Cisco (NASDAQ: CSCO) continues to trade a good deal lower after reporting a disappointing quarter and issuing light guidance. In the company’s conference call, CEO John Chambers offered the following observation (hat tip to Calculated Risk for the transcript):
We are seeing a large number of mixed signals in both the market and from our customers’ expectations, and we think the words unusual uncertainty are an accurate description of what is occurring. The Federal Reserve’s comments yesterday that the pace and output of the recovery has slowed in recent months and that the recovery is likely to be more modest in the near term then has been anticipated just a few months ago, are comments that most of our large customers that I have talked with recently would agree with.
In their conference call, John Chambers used what have now become the two catch-phrase words for these challenging economic times: “unusual uncertainty” (I guess you could make the case for “extended period…” as it is equally as prevalent and apt today). At some point, an expression becomes a self-fulfilling prophecy, whereby if you say and hear it often enough it simply must be so. There is an inherent emotional element to economics that is unavoidable. The mention of those two words by Chambers is noteworthy; however, what is most interesting is not Chambers’ expression of caution, but rather, it is the fact that Cisco not only has been, but will continue to hire in the face of this persistent uncertainty.
Add[ed] a net 1,000 positions in the April quarter, with another 2,000-job expansion in the July quarter….over 70% of the new jobs added in the latest quarter were in the U.S., with over 600 of those in California. In a bit of new information, the company said it will add about 3,000 more jobs in the next couple of quarters.
This sits in stark contrast to the prevailing narrative of today. Everyone acknowledges the prevalence of uncertainty. We just flat out don’t know the end game at this point in time. Yet despite that, Cisco has been adding employees and will continue to do so over the coming quarters. Whereas most specifically cite this uncertainty as a cause for not hiring, Cisco says no such thing. Although Cisco missed on their revenue number, Chambers expressed that the company itself had “mixed signals” during its latest quarter, reflecting the volatile macroeconomic landscape over the past few months, some of which can be viewed positively:
On first review, the 23% year-over-year growth in product orders was obviously very strong…. However, several of our customers shared with me that they saw a softening in their business in the second half of June and early July. Upon review, we saw a similar pattern of approximately four to five weeks from mid-June to mid-July where the normal order growth rates were off over 10 points versus our quarter’s 23% average. Normally I would not have paid much attention to this, except this is the exact time period where we saw the challenges in Europe and the corresponding challenges in global stock markets. Then, just as the quarter had started in May, the end of July was very strong, well above average for the quarter in terms of year-over-year growth rates from an order perspective.
Clearly Cisco believes in the company’s demand growth and believes there to be avenues for new growth, otherwise the company would not be adding so many employees. While uncertainty is a factor to consider when preparing to hire employees, demand is the single most important variable. Without the necessary demand, it’s impossible for a company to add on employees in meaningful quantities. Many view Cisco as both a bellwether for the tech sector and the US economy at large, and this fact bodes well for all. Hiring at this juncture is an explicit acknowledgment that the company believes a good portion of the recovery from the financial crisis is in fact sustainable and that new avenues of growth will continue into the future.