Ohh God ! Would this triggers a ‘Recession Blast 2011-12'?

Dear Reader's

Many of you might be knowing the recent hot news..... Any way let me give you a brief on it. "Recently John Chambers a CEO of CISCO has announce that they are going to fire 10,000 people from his organization from which thousands of them were expected to be gone at the end of August and rest of them would accept the buyouts". Isn’t it a shocking news?

I was shocked after hearing this news and end up with a deep though that “Would this action leads the industry towards the Recession?” We just came out from the global recession. We know that it went so bad that most of the people in this industry were affected one way or other way.

If we go and see the history of CISCO, we can easily see the growth and revenue of organization. Since talking over as CEO of Cisco in 1995, Chambers has grown the company’s revenue from $1 billion to more than $40 billion which shows his capabilities and business quality.

To me, revenue growth would not create the shareholder’s value. Anyone can ‘grow revenue’, especially through acquisitions. All you have to do to grow revenue is buy companies. Important part to create stakeholder’s value is ‘Grow earning per share’. If such kind of action would be taken by few giant companies, then surely our industry will be in crunch!

At the same time I was wondering when I saw few opening on Cisco’s career site. I was just wondering, at one side management is announcing firing and at the same time we can see hiring on its web page! It seems there is nothing to do with industries bad time. It just that organization might have taken some bad decision in past. So I don’t see any problem with current Industry.

If you see recent ASIC industry growth, engineers’ engagements with their clients, and consumer demands, I could see no problem for at least next two years. As we know electronics consumer demands are high now a days, companies has enough work and projections for at least next few years.

I would say this action would not lead this industry towards the Recession! what do you say ?

ASIC With Ankit


JD said...

no way ....

Ankit Gopani said...

Hey JD,

Dont worry, it would not...! ;-)

-ASIC With Ankit

Nilay Goyal said...

In my view, this is more of a Cisco centered issue than an macroeconomic issue. However, the problems could be representative of the economy.

With time, Cisco's M&A strategy has changed. In 1990s, they had what is called the 'white space' investment strategy: investing at an early stage in young companies having a half baked product/technology promising at least 25% market share within 2 years of product launch and becoming a market leader in an area! Lately, they have been acquiring more mature companies, trying to catch up with competition in areas where they lack. Their investments are more focused on competing rather than creating a niche for themselves. These have been the 'bad decisions' as you call them.

Regarding the economy, we are most likely to find ourselves in a double dip recession with a 'W' shaped recovery! The biggest fear now is the US debt policy. If US politicians do not reach a consensus in time for the 2nd Aug deadline, we will see US defaulting on its debt for the first time in history! And I hate to even think about the repercussions of this... :-(

Nilay Goyal said...

BTW, checkout this case study on Cisco done by INSEAD, Paris. We did this case as a part of our Business strategy course... http://www.insead.edu/facultyresearch/faculty/personal/lcapron/teaching/documents/CiscoIronPort.pdf

Ankit Gopani said...

Hey Thanks Nilay for posting such a nice and very useful experience.

I completely agree on "Their investments are more focused on competing rather than creating a niche for themselves" and becaue of this vision they might have taken some bad decision. Company would not see impact of these kind of decision immediately. Result and impact would come to know after couple of quaters.

I think same thing happened to Cisco.

You are correct on US debt policy. There lot of points to think on if these kind of problems becomes potential reasons to represent the bad global economy.

BTW, a bunch of thanks for sharing such a useful case study to understand the vision and journey of Cisco so far !

Hates off to you Nilay !! Keep writing such useful information.

ASIC With Ankit