Cisco Profits up, but cutting 5%

[Cancel 2020.1]

What investor would want a company to cut labor if that hurt the companies chances of future success? Only a complete novice investor would think that is a good idea.

You cut labor because you can maintain efficiency and production without the labor being cut or because demand is expected to slow down and you do not need the additional labor.

I won't say it has never happened because I don't know that for sure. But it is 100% retarded if a company cut labor because it thought that is what Wall St wanted. Wall St. doesn't want that. It costs to much to rehire a person and train them, not to mention the costs of firing a person.

You're portraying investors as much more sophisticated than they actually are. I'm fairly sure that some companies don't completely understand how their forecasts are derived - much less investors who are on the outside looking in.

 

[tekkychick]

What investor would want a company to cut labor if that hurt the companies chances of future success? Only a complete novice investor would think that is a good idea.

You cut labor because you can maintain efficiency and production without the labor being cut or because demand is expected to slow down and you do not need the additional labor.

I won't say it has never happened because I don't know that for sure. But it is 100% retarded if a company cut labor because it thought that is what Wall St wanted. Wall St. doesn't want that. It costs to much to rehire a person and train them, not to mention the costs of firing a person.

Because investors think of the short-term profits as well; they don't care if down the road the company will be hurt as long as their stock price is high now. They'll sell before it gets to that point.

Wall St. rewards companies for layoffs - CEOs and VPs and directors have stocks - they layoff, they increase their stock price, they get more money. Short term thinking, yes; but it is how the game is played.

http://www.bankrate.com/financing/investing/do-layoffs-always-boost-stocks/

http://www.investopedia.com/stock-analysis/2013/layoffs-and-the-stock-market-c-hpq0123.aspx

 

[Cancel 2016.2]

Because investors think of the short-term profits as well; they don't care if down the road the company will be hurt as long as their stock price is high now. They'll sell before it gets to that point.

But if companies think short term, that is what they become. They have to plan beyond a quarter or two. If they don't they are setting themselves up to fail.

Wall St. rewards companies for layoffs - CEOs and VPs and directors have stocks - they layoff, they increase their stock price, they get more money. Short term thinking, yes; but it is how the game is played.

Layoffs can cut costs in the long run, but if the companies offer severance, then it actually could cause stocks to go down... speaking of which...

http://www.bankrate.com/financing/investing/do-layoffs-always-boost-stocks/

This one is a great example of a company offering severance upon the mass layoffs. It also gave the reason for the layoffs as that Citi was focusing on its core units (best growth vehicles) and cutting loose those that were not profitable. Long term plus, but short term cost to them.

http://www.investopedia.com/stock-analysis/2013/layoffs-and-the-stock-market-c-hpq0123.aspx

This one touches on HP and the fact that the mass layoffs can also show weakness in the firm and adds to that the fact that HP stock got cut in half do to systemic problems at HP.

 

[Cancel 2016.2]

You're portraying investors as much more sophisticated than they actually are. I'm fairly sure that some companies don't completely understand how their forecasts are derived - much less investors who are on the outside looking in.

I am speaking more to the sophisticated investor. A novice investor isn't going to think about the labor costs of the company one way or the other typically. The sophisticated investors (especially on Wall St) are going to think like that. To be clear, I am speaking very general here. As Tek pointed out, she is aware of a company that cut labor to try and boost short term numbers. It can happen, it just isn't common because it is bad business.

 

[tekkychick]

I totally agree it's a bad idea in the long-term; no denying that. Unfortunately, businesses are often driven by the short-term and not the long-term. After all, how long is a typical CEO in that position?

I also agree - at least I hope - that most of the time there are compelling business reasons for layoffs. Just sometimes, besides stock price, there aren't.

And of course, sometimes the layoffs don't help as much as companies hoped; that boost in stock price isn't as great as they had hoped.