Tech CEOs are facing a big new challenge: impaired visibility
Greetings from the home shelter in San Francisco.
I'm Alexei Oreskovic, Business Insider's West Coast bureau chief and global tech editor, and this Trending, the newsletter where we highlight BI Prime's biggest tech stories.
Whether you're working from home, or from an office, I hope you're staying safe and practicing social distancing.
This week: Prepare for impaired visibility
Anyone who's ever lived through an economic downturn is familiar with the expression "no visibility."
Those two words are the rhetorical backbeat of a recession, punctuating earnings calls and layoff announcements, and capturing the dense fog looming over supply chains, sales calls, and board meetings.
That's because economic shocks aren't something you can schedule on a calendar. You usually don't know when they've started until it's too late, and trying to predict when business picks up again can humble even the most accomplished of CEOs.
But it's worth keeping the "no visibility" phrase in mind as we take stock of a remarkable few weeks when the entire world came to a virtual standstill, and as we prepare for an uncertain future.
Predictions of an Easter resurrection may sound reassuring to some ears, especially when taken alongside leaked memos that Apple's shuttered retail stores could reopen and be selling AirPods again as soon as April.
But you don't have to be a great pessimist or a defeatist to be skeptical.
Take it from someone who has been there before - five times. John Chambers, the former CEO of Cisco, famously took the networking company through the dotcom boom and bust of 2000. And, as he told Ben Pimentel in an interview, the 2000 bust was just one of the five downturns Chambers has experienced in his career.
"They almost always last longer than you think or deeper than you think," Chambers says.
Most companies, he says, will be off by as much as 25% to 50% in their assessment of the situation and the measures they take to respond to it. Chambers advises that businesses try to buy as much time possible to assess the situation, preserving cash and paring non-essential spending. When it's time to make serious changes, like cutting staff or businesses, be decisive and do it in one shot.
Young CEOs who have never experienced a downturn can be overconfident. "Sometimes, because they're real smart in one area, they think it applies to another area. It does not," says Chambers.
In 2001, a full year after the Nasdaq began its slide into the dotcom recession, Chambers announced layoffs of nearly 10,000 Cisco employees.
No one wants to see a repeat of that. And technically, we're not in a recession yet.
But two important occurrences are already well underway: a pandemic and the resulting business shock. Even if the former is resolved sooner than we expect (and that's a big if), there's no telling how damaging and longlasting the economic fallout of the coronavirus will be.
Maybe the government stimulus will provide the confidence to prevent an economic meltdown. Maybe Apple's stores will re-open in April. But after so many restaurants, young startups, and other small businesses have felt the pain of the virus or even shut down entirely, will there be anyone shopping for $1,000 iPhones in April?
As Chambers says, these are "uncharted waters." And as you'll probably hear on next month's quarterly earnings calls, in unprecedented times like these, there's just not much visibility.
Read Ben's full interview with John Chambers here:
'This is when leaders are born': Tech legend John Chambers says that only the strongest startups will survive the coronavirus crisis and shares his tips for making it through
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Wither the cloud?
Every economic downturn comes with talk of a new, supposedly "recession-proof" business.
Sometimes these businesses live up to the reputation. Other times, they turn out to be mere mortals.
The latest subject of fevered speculation among investors is the cloud computing industry. The last time the economy contracted, the cloud business was just getting started. Amazon Web Services was just a couple of years old and Microsoft was still known primarily for its PC software. So there's not a lot of historical precedents to look to.
A popular line of reasoning is that the corporate world's shift to cloud computing is a longrunning trend that will continue regardless of economic ups and downs. And even in the short term, as more people work from home, the need for cloud-based services like Netflix and Instacart will only grow.
Ashley Stewart and Rosalie Chan spoke to 11 cloud computing analysts to get a better sense of the potential scenarios that could await the cloud business in an economic downturn. While Ashley and Rosalie found believers in the recession-proof notion, they also heard some interesting reasons why the cloud may not be as impermeable as some think.
Read the full story here:
We're about to find out if Amazon's cloud business is really as 'recession-proof' as the bulls believe, or if 'negative ripples' from the coronavirus crisis will drag it down
Here are some of the other highlights from the tech team:
And more good stories from across the BI newsroom:
That's it for this week. Thanks for reading, and remember, if you like this newsletter, tell your friends and colleagues they can sign up here to receive it.
- Alexei
