Brands and company-specific brand name products have become much more important to search engines recently. Google tries to serve us with relevant content, so if it thinks we want to know more about Adidas or Puma, it's going to tell us about these brands rather than about the random online shoe stores that we'll probably click away from (you know the ones!). This might be great if you're a major brand, but what if you're not? And what's happening if you are? How is it working? This week, Rand is here to let us know more about search engines and how they rank brand name products and sites.
Dobar den! Welcome to Whiteboard Friday. That's my attempt at some Bulgarian. I think "dobar den" means hello/good day in Bulgarian. We'll find out. I'm sure someone will comment on the blog.
Welcome to Whiteboard Friday. Good to be back in the States. Good to be back here in Seattle at SEOmoz Whiteboard Friday studios talking about an interesting topic that's come up quite a bit -- search engines and brand entities. There's this concept that's been talked about in the SEO world for a while, for a couple of years now, that Google sort of has this favoring of brands, of sites that have built up what you would call brand recognition and brand entities in the minds of consumers. It is sort of interesting because SEO folks have been asking some questions like, "Well, how do I know if I am a brand? What constitutes a brand and what doesn't? Why would Google be going in this direction? What can or should I be doing?" We don't have scientific great answers to all of these questions, but we can start to try and tackle some of them and at least get a lot of folks in the search marketing sphere thinking more about this branding stuff. I think that definitely the changes that Google's been making around the Vince update, maybe some of the things around MayDays, certainly some of the things around showing more branded results in queries when, for example, someone types in a search plus SEOmoz, they might be showing a lot more than just two results from the SEOmoz.org website thinking that there is a brand intent to show things from just one site.
So, first let's start by talking about why brands? Why does Google care so much about this? There's that famous quote, of course, from Eric Schmidt, Google's president, that Aaron Wall has brought up on SEO Book a number of times saying, you know, "Brands are how we sort out the cesspool." So, there is this cesspool of content on the Web, a lot of it being stuff that users don't want.
You can kind of imagine this if you put yourself in the mind and the shoes of a searcher. Shoes particularly, right. So, in this case, Google is kind of looking at these the way a human would. So maybe we've got our guy over here and he's sort of looking at these different sites. He's done a search for running shoes. He sees Adidas, which makes tons of sense; Adidas is a running shoe brand. Great, great thing to have in the result. Puma, sure. Vibram, okay, that's kind of an emerging brand coming up. And then there is tennis-shoe-store. Yeah, I mean, maybe they've done a great job earning links and maybe they have a good website and that kind of thing, but consumers get kind of suspicious of this. Searchers get kind of suspicious of this. The non-brand results bring some dissatisfaction. You can see that in some of the search engine research and result testing that various organizations have conducted, including the search engines themselves. You can kind of feel it viscerally. When you look through the results yourself you kind of go, "Man, I don't know about these. It's a lot of hyphenated domains and sites I've never heard of. Can I trust them?" I go and visit them and they look sort of almost SEO heavy but not content or usability heavy. It's so frustrating, right. I think Google is kind of saying, "Hey, we've got some ways to identify this. Maybe we'll send some of the preferences over to brands."
So, let's try and tackle the question, what makes a brand? What is it that separates a brand from a non-brand in the minds of the search engines when it comes to domains, when it comes to websites and pages? You can think of a lot of different things. Certainly Google has put out some patent applications that suggest some of the things they might look at. They made an acquisition of a company called Metaweb that does a lot of these things, including a service called Freebase that kind of makes entity associations from context and text and word usage. These things can include stuff like appearance and repetition of text content. You can imagine that Adidas, Puma, and Vibram, these show up on the Web a lot more than tennis-shoe- store.info or whatever it is. There is kind of this idea, "Huh, maybe that's a brand, maybe that's not." And then there is context of use and positioning of that text and content. You can see that those brands are all mentioned in news and they're mentioned in blogs. They're in stores. They're in different stores both on and off the Web. They're in eCommerce shops. They're featured in traditional media outlets, online and offline. You see them in offline media as well. They show up in links. They show up in advertising. Certainly things like Google's acquisition of DoubleClick and looking at tools like the DoubleClick Ad Planner could give you some insight into things that they view as brands and entities and how they associate those verus sites that they don't really have an audience association or brand association with. The brands appear in things like patents. They appear in licenses. They appear in government and official documentation. There is all this sort of context and use of positioning.
Finally, brands have these user base kind of signals as well. Brands get talked about when people participate in social media. They get talked about when people perform search queries themselves. If Google sees that lots of people are searching for things like Adidas, Puma, and Vibram, but not searching for tennis-shoe-store, that could be a signal that this is a brand entity and these aren't. There is language and communication which Google has been getting heavily into. They have their GOOG-411 service. They certainly power Gmail. They power a lot of other services where they are essentially looking at what's being talked about, what's being said, what's being recorded, and written by humans all across not just the Internet but across our societies. All of these signals might help Google to make associations around what is a brand and what is not and then return results that are sort of this brand biasing.
A lot of this is sort of interesting theoretical stuff, but I know that many SEOs are going to be asking the question, "Well, what do I actually do with this data?" So, some good things to keep in mind is that we as SEOs sometimes ignore branding. We ignore the impact of let's do broad-based advertising, let's participate in display, let's participate in media or in video or in offline advertising or in things like getting our brand name out there and events, those kinds of things. We become very obsessed and focused on just sort of the very basic elements of SEO -- the on-page, getting links, those kinds of things. That might work. But if you're seeing this brand biasing, you might think about some of these branding tactics as a way to move your site and your rankings forward.
Secondarily, don't let your SEO get ahead of your organic momentum. What I mean by that is, I see and feel a lot of the times that many SEOs who get very aggressive with their domains, particularly in competitive spaces where there is brand preferences or where Google appears to be trying to do some of those things, we'll see that they'll do a great job earning links. They'll get lots of good anchor text. They'll earn those links to those pages. They might not always be from the best sources, and they don't do a lot of these types of things. People are not saying things about them in social media. They're not positioned in context. They are not mentioned in the news and in natural normal blogs, offline stuff, and advertising. They appear to be these sort of solely pseudo Internet brands. That could potentially be a negative signal, or at least it might not track as well as someone who's got both signals going.
You know, as part of that, finally, I would say, try and work on making your site and your product and the naming conventions that you use as brand friendly, as branding friendly, as possible. All of those things are going to potentially impact the way your brand is perceived.
The great thing about all of this stuff, about these recommendations and about the concept of branding in general, is that there's a lot of psychology, a lot of years, decades of marketing science and research going to the fact that, hey, brands get positively associated in consumers' minds and they drive a lot more behavior. They drive sales, traffic, demand, and all these kinds of things. Certainly search engines can help with that, but remember that in one case when you're doing brand building, you are sort of building and creating demand that might not have existed otherwise. When you're doing SEO, all you can really do is serve existing demand, rank for the kinds of things that people already are searching for. This is a great thing to be thinking about not just from an SEO perspective, from a rankings perspective, but from a company building perspective and from a holistic marketing effort. It certainly feels like SEO is going in that direction.
All right, everyone. Take care. We'll see you again next week for another edition of Whiteboard Friday.
Energy and Climate Agenda Friday, November 12, 2010
The Week in Energy and Climate
On Tuesday, the Vice President announced new initiatives to grow the sustainable home energy-efficiency industry and help middle-class families save money on their energy bills.
The Department of Energy announced a program called Home Energy Score to help homeowners access clear and reliable information about their home’s energy performance and how to improve it.
Department of Housing and Urban Development has created a new program called PowerSaver to connect more homeowners with affordable, federally-insured loans for home energy upgrades.
Department of Energy, the Department of Labor and other agencies worked closely with industry experts to draft a comprehensive set of workforce guidelines for contractors working on retrofits and energy efficiency.
Highlights
G-20: Fact Sheet on Energy Issues November 12, 2010 G-20 Leaders re-affirmed their commitment to the groundbreaking decision taken at the Pittsburgh G-20 Summit in 2009 to phase out fossil fuel subsidies in the medium term. They recognized the substantial progress that has already been made in the last 14 months and agreed to monitor their progress over the next year.
Saving Homeowners Money and Creating Jobs November 9, 2010 At a Middle Class Task Force event, White House Council on Environmental Quality Chair Nancy Sutley joined the Vice President to announce home energy efficiency measures that will achieve real cost savings and environmental benefits for American families.
Fact Sheet on U.S.-India Partnership on Clean Energy, Energy Security, and Climate Change November 8, 2010 Prime Minister Manmohan Singh and President Barack Obama reaffirmed their countries’ strong commitment to taking vigorous action to address climate change, ensure mutual energy security, and build a clean energy economy that will drive investment, job creation, and economic growth throughout the 21st century.
West Wing Week: "OCONUS - Outside the Continental United States"
West Wing Week is your guide to everything that's happening at 1600 Pennsylvania Ave. Walk step by step with the President as he meets with students, citizens, business leaders, and government officials in India, travels to Indonesia to extend a hand of friendship to the Indonesian people, attends the G-20 in Seoul, South Korea, and much more.
Here are some of the top stories from the White House blog.
President Obama to America's Veterans: "We Remember." The President speaks on Veterans Day at Yongsan Army Garrison in Seoul, South Korea with an estimated 1,400 base personnel and families and several hundred Korean War Vets.
Standing Proud With Our Newest Citizens, Honoring Our Veterans Alejandro Mayorkas, Director of U.S. Citizenship and Immigration Services at the Department of Homeland Security, addresses members of the military who are becoming naturalized citizens and honors all of the men and women who have served in the U.S. Armed Forces this Veterans Day.
Giving Thanks Through Service Dr. Jill Biden writes a simple message of thanks to our nation’s Veterans. Watch a Veterans Day video message from First Lady Michelle Obama and Dr. Jill Biden.
Architects don't manufacture nails, assemble windows or chop down trees. Instead, they take existing components and assemble them in interesting and important ways.
It used to be that if you wanted to build an organization, you had to be prepared to do a lot of manufacturing and assembly--of something. My first internet company had 60 or 70 people at its peak... and today, you could run the same organization with six people. The rest? They were busy building an infrastructure that now exists. Restaurants used to be built by chefs. Now, more than ever, they're built by impresarios who know how to tie together real estate, promotion, service and chefs into a package that consumers want to buy. The difficult part isn't installing the stove, the difficult (and scarce) part is telling a story.
I'm talking about intentionally building a structure and a strategy and a position, not focusing your energy on the mechanics, because mechanics alone are insufficient. Just as you can't build a class A office building with nothing but a skilled carpenter, you can't build a business for the ages that merely puts widgets into boxes.
My friend Jerry calls these people corporate chiropractors. They don't do surgery, they realign and recognize what's out of place.
Organizational architects know how to find suppliers, use the cloud (of people, of data, of resources), identify freelancers, tie together disparate resources and weave them into a business that scales. You either need to become one or hire one.
The organizations that matter are busy being run by people who figure out what to do next.
Anyone with an ounce of common sense knew the G-20 conference would be a failure. The only question was what form the failure would take. In the typical conference of this nature there is some early fireworks and then a coming together in a "Kumbayah" agreeing to agree moment.
This year, differences are so huge, the G-20 could not even agree to agree. Instead they agreed to postpone agreement.
The G20 will agree to setting vague "indicative guidelines" for measuring global imbalances and hammer out the details next year, G20 sources said on Friday, effectively calling a timeout to let tempers cool after heated debate over currencies.
"It was very hard work," said one G20 source after a negotiating session that ended around 3 a.m.
Leaders are expected to call on the International Monetary Fund to develop a range of indicators to identify when imbalances pose a threat to economic stability. G20 finance ministers will consider the findings at a meeting in early 2011, according to a draft statement obtained by Reuters.
An earlier version of the document showed negotiators debating over whether those indicators ought to be "measurable" or "quantitative and qualitative." In the end, neither phrase was included, suggesting the G20 failed to agree on the wording.
South African Finance Minister Pravin Gordhan said leaders and their aides had made progress in coming to agreement on how to address global imbalances.
Australian Prime Minister Julia Gillard said "some work" still needed to be done on bridging divides over currency valuations.
Some work needs to be done? Really? That's like planning a trip to Mars, drawing a picture of a rocket ship with a crayon and proudly announcing "some work needs to be done".
Moreover, Gillard's statement looks nonsensical in light of positions taken by China, Brazil, and Germany.
"Don't make other people take the medicine for your disease," Yu Jianhua, a director general at China's Ministry of Commerce, told reporters in Seoul late yesterday. "Quantitative easing will have a very big impact on developing countries including China."
The G-20 meeting of finance ministers and central bankers last month agreed to move toward "more market-determined exchange rate systems" and make efforts on "reducing excessive imbalances." The U.S. Federal Reserve a week later said it would pump $600 billion into the economy to spur growth. Brazil, Germany and China said the move would drive down the dollar and fuel speculative capital flows that risk asset bubbles.
China is seeking to modify the language on trade imbalances in the summit communique, said a German official taking part in the talks who requested anonymity because he isn't authorized to speak publicly for the government.
Leaders of major economies faced the urgent task at their summit Friday of resolving currency disputes that have raised fears of a global trade war.
A dispute over whether China and the United States are manipulating their currencies is threatening to resurrect protectionist policies like those blamed for worsening the Great Depression. The biggest fear is that trade barriers will send the global economy back into recession.
Hopes had been high that the Group of 20, which includes wealthy nations like Germany and the U.S. and rising giants like China, could be a forum to forge a lasting global economic recovery. Yet so far, G-20 countries haven't agreed on an agenda, let alone solutions to the problems that divide them.
The delegates have clashed in particular over the value of their currencies. Some countries, like the United States, want China to let the value of its currency, the yuan, rise. That would make Chinese exports costlier abroad and make U.S. imports cheaper for the Chinese to buy. It would shrink the United States' trade deficit with China, which is on track this year to match its 2008 record of $268 billion.
But other countries are irate over the Federal Reserve's plans to pump $600 billion into the sluggish American economy. They see that move as a reckless and selfish scheme to flood markets with dollars, driving down the value of the U.S. currency and giving American exporters an advantage.
Richard Portes, president of the Center for Economic Policy Research in London, said the dim prospect for a substantive agreement "is very dangerous for the world economy."
Portes said he fears "the possibility that currency wars and global imbalances might lead to severe trade protectionism over the next year or so."
For now, the G-20 countries are expected to agree on noncontroversial issues, like an anti-corruption initiative and the need for oversight by the International Monetary Fund.
But they're finding no common ground on the most vexing problem: how to address a global economy that's long been nourished by huge U.S. trade deficits with China, Germany and Japan.
G-20 Countries Can't Even Agree on the Agenda
In case you missed it, here is the key sentence from the above article: "So far, G-20 countries haven't agreed on an agenda, let alone solutions to the problems that divide them."
Not only is there "some work" to be done as Australian Prime Minister Julia Gillard gingerly puts it, the G-20 committee cannot even agree to an agenda!
Hells bells, they cannot even agree on whether or not the results should be "measurable" or "quantitative and qualitative."
Thus, unless things change rapidly in the next few hours, the only recognizable achievement of from the G-20 summit, will be an agreement to postpone the agreement.
One easy way to measure success is against stated goals. With that in mind, let's take another quick look Bernanke's op-ed piece in the Washington Post describing the need for, and the benefits of another round of Quantitative Easing.
The FOMC decided this week that, with unemployment high and inflation very low, further support to the economy is needed. With short-term interest rates already about as low as they can go, the FOMC agreed to deliver that support by purchasing additional longer-term securities, as it did in 2008 and 2009. The FOMC intends to buy an additional $600 billion of longer-term Treasury securities by mid-2011 and will continue to reinvest repayments of principal on its holdings of securities, as it has been doing since August.
This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate the most recent action. Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.
To top it off the German Finance minister went so far as to call "clueless". There is some dispute as to the exact translation of the German quote, but none of the translations are very polite.
The stock market, gold, silver, and commodities have certainly been on a tear, but the bottom line is that gold is reacting to the liquidity, but the consequences to the real economy are negative.
Once again the number one problem facing small business owners is lack of sales. The second biggest concern is taxes. In spite of a huge surge in commodity prices, inflation barely registered as a concern.
From the NFIB Report ...
OPTIMISM INDEX Optimism rose again in October to 91.7, but remains stuck in the recession zone established over the past two years, not a good reading even with a 2.7 point improvement over September. This is still a recession level reading based on Index values since 1973. However, job creation plans did turn positive and job reductions ceased. The mood for inventory investment weakened a bit even though views of inventory adequacy improved, and an improvement in sales trends produced a marked improvement in profit trends, still ugly, but less so by a significant amount.
LABOR MARKETS Average employment growth per firm was 0 in October, one of the best performances in years. Reaching the "0" change level raises the odds that Main Street may contribute to private sector job growth for the first time in over a year.
CAPITAL SPENDING The frequency of reported capital outlays over the past six months rose two points to 47 percent of all firms, three points above the 35 year record low. The percent of owners planning capital outlays in the future fell one point to 18 percent because the environment for capital spending is not good.
INFLATION The downward pressure on prices appears to be easing as more firms are raising prices and fewer are cutting them. Seasonally adjusted, the net percent of owners raising prices was a net negative five percent, a six point increase from September. Plans to raise prices rose five points to a net seasonally adjusted 12 percent of owners. However, most plans to raise prices have been frustrated by the recession and weak sales during the past few years. On the cost side, four percent of owners cited inflation as their number one problem and only three percent cited the cost of labor, so neither labor costs or materials costs are pressuring owners to raise prices. If "pricing power" in making a comeback, owners will begin to see a reversal of rather adverse profit trends.
PROFITS AND WAGES Reports of positive earnings trends posted a seven point improvement in October, registering a net negative 26 percent. Still, far more owners report that earnings are deteriorating quarter on quarter than rising.
CREDIT MARKETS Overall, 91 percent reported that all their credit needs were met or that they were not interested in borrowing. Nine percent reported credit needs not satisfied, and a record 52 percent said they did not want a loan (13 percent did not answer the question and might be presumed to be uninterested in borrowing as well). Only three percent reported financing as their number one business problem. However, 30 percent of the owners reported weak sales as their top business problem, a major cause of the lack of credit demand observed in financial markets. A near record low 31 percent of all owners reported borrowing on a regular basis. Reported and planned capital spending are at 35 year record low levels, so fewer loans are needed.
Virtually none of that is supportive of the claim QE II was going to prove an economic benefit.
Most Important Problem
Please compare inflation to sales, taxes, competition from big business, and taxes. Inflation barely registers.
Sales and Taxes are Two Biggest Problems
Inflation Is A Non-Issue
Historically inflation measured as a big concern in the mid-to-late 1970's. Inflation concerns spiked again in the summer of 2008 along with gas prices. In spite of a huge recent rally in commodities there is no fear of inflation now.
From the report "Seasonally adjusted, the net percent of owners raising prices was a net negative five percent, a six point increase from September. Plans to raise prices rose five points to a net seasonally adjusted 12 percent of owners. However, most plans to raise prices have been frustrated by the recession and weak sales during the past few years."
The number of business owners raising prices is a net negative 5%. The profit squeeze continues as small businesses are not able to pass along rising input prices. The result is easy to spot: " far more owners report that earnings are deteriorating quarter on quarter than rising."
Measures of Success
If success is measured by increased speculation in commodities, junk bonds, and the herding of investors into gold and silver, then the Fed's policies this year have been a resounding success. Otherwise the Fed's policies, including QE II have been an abject failure.
Irish government bonds tumbled for a 13th day on mounting concern that the nation will be forced to restructure its finances.
Spanish bonds also headed for a 13th day of declines as data showed the nation's economic growth stalled. French Finance Minister Christine Lagarde said yesterday that investors must share in the cost of safeguarding sovereign debt. German bunds advanced on demand for the safest assets, while Portuguese debt recovered from earlier losses. Italian bonds fell.
"Lagarde's comments mentioned restructuring, and that's another nail in the coffin" for so-called peripheral nations' debt, said Steven Major, global head of fixed-income research at HSBC Holdings Plc in London. "There's still a big constituency of investors and traders who have not recognized until now that restructuring could happen."
The best bid for Irish 10-year bonds was 9.07 percent, or a price of 74.09, while the nearest offer was at 8.61 percent, or a price of 76.55, Bloomberg data show.
"The wide bid-offer spread indicates how thin trading has become, and reflects a lack of two-way market activity," said Peter Chatwell, an interest-rate strategist at Credit Agricole Corporate & Investment Bank in London.
For 10-year bunds, the difference between the bid and the offer was less than one basis point, the Bloomberg data show.
The Spanish-German 10-year yield spread widened to 215 basis points today from 206 yesterday. That's still below an intraday euro-era high of 232 basis points reached on June 17.
The Italian 10-year bond fell for a sixth straight day, its longest run of declines since June, before the nation sells as much as 8.25 billion euros of 2015, 2026 and 2034 debt tomorrow.
The spread against bunds was at 176 basis points, up from 166 basis points yesterday. That compares with a peak of 185.5 basis points reached on June 8.
"Italian paper has been under pressure recently on a combination of periphery woes and political uncertainty," Chiara Cremonesi, a fixed-income strategist at UniCredit SpA in London, wrote in an e-mailed report today. "We expect demand at tomorrow's auction to be good," with "support from the current level of spread," she said.
French Finance Minister Christine Lagarde said investors must share the cost of sovereign debt restructurings, backing a German call that helped send yields on Irish and Portuguese bonds to record highs.
"All stakeholders must participate in the gains and losses of any particular situation," Lagarde said during an interview yesterday in Paris for Bloomberg Television's "On the Move" with Francine Lacqua. "There are many, many ways to address this point of principle."
"Lagarde's comments mentioned restructuring, and that's another nail in the coffin" for peripheral debt, said Steven Major, global head of fixed-income research at HSBC Holdings Plc in London. "There's still a big constituency of investors and traders who have not recognized until now that restructuring could happen."
"We do also need creditors to be involved in the costs of restructuring," Merkel said today in Seoul, where she's attending a summit of the Group of 20 leaders. "There may be a conflict here between the interests of the financial world and the interests of politicians. We can't constantly explain to our voters that taxpayers have to be on the hook for certain risks, rather than those who make a lot of money taking those risks. I ask the markets sometimes to bear politicians in mind, too."
Trichet's Stance
Trichet says such talk risks exacerbating the situation for indebted nations as they struggle to cut their budget deficits.
"The more you talk about restructuring debt, the harder it is to obtain debt," Irish Finance Minister Brian Lenihan said Nov. 2. "That is the reality."
Nonsense from Trichet
Trichet's idea of a solution is "don't talk about it and the problem will go away". Well it won't. Nor will "extend and pretend".
The US made a serious mistake in not making bondholders share the pain in US bank bailouts. As a result, US banks are still undercapitalized, crippled, and unwilling to lend. The reality is there is no painless solution no matter what Trichet, any central bankers, or any politicians think.
A further reality is that Ireland made a huge mistake in agreeing to horrendous austerity measures instead of just plain defaulting. That would have forced the restructuring issue to the forefront, long ago.
And as long as we are talking about realities, here is an obvious one that Trichet does not seem to understand: What can't be paid back, won't.
By the way, these renewed concerns about Europe are on balance, US dollar supportive.
Those Who Take Risks Should Pay For Them
Three cheers to Merkel for stating this reality "We can't constantly explain to our voters that taxpayers have to be on the hook for certain risks, rather than those who make a lot of money taking those risks."
Here's one more reality for the road: Those who take the risks should pay for them. It's the only thing that makes any sense.
Cisco was hit in afterhours trading on Wednesday following a rare revenue warning. Futures are down but dip-buying strength has been so insane lately that one must wonder if there will be any follow through.
Regardless of what the stock does, the huge warning may portend the end of the ramp in capital spending on technology by corporations. If so, what's left of the recovery (if anything) is all on the backs of consumers.
Cisco Systems Inc., the largest maker of computer networking equipment, forecast sales and profit for this quarter that fell short of analysts' estimates, sending the shares down as much as 15 percent in late trading.
"There's no reason to think that that's going to reverse quickly," said the San Francisco-based analyst, who still advises buying the stock. "This is kind of a deteriorating situation."
The company is seeking other ways to reward investors. Cisco said in September it will initiate its first dividend, starting in the fiscal year that began last month. The size and timing of the payout will depend on tax laws and repatriation policy, because much of Cisco's cash is abroad.
Tax Laws
Chambers, 61, has said that he wants to bring at least $30 billion in cash back to the U.S. and that tax laws make it too expensive to do so. He's called for a tax repatriation break, saying Cisco will increase its U.S. headcount by 10 percent if a favorable law is passed.
Spare Me The Whine
I am not a fan of corporate taxes. However, I am less of a fan of allowing giant corporations send jobs and cash overseas, then beg for a repatriating holiday, lather-rinse-and-repeat.
Google pays a tax rate of 2.4% thanks to tax laws. That happens via strategies known to lawyers as the "Double Irish" and the "Dutch Sandwich". Meanwhile, small businesses in the US get hit with 35% corporate tax rates, and may pay high state tax rates on top of that.
The equitable thing to do is treat small businesses and giant corporations alike. If anything, and to help bring jobs and cash back to the US, taxes on profits held in the US ought to be lower than profits held overseas. That would have Cisco moving that cash back to the US in a hurry, and not to the disadvantage of small businesses either.
Whatever the tax rates is, it ought to be fair and equitable. On this score, granting special breaks to companies holding cash overseas just increases the likelihood that future cash and hiring will be overseas, regardless of what nonsense Chambers spews about increasing headcount here.
John Chambers said Monday that Cisco plans to scale-up its headcount in India to 10,000 by 2010, reports the Rediff news. Cisco currently employs about 3,000 there. In December, the company selected India as the site for its Cisco Globalization Center East. The campus in Bangalore, which will house the 3,000 employees, will be inaugurated today. In addition to increasing headcount, Chambers said that Cisco will shift 20 percent of its upper management staff, across all functions, to India. It will pour $1.1 billion into the area, too. The investment is slated to include $750 million on research and development, $150 million on Cisco capital, $100 million on venture capital, $100 million on expanding customer support and $50 million on campus in Bangalore.
Now Cisco want to bring $30 billion back to the US, saving the company as much as $10.5 billion in taxes, while it will increase its US workforce (type and quality of employees is unspecified) by a few thousand workers IF a "favorable law is passed".
Two years from now, rest assured those hires (if any) will be laid off in some corporate restructuring plan.
Cisco Systems Inc. reported solid quarterly results but then disappointed investors with a bearish forecast that called into question the strength of technology spending, citing weakening orders from U.S. cable-TV operators and government agencies.
The news sent shares of the Internet-equipment giant tumbling almost 14% in after-hours trading on the Nasdaq Stock Market. Cisco said it expects revenue to rise only 3% to 5% in the current quarter and 9% to 12% in the current fiscal year—below the 12% to 17% annual revenue growth the company has said is its longer-term aim.
John Chambers, Cisco's chief executive officer, said orders from cable operators were off 35% in the quarter from a year ago. He added that orders from state governments in the U.S. fell 25% from a year earlier and 48% from the prior quarter.
"We are obviously not projecting growth as fast as we would like over the next several quarters," said Mr. Chambers, whose quarterly remarks are closely watched as a barometer of corporate tech spending. The "air pockets" Cisco hit "surprised us, quite candidly," he said.
The Cable Surprise
In a twist of unpublished fate, on Wednesday morning I received an Email from "Cable Guy" who wrote ...
Hello Mish
My cable customers are dropping services left and right. The only way we can get them to take multiple services is by discounting the **** out of them. And my company has not shown a profit in the last 3 quarters.
Customers are dropping or cutting back cable services because they cannot afford them anymore.
I hope you can point out how deflation is occurring in spite of the printing of money and how it is affecting consumer behavior to make this a long ride down.
Ryan Lawler at GigaOm added up the numbers and reports over 500,000 subscribers canceled cable in the last quarter. He looked at the subscription numbers reported from four of the five largest cable companies.
While it's bleak for cable companies, it doesn't necessarily mean people are giving up on pay TV.
Verizon, DirecTV, and AT&T combined added 820,000 new subscribers in the last quarter.
I got that link from "Cable Guy" and I asked him about the expansion at Verizon, DirecTV, and AT&T.
He responded "Dish and Direct are just undercutting (intro offers) to pull TV viewers. However, they will lose customers as soon as the intro is out and they raise prices. Verizon and AT&T's increased share is for internet. "
"Cable Guy" also has a pizza delivery business and sells pizzas at night, attempting to make ends meet. He notes "I have not raised prices for 4 years! I can't. But my costs of doing business has gone up by 30%."
NFIB Report Shows Lack of Sales Still #1 Problem of Small Businesses
Cable Guy's (Pizza Guy's) experiences are exactly what the NFIB reports on small businesses for months on end.
INFLATION Seasonally adjusted, the net percent of owners raising prices was a net negative five percent, a six point increase from September. Plans to raise prices rose five points to a net seasonally adjusted 12 percent of owners. However, most plans to raise prices have been frustrated by the recession and weak sales during the past few years. PROFITS AND WAGES Reports of positive earnings trends posted a seven point improvement in October, registering a net negative 26 percent. Still, far more owners report that earnings are deteriorating quarter on quarter than rising.
Surprise, Surprise, Surprise
I graciously send a tip of the hat to Gomer Pyle.
Nonetheless, I feel obliged to point out that if anyone was surprised by the Cisco announcement it certainly was not Cisco insiders.
Cisco Insiders Sell 6,620,750 Buy 0 Shares in Last Six Months
Insiders bailed hand over fist. In fact, they sold 60% of their holdings!
But hey who could possibly have known? Then again, it appears with Cisco, it's always a good time to sell.
CEO Chambers' Transactions
Sep 16, 2010 CHAMBERS JOHN T Officer 285,000 Direct Acquisition (Non Open Market) at $0 per share.
