Vertical-Integration Bet

The record

1. 1969

   Nucor

   Held

   Buy steel from suppliers or build its own mill to escape a supplier raising prices

   • Negotiate or find second source — Apply the conventional fix and keep buying raw steel from suppliers.
   • Build own mill — Construct an electric-furnace plant to make its own steel from scrap.chose this

   Stated reasonTo escape dependence on a single steel supplier that kept raising prices

   What happened

   • 1971 earnings: earnings jumped roughly 140% in 1971
   • 1972 earnings: earnings rebounded another 70% in 1972
   • 1989 flat-rolled steel capability: Crawfordsville became the first mini-mill in the world to make flat-rolled steel using thin-slab casting
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2. 2013

   Walmart

   Held

   Whether to pledge $250 billion in American-made purchases over ten years

   • Pledge American-made purchasing — Commit $250 billion to U.S. made, grown, or assembled goodschose this
   • Continue existing sourcing — Keep buying without a public American-made commitment

   Stated reasonA continuation of Sam Walton's 'Bring it Home to the USA' initiative, launched in 1985

   What happened

   • 2014 new jobs created: about 2,000 new jobs created in the first year
   • 2014 supplier base still in China: roughly 80 percent of Walmart's suppliers were still based in China
   • 2015 misleading American-made labels reported to FTC: more than 100 instances of misleading 'American-made' labels reported to the FTC
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3. 2019

   Spotify

   Held in part

   Vertically integrate audio to escape music's margin trap, and which layer to own

   • Own studios and shows — Buy studios to create owned podcast contentchose this
   • Own distribution and ad tech — Buy the distribution rails and ad-insertion layer
   • Stay a music-only service — Remain in the label-controlled music margin trap

   Stated reasonPodcasts had no labels, so Spotify could own the audio value chain and keep what it earned

   Committedapproximately €300M (~$343M) (Paid for Gimlet and Anchor, the February 2019 deals at the fork; later podcast acquisitions pushed the documented total past $800 million.)

   What happened

   • 2023 podcast margin / studio strategy: Ek called podcasting 'a drag to our gross margin profile'
   • 2023 podcast break-even: CFO said podcasting was on track to break even 'pretty soon'
   • 2023-06 staff and studio brands: laid off roughly 200 podcast staff and folded Gimlet and Parcast into a single 'Spotify Studios'
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4. 2020

   TSMC

   Held

   Whether to build a leading-edge chip fab in Arizona

   • Build fab in Arizona — Commit ~$12B to a US leading-edge fabchose this
   • Keep production in Taiwan — Retain leading-edge manufacturing in existing facilities

   Stated reasonA workforce, a supply base, and a running leading-edge fab on U.S. soil, the vertical footprint the whole exercise was for

   Committedabout $12 billion (cost of the first Arizona fab announced in 2020)

   What happened

   • 2024 first fab cost and schedule: price tag rose to $20 billion with full production delayed to 2025
   • 2024-10 production yields: yields about 4 percentage points higher than comparable Taiwan facilities
   • 2025-01 leading-edge production milestone: began producing 4nm-class chips, first time on American soil
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5. 2021

   Intel

   Held in part

   Whether Intel should build fabs to manufacture other companies' chips while also running as an integrated device manufacturer

   • Pursue IDM 2.0 foundry — Build fabs to manufacture other companies' chips while designing and making its own.chose this
   • Stay integrated-only manufacturer — Design and fab only its own chips without opening to external foundry customers.

   Stated reasonA patriotic bet to reclaim manufacturing leadership and bring chipmaking home

   Committedan estimated $20 billion (Pledged for two new Arizona fabs at the IDM 2.0 announcement; later annual capex followed from the choice.)

   What happened

   • 2023 Intel Foundry operating loss: operating loss of roughly $7 billion
   • 2024 Intel Foundry operating loss: a $13 billion operating loss in 2024, its first fully reported year
   • 2024-11-26 CHIPS Act direct funding award: finalized at $7.865 billion, cut from the up to $8.5 billion headline
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6. 2025

   UPS

   Held in part

   Whether to deliberately cut its largest customer's volume by more than half to trade scale for margin

   • Cut Amazon volume — Shed the highest-volume, lowest-margin tonnage to widen marginchose this
   • Keep Amazon volume — Retain the biggest customer and its network scale

   Stated reasonAmazon was the largest but not the most profitable customer; UPS chose to trade scale for margin by refilling capacity with denser, higher-priced business

   What happened

   • 2025 delivery expense overrun: $85 million overrun in delivery expense in a single quarter
   • 2025 Ground Saver volume: Ground Saver volume fell 23.3% in that same quarter
   • 2025 adjusted operating margin: revenue dropped to $88.7 billion, and adjusted operating margin climbed to 9.8%
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7. 1987

   Uniqlo (Fast Retailing)

   Held

   Whether to keep reselling other companies' clothes or become a manufacturer-retailer controlling the whole chain

   • Stay bulk-buying reseller — Continue reselling other people's clothes cheaply as a casual-wear warehouse
   • Adopt SPA manufacturer-retailer model — Control the entire chain from planning and design to material procurement to the price tagchose this

