government subsidies.

Let's look at one subsidy.  In 2010, the Obama administration gave First Solar a subsidy of $16.3 million, ostensibly to help open a new plant in Ohio.  But it is interesting that this private company, which apparently could only raise the $16.3 million it needed by taking it by force from taxpayers, had plenty of money to pay its CEO.  In the 13 months leading up to its $16.3 million taken from taxpayers, First Solar paid its new CEO $29.85 million!  

Rob Gillette, the ousted CEO of First Solar Inc., earned more than $32 million in compensation from the struggling company for his two years of service, according to a regulatory filing Wednesday.

Gillette came to First Solar from Phoenix-based Honeywell Aerospace in October 2009 and was fired by the Tempe-based solar company's board of directors in October 2011....

Most of his compensation came in the three months of 2009 that he worked, when his total compensation, including salary, bonus, stock and options awards and other perks, reached $16.55 million. In 2010 his total compensation was $13.3 million, and last year he earned $2.46 million, which consisted of $763,000 in base salary and a $1.7 million severance.

Yep, they can't scrape up $16.3 million of their own money for a factory but they can find $30 million to give to an unproven CEO they eventually had to ride out on a rail.

By the way, I don't know Mr. Gillette, but I was once an executive at Honeywell Aerospace for several years.  I can tell you that it's a great place to find an executive who is focused on process to manage large complex organizations in a relatively stable business where manufacturing, logistics, and schmoozing large buyers is important.  It is a terrible, awful place to seek an executive for a fast growing business that needs to rapidly shift business strategies and where grinding through the process gets the wrong answer 12 months too late.

I worked for several years for AlliedSignal engines, now Honeywell, here in Phoenix.  At our main engine plant here, we endured a couple of union organizing campaigns that both fell just shy of winning a position for the union.  A reasonable manager might expect that under the Democrat's proposed card-check system which replaces anonymous votes with open petitions, that enough hijinx could be brought to bear to put the union over the top.  I don't now if this is what they have in mind, but...

Phoenix-based Honeywell Aerospace plans to move 700 manufacturing jobs from Phoenix to Mexico and the Czech Republic.

Employees were notified Thursday of the cuts, which will begin in the second quarter of 2009 and continue for three years. Most of the job cuts are expected in the first year.

Workers who asked not to be identified said the news caught employees completely off-guard.

I think the timing just a day after election results in, and the level of surprise, are telling.  Time to get this done now, before the owners have to go cap in hand to their employees to ask permission to run their business as they see fit.  I thought this last bit they added brings a nice irony to the situation:

The announcement came two days after Barack Obama, who has promised to take a hard line with companies that move manufacturing jobs overseas, was elected the 44th U.S. president.

Whatever that means, but it does give yet another reason to get out fast.