We have been hearing a lot of things
(mainly negative)about the US economy for the last two months. There is
a lot of hype as compared to reality.
a). The economy in the previous year has grow by
10% whereas this year the growth has been 1%. Note that there has been
no negative growth. This again is mainly in the areas of manufacturing
and retail, areas that touch the common man like automobiles, supermarkets etc.
B.
In the USA corporate organization are mainly driven by Wall Street
projections. Hence if a company is not able to meet Wall Street
projections in a particular quarter the share prices get driven down.
There is a lot of panic reaction on the part of organizations which does not
necessarily reflect the ground reality.
c. Lay Offs announced by
Dot Coms and some blue chips like Lucent and Motorolla have made
headlines. Lets look at this from a more objective point of view:
1. Dot Com
failures:
As you are aware a number of
dot com's came into the market without a realistic business model and
without solid foundations, it was a question of time before they
crumbled. The Dot Com employers also gave fancy stock options, great salaries, good designations and a great work
environment and hence attracted a lot of talent.
Unfortunately it needs more that just this to run a successful
organization. Hence the failure was more because of the shallowness of
their business models and not related to a slow down of the economy. The dot com bubble would have
burst irrespective of
who is in the Government and irrespective of a slowdown in the economy or not.
2.
Lucent:
Lucent is a brand name that we
all know so well and have grown up with a positive feeling about this
company. Who can forget AT&T bell labs and their inventions. So when
their share price plunged from the $90 range to under $10 it was a rude
shock to everyone, they slashed work force by 10000. Where did the slash
and what was the reason. Lucent as an organization is a huge in size and
this elephant failed to note the changes happening in the market - the
biggest opportunity they missed was Optical Networking - an area which
was seized by smaller start ups like Juniper Networks
- check out on Juniper's share prices and their
employmentgrowth, it is zooming upwards.
Now in
corporate America if you make such mistakes, you have to pay a price.
Why in the USA, anywhere in the world? Lucent also made a number of very
bad decisions including buying other organizations for huge prices,
unfortunately the organisations they bought were simply not worth the
price they paid for or were not the right kind of companies to buy.
Lucent is paying the price for these mistakes and they would have paid
for these mistakes in any situation and under any administration -
whether George W Bush ruled or Bill Clinton ruled really does not
matter.
3.
Motorola :
One of the mega failure in
this decade is from Motorola and their Iridium project where they
promised a global mobile phone providing audio, video and data at high
speeds anywhere in the world and towards this pumped in millions of
dollars and sent up 68 satellites into the sky. The project turned out
to be a utter failure. Now there is a price that one hasto pay if you make wrong business decisions like this.
4. Politics:
President George W Bush made a statement about the
economy becoming slow and redicted that this would continue. Now for the
first time in an official mail I am making a political statement and
hopefully this is the last time I am doing so. If you remember the
Presidential debates between AlGore and Bush. It was widely expected that Bush been an average speaker will do
terribly vis a vis Gore. The Bush team positioned
him really well, they joined analysts in painting a bad picture of how
Bush would fare in the debates. In fact they helped the public to form
an opinion of not expecting much from Bush in the debates. When Bush did
reasonably well, the public felt that he did tremendously well.
Similarly it makes sense for Bush to predict a bad economy before he
takes over as President that way he makes it clear that he is not
responsible and also this situation helps him to get the public and the
senate behind him in getting the huge tax cuts he has proposed, passed
in a split house. Let us look at the other side of the coin now. Many
organizations have done really well and their business models are looking brighter than ever.
The organizations are:
EBay: An online auction house
which is the darling of the stock market. One of the dotcom's that
succeeded. They had a unique business model and a first mover advantage.
They bring millions of buyers and sellers fromall over the world online
at the same time which no brick and mortar business can do. They also
worked out a realistic business plan and planned for a break even four
years from start. They were focused in their approach and have turned
around in their fourth year and have shown profits.
The stock market has
rewarded them handsomely and they have not announced lay off's. In fact they are hiring aggressively.
Amazon: Has reported a profitable
quarter and two of their lines books and music is doing really well.
Juniper
Networks: We spoke about this coming while talking of Lucent
and its failure.
Compaq: A couple of years ago when
the economy was really doing well, Compaq bought two organisations,
Tandem and Digital - at that point of time they had bitten more than
what they could chew and had a lot of trouble integrating
these huge organisations. The market felt that this
decision of Compaq was not right and their stock
price got hammered and they laid of thousands of people. They have not
set right their problems and their share price has bounced back and this
is one company that has not cut down anything.
Siebel
BEA: In fact
Bill Coleman the Chairman of BEA has made the single largest donation of
$250 million this year. The highest by an individual. Cadence
Design...... and so on. In fact the Nasdaq surged when the results
started flowing in about success stories from these organizations.
This I hope gives
you a perspective of the shape of things as they are today and not get
carried away by the negative hype that is currently been circulate.
