Wolf Richter
www.testosteronepit.com www.amazon.com/author/wolfrichter
Cisco CEO John Chambers gushed with positive vibes during the
earnings call on
Wednesday: “unbelievably strong results,” is what he called the fourth
quarter. He talked about record revenues. “We have strong momentum,” he
said, “very solid execution,” that allowed the company to close “a very
successful fiscal year.” But he lowered guidance, lamented the debacles
in China and Japan, announced “workforce rebalancing” to axe 4,000
people, mostly middle managers – that’s 5% of the company’s global
workforce – and estimated write offs of “up to $550 million.” Then he
uttered the word “lumpy.”
He’d used that word before – to describe growth in the US during the
earnings call on
November 7, 2007, weeks after the S&P 500 and the DOW had set
all-time highs, when the market was still jubilant and oblivious to the
hissing from the housing bubble and the stench from the banks.
That November, too, Mr. Chambers brimmed with optimistic energy. It
was a phenomenal quarter. Revenues jumped 17%. He talked about the
factors that were “driving our current growth to these record levels,”
and why they’d be able to maintain that growth. “Over the last 17
quarters, our growth in terms of orders at Cisco has averaged in the
mid-teens,” he said. “This quarter continues that momentum. So, “with
the appropriate caveats, our long-term guidance should be in the 12% to
17% range year over year.” Growth numbers from corporate nirvana. Then
the appropriate caveats. “Probably as a surprise to no one,” he said,
they were experiencing “some softness,” and growth in the US would be
“very lumpy.” The Financial Crisis was next.
This time around, he was just as chipper. “Q4 was a record quarter on
many fronts with record revenues of $12.4 billion and record non-GAAP
operating income, record non-GAAP net income….” You get the idea. And
then the first warning: “…despite the challenging macroeconomic
backdrop.”
He is a unique gauge into the world economy: one, because of Cisco’s
global reach, he can take the heartbeat of corporate and government
demand around the world; and two, because he knows how to issue a
warning.
As in November 2007, the warning was sandwiched between bouts of
enthusiasm and talk of opportunity…. How Cisco was “leading many of the
technology transitions” and tidbits like “revenue growth of over 30% in
our wireless business.” He raved about the data-center cloud business
whose revenue grew “over 40% year-over-year in the most recent quarter,
and we’re not stopping” [not until Edward Snowden’s revelations appalled
Cisco’s foreign customers; my take....
NSA Pricked The “Cloud” Bubble For US Tech Companies].
Product orders grew only 4% year over year. But in the US, there was
“continued momentum,” with enterprise orders up 9%, commercial up 12%,
and the public sector up 4%. Or at least a “solid minimum,” as he called
it a little later. “This recovery is more mixed and inconsistent than
the others I’ve seen,” he said.
Alas, in China and Japan, the second and third largest economies in
the world, and in some of Cisco’s top emerging markets, including
Brazil, the lumps appeared. In China, “we saw the same weakness many of
our peers experienced,” he said, but the company was continuing “to work
through the challenges,” and orders declined “only 6%.” And in Japan,
where Abenomics has become the religion of salvation? “They’re down in
the teens,” he said. Maybe
down 15%?
The order debacle in China and Japan was woven around India, where
orders jumped 19% – he wasn’t “doing back flips on any of the major
countries” in Asia “other than India,” he explained. Mexico was up in
the “double digits” and Europe 6%. But Brazil and Russia were
“approximately flat.” So, on a macro basis, it would be a “mixed
environment.”
It was that kind of dance. And so, he expected revenue growth to be
“in the range of 3% to 5% on a year-over-year basis” – down from prior
expectations of 5% to 7%, and down from the 12% to 17% range he’d
offered as “long-term guidance” during the earnings call in November
2007, a month before all heck broke lose.
He saw an economic recovery that was “slower and more inconsistent”
and global GDP that was “continuing to sit down for calendar year 2013.”
And laying off 5% of the workforce? That was “just good business
management,” given the “inconsistent data even in our own operations,”
which was “more lumpy than I’d like to see.”
But he had a consolation. It wasn’t Cisco; it was the economy: “our
peers in the high-tech industry, many of them are going flat or
negative,” he said.
In 2007, it was the US where demand had been “very lumpy.” This time
around, the US – which was “kind of the good news” – was “one of the
strongest engines right now in the world.” But then he lamented GDP
growth in the US, which “has been projected decelerating from what we
would have thought just one or two quarters ago,” he said. And that’s
where the warning hit: China and Japan were having deep problems, the
US, the strongest engine in the world economy, was losing what little
steam it had, and everything was connected, even more so than in 2007.
So this could get tough.
Home prices have jumped in some cities over 20% on an annual basis.
“Recovery of the housing market,” is what this phenomenon is called.
Everyone from President Obama on down has taken credit for it,
particularly the Fed, whose handiwork this is. But there is a very ugly
fly in this illusory ointment. Read….
“How The Wealth Effect” Mucks Up The Housing Market.
(FTMDaily.com) In this segment, Jerry Robinson is joined by Dr. Steve Hanke to discuss his work at the 