   Stated reasonThe bulk-buying reseller model had hit its ceiling within two years, so combining manufacturing and retailing let the company offer products customers really wanted

   What happened

   • 2012 HEATTECH units sold: grew from 1.5 million units in 2003 to 130 million by 2012
   • 2024 Consolidated gross margin and operating profit: 53.9% gross margin and ¥500.9 billion in operating profit in FY2024
   • 2024 UNIQLO Japan operating profit: record annual performance, operating profit of ¥155.8 billion (+32.2% YoY) in FY2024
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8. 2000

   Ericsson

   Reversed

   How to source radio-frequency chips: single-source from Philips or qualify a backup supplier

   • Single-source from Philips — Make Philips the sole provider for the RF chips to simplify the supply chain.chose this
   • Qualify a backup supplier — Redesign boards and pre-qualify alternate chip vendors to route around trouble.

   Stated reasonTo simplify its supply chain and streamline sourcing

   What happened

   • 2000-10 Manufacturing relocation program launched: board launched a 'Back to Business' program that relocated manufacturing out of Sweden and the US toward Eastern Europe
   • 2001-10 Handset unit folded into joint venture: Ericsson folded its standalone handset unit into the Sony Ericsson joint venture
   • 2000 Phone shortfall from chip outage: shortfall estimated at 7 million phones
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9. 2003

   BYD

   Held

   Should the battery company integrate forward into building cars?

   • Integrate forward into cars — Buy an automaker and wrap the cell business around a carchose this
   • Stay a battery maker — Remain focused on rechargeable cells as before

   Stated reasonA company that makes batteries first and cars second carries the cheapest, hardest-to-copy part of an EV in its DNA

   CommittedHK$269 million (Acquisition price of Xi'an Qinchuan Automobile)

   What happened

   • 2023-09 cost to produce vs Model 3: BYD Seal production cost ~15% lower than the Shanghai-built Tesla Model 3
   • 2023-09 share of components made in-house: about 75% of Seal components self-produced vs 46% for the made-in-China Model 3
   • 2024 revenue: 2024 full-year revenue RMB 777.1 billion, up 29% year on year
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10. 2010

    Caterpillar

    Held

    Whether to consolidate U.S.-bound excavator output in a new Texas plant or keep producing in Japan for export

    • Build Texas regional hub — Consolidate U.S.-bound excavator output in a new Victoria plantchose this
    • Keep exporting from Japan — Continue producing U.S.-bound excavators in Akashi and shipping across the Pacific

    Stated reasonPut a plant near each pool of demand so U.S.-bound output is made in the U.S. while Akashi serves Asia, cutting freight on heavy machines

    Committed$200 million (Investment in the Victoria, Texas facility)

    What happened

    • 2012 Akashi plant fate: The Japan plant stayed open and became more focused on serving Asian customers rather than closing
    • 2019 layoffs: Roughly 120 temporary Victoria workers told their assignments were ending amid the trade-war slump
    • 2025 hiring/expansion: Caterpillar announced it would add 200 positions at Victoria, a facility employing around 600 people building hydraulic excavators
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11. 2011

    Toyota

    Held

    After the 2011 quake exposed lean's fragility, should Toyota abandon just-in-time or buffer only its critical parts?

    • Buffer only priority parts — Mandate 2–6 months upstream stock for ~500 line-stopping parts including chipschose this
    • Abandon lean, stockpile everything — Hold more inventory of all components to absorb any shock
    • Keep pure just-in-time — Maintain classic lean with near-zero buffers everywhere

    Stated reasonEngineer around lean's single failure mode by buying slack only at line-stopping choke points and pushing the cost upstream

    What happened

    • 2021-09 October 2021 production plan cut: cuts of ~70,000 units in September and ~330,000 in October; full-year forecast trimmed from 9.3M to 9.0M
    • 2021-10 monthly output below plan: output of roughly 500,000–600,000 units a month, well below plan, with a further 100,000–150,000-unit shortfall flagged for November
    • 2022 further production cut: a further ~150,000-unit cut for February 2022 pulls the full-year forecast below 9 million units
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12. 2012

    GE Appliances

    Reversed

    Whether to reshore GeoSpring water-heater production to Louisville

    • Reshore production to Louisville — Bring GeoSpring production back from Asia to Kentuckychose this
    • Keep production in Asia — Continue producing the water heater overseas

    Stated reasonTo prove lean assembly and a re-engineered supply chain could beat cheap overseas labor at home

    Committed$38 million (Investment in the reshored GeoSpring water-heater plant)

    What happened

    • 2016 GeoSpring production: GE Appliances (by then owned by Haier) announced it would stop making the GeoSpring at the end of 2016 because of low sales
    • 2016 workers affected: end of GeoSpring production affected about 300 hourly workers and 23 salaried employees
    • 2018-03 manufacturing equipment location: manufacturing equipment was moved to Bradford White's Middleville, Michigan facility after March 2018
    Read the full analysis →