I had a little flashback to the year 2000 last night, sitting in my office after hours watching JDS Uniphase collapse on the heels of its conference call after reporting “better than expected” earnings for the quarter. Throughout 2000, technologies and telecommunications were still making big profits, but it was becoming apparent that they were still spending after 1999. And that the environment was changing. So you’d see a breathless “print” at 4:00 pm with a better-than-expected EPS and revenue number, but then management would go on the conference call and tell you the outlook was deteriorating.
Company after company followed suit. High or low quality signature, it didn’t matter. Everyone was affected, from blue chips like Cisco to garbage dumps like Nortel. It did not matter. And so the mantra became “Ignore the numbers, wait for the call.”
That’s exactly how it felt last night, with the first of the mega-cap tech giants reporting. Microsoft’s earnings were excellent. His panorama confirms the need to have laid off 10,000 employees in recent days. The environment is changing. During the pandemic, they reduced the demand from three years to one. Business technology spending exploded. Demand for consumer technology exploded. The pace was never going to be sustainable. Now we pay for that forward pull. The stock price has already paid for it, but not necessarily in full.
This earnings season, technology companies and other growth areas of the economy will be singing a similar tune. Things are good right now, but the future becomes more uncertain every day. My best guess is that guarded tones on conference calls will be the norm, not the exception. If you were the CEO or CFO of a Fortune 500 company, why not be cautious right now? What would be the advantage of telegraphing anything else that is heading towards an obvious slowdown in demand for just about everything?
Michael and I discussed the Microsoft report and the current state of affairs last night during the live premiere of What Are Your Thoughts, which has been watched by over 20,000 viewers so far. If you missed it, check it out below:
