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Corporate executives brave out economic woes

Posted: 11 Feb 2008     Print Version  Bookmark and Share

Keywords:economic slowdown  tech CEO  stock market 

If Cisco Systems Inc. chairman and CEO John Chambers, and some other corporate heads put on more than a few pounds in coming months, U.S. network news channels and the pundits they interview on economic issues will be considered partly to blame.

Chambers has been cutting back on his exercise and trending towards foregoing his rigorous early morning workouts because of the depressing pile of negative economic and stocks market news churned out daily by cable business channels.

"I think we are actually talking ourselves into this [economic] slowdown," Chambers told analysts during a conference call held to discuss the company's fiscal 2008 Q2 results Feb. 6. "Over the last three or four months, I felt pretty good about business until I got on the treadmill—and then I quit early because of the pessimism that exists in the market."

Chambers is not alone. Over the last few weeks as U.S. companies reported results, a few executives have laid some blame for the perception—or reality—that their businesses were slowing on cable TV and radio talking heads.

Economic pessimism
Analysts, commentators and network news presenters are literally pounding the global economy into the ground by overstressing negative business developments and not emphasising enough the obvious signs of strength that corporate executives are seeing in their operations, according to the executives.

"I have the same caution that I think everybody in America who watches CNBC has today," said Paul Otellini, president and CEO of Intel Corp. on Jan. 15 while presenting Intel's Q4 07 results to investors.

"You hear all of the pundits saying that the world is going to go to a trash basket and you worry," Otellini said. "It may be a self-fulfilling prophecy."

Like Chambers, Intel's Otellini hasn't seen "anything on the horizon" that would justify such pessimism. In fact, "our customers don't see anything on the horizon," he said.

Still, the negative news continues to pour in, although it's no longer clear whether it is now driven by actual economic weakness resulting from the U.S. real estate downturn and subsequent lending restrictions imposed by financial companies or by mere cautionary actions at corporations and consumers.

On Thursday, for instance, preliminary figures from the UBS-International Council of Shopping Centers indicated that U.S. retailers posted their weakest January performance in about four decades on slumping consumer demand.

Retailers from Wal-Mart to Nordstrom reported weak sales for the month, and economists concluded this was probably due to tighter spending controls by consumers concerned about the economy.

Playing it safe
The slowdown is real, concedes Cisco's Chambers, who added that company sales weakened in January as fears of a growing economic slowdown spread globally, hurting stocks at public companies.

"When I talk to many CEOs, most of them would start with 'I feel pretty good about my business, but I don't like what I'm hearing and seeing'," Chambers said. "That increases when you see the large movements on their stock."

Cisco's stock took a pounding in after-hours trading following Chambers' comments, dropping more than 3 per cent in regular trading on Thursday.

Investors were reacting to something greater than mere perception of economic weakness, however. Frank Calderoni, who takes over this month as Cisco's chief financial officer, said the company's revenue growth would slow in the current quarter to 10 per cent, down from the traditional 12 to 17 per cent rate.

The lower growth rate forecast isn't necessarily due to actual signs of economic weakness, argued Chambers. Companies in the developed world are merely being cautious with their spending because of worries about the economy; customers in developing countries see signs of growth ahead, he said.

"It's probably as cautious as I've seen CEOs in the United States and Europe in many years, and it isn't that they've changed budgets dramatically," Chambers said. "Our customers in many of the emerging countries, especially in India, China and the Middle East, remain optimistic about their business momentum."

To boost morale and regain his love for a sweaty, early morning workout on the treadmill, Chambers might want to keep his satellite TV fixed on more positive business news channels in the Far East.

- Bolaji Ojo
EE Times

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