One Up On Wall Street by Lynch Peter & Rothchild John

Author:Lynch, Peter & Rothchild, John [Lynch, Peter]
Language: eng
Format: epub
Publisher: Simon & Schuster, Inc.
Published: 2012-02-27T16:00:00+00:00

BEWARE THE MIDDLEMAN

The company that sells 25 to 50 percent of its wares to a single customer is in a precarious situation. SCI Systems (not to be confused with the funeral-home firm) is a well-managed company and a major supplier of computer parts to IBM, but you never know when IBM will decide that it can make its own parts, or that it can do without the parts, and then cancel the SCI contract. If the loss of one customer would be catastrophic to a supplier, I’d be wary of investing in the supplier. Disk-drive companies such as Tandon were always on the brink of disaster because they were too dependent on a few clients.

Short of cancellation, the big customer has incredible leverage in extracting price cuts and other concessions that will reduce the supplier’s profits. It’s rare that a great investment could result from such an arrangement.

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