Aug 18, 2010 CHAMBERS JOHN T Officer 243,178 Direct Automatic Sale at $22.50 per share. $5,471,505
May 18, 2010 CHAMBERS JOHN T Officer 22,273 Direct Option Exercise at $20.53 per share. $457,264
May 18, 2010 CHAMBERS JOHN T Officer 22,273 Direct Automatic Sale at $25 per share. $556,825
May 17, 2010 CHAMBERS JOHN T Officer 1,000,000 Direct Option Exercise at $16.01 per share. $16,010,000
May 17, 2010 CHAMBERS JOHN T Officer 1,250,000 Direct Automatic Sale at $24.61 per share. $30,762,500
Mar 5, 2010 CHAMBERS JOHN T Officer 1,800,000 Direct Option Exercise at $16.01 - $20.53 per share. N/A
Mar 5, 2010 CHAMBERS JOHN T Officer 1,800,000 Direct Automatic Sale at $25 per share. $45,000,000
I went through all recent insider transactions and stripped out those of CEO John Chambers. To highlight one example, on May 17, Chambers exercised a right to buy and immediately sold (and then some), 1 million shares netting a mere $14,752,500.
Bear in mind, that is a single transaction.
To show just how deserving Chambers is, please consider the following chart.
Cisco Monthly Chart
click on chart for sharper image
Chambers became CEO of Cisco in January 1995. If you bought and held then, congratulations you were a winner for 3+ years or so. Then for the next 11 years you watched Chambers makes hundreds of millions cashing out options while you made nothing.
Cisco Systems, Inc. (CSCO) - The company has not paid any cash dividends to shareholders and currently has no plans to do so in the future. [Mish Note: Cisco has announced unspecified dividend plans as mentioned above] In the five fiscal years ending July 2010 they repurchased 1.631 billion of its shares paying out $37.931 billion, or an average price of $23.26.
Had CSCO repurchased just enough shares to cover all new stock issues (for acquisitions, employee purchases, exercise of stock options, etc) during the five fiscal years ending July 2010, they could have used the remaining stock repurchases funds ($13.6 billion) to pay cash dividends to shareholders. Additionally there was a cash buildup of $23.8 billion from the end of July 2005 ($16.055 billion) to the end of July 2010 ($39.861 billion). Thus, shareholders could have been paid cash dividends totaling approximately $37.4 billion or just under $6.00 per share (average annual dividend rate of approximately $1.20) over the five year period ending July 2010.
Does John Chambers and the Cisco Board believe the current stock price would be $6.00 lower today had this shareholder friendly program (paying cash dividends) been implemented instead of the actual stock repurchases made in conjunction with a cash hoarding policy? A 5% annual cash dividend yield over the last five fiscal years surely would have resulted in Cisco's shares trading higher than its current stock price. Additionally, long term investors would have been rewarded with an additional $6.00 per share in cash dividends. While most eminent CEO's and Boards of Directors give lip service to the mantra "enhancing shareholder value" I don't believe Cisco has accomplished this by repurchasing their shares, hoarding their cash and electing not to pay cash dividends to shareholders.
What's the point? It should be obvious. Cisco gets to pretend it is increasing shareholder value while corporate insiders get to dump massive numbers of shares over the years.
It's as if the company exists for the primary reason of granting insiders options to sell shares which the company "graciously" repurchases while waving a flag of "increasing shareholder value".
This is nothing more than shareholder rape.
Chambers Not Worth a Dime
Public companies are owned by shareholders. Officers control day-to-day operations but the goal of the corporation (and therefore the goal of the CEO), is to increase shareholder value.
By that measure (increasing shareholder value), Chambers has been worthless for over 10 years. However, the fact that he has taken out 10's of millions of dollars in stock options proves he is a magician.
Magicians are obviously worth every penny, because no one seems to care.
Former Countrywide CEO Angelo Mozilo, was a tremendous magician, perhaps one of the best ever. Mozilo cashed out over $1 billion worth of stock options and shares while running Countrywide to virtual bankruptcy.
Countrywide CEO Angelo Mozilo has agreed to a $67.5 million settlement to avoid trial on fraud and insider trading charges that alleged he profited from risky mortgages he signed off on before the collapse of the housing market.
After taking out $1 billion, a mere $67.5 million fine was quite the Houdini escape act in and of itself.
The kicker is "$25 million of Mozilo's restitution will come from an escrow fund the company set up to cover shareholder litigation and Mozilo has no obligation to pay the remaining amount, according to the settlement agreement."
Excuse me for asking the obvious, but what the hell is the point of fining someone $42.5 million if the settlement requires no obligation to pay?
Is this a great country (for corporate insiders) or what?
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