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And My Siamese Cat Ate This Year's Earnings Report

Trends: Asia's financial plight is providing a convenient excuse for executives when expectations aren't met.

January 15, 1998|STUART SILVERSTEIN | TIMES STAFF WRITER

Has your company been messing up lately?

Don't sweat it. Instead of pointing the finger at yourself, blame it on Asia.

That, more or less, is what executives are doing at some U.S. corporations amid a wave of disappointing earnings reports and financial projections.

Of course, many vibrant American businesses are being genuinely pinched by the gyrations of the Asian currencies and financial markets over recent months, as announcements out this week from the likes of Motorola and Intel attest.

But other companies appear to be using the Asian crisis as a smoke screen to fool others, or even themselves, about what's really happening. Sort of like weather forecasters blame everything on El Nino.

"It's camouflage on demand," said Chicago-area software industry analyst Byron Miller, one of the business observers noticing the trend. For companies with problems that needed explaining, he said, the Asian crisis "was an issue that was ripe for the picking."

With a torrent of year-end corporate financial reports due in coming weeks, analysts said, the fibbing and fudging are likely to pile up.

"I'm sure companies will use this as a rationale for all sorts of things that aren't related to Asia," said Bruce Steinberg, chief economist of Merrill Lynch & Co. in New York.

Analysts already have pointed to such corporate giants as Nike, the sneaker and sports apparel firm, and Oracle, the world's No. 2 software company, as using Asian upheaval as at least somewhat of a scapegoat.

This is a time-honored practice. Even in supposedly sophisticated financial circles, placing the blame on someone else is a common ploy.

"The French always blame the U.S. for currency fluctuations," said John Train, an author who has written about financial calamities and shenanigans. "Whether [exchange rates] go up or down, they blame Wall Street."

Much the same goes for American corporate managers, said Robert A. Olstein, president of an investment fund based in Purchase, N.Y. Olstein, who specializes in digging up issues hidden in corporate financial reports, said managers always try "to put their best foot forward and when they fail, they're always blaming some outside influence."

Take Nike. Last month it reported a 20% decline in profit in its fiscal second quarter. The company also said its revenue will fall below below previous expectations over the rest of its fiscal year. One of the key reasons spelled out in Nike's news release: "uncertainties in the Asian markets."

But blaming Asian business conditions for tripping up in the sneaker and apparel business seems like a lot of hooey to Kurt Barnard, a retailing consultant in Scotch Plains, N.J. He said Nike's main problem is that the up-and-down athletic footwear business "is not what it used to be."

"The business has oversupply and insufficient demand. Lots of athletic footwear people have been caught with their shoes off and pants down, and are not doing too well," Barnard added.

Rick Anguilla, director of investor relations for Nike, said the company has recently experienced an abrupt slowdown in consumer demand in Japan after several years of explosive growth. He said Nike concluded that the currency crisis, centered in Southeast Asia, helped shake consumer confidence in Japan.

But left unsaid in Nike's Dec. 18 news release was another side of the financial upheaval: The declining value of Southeast Asian currencies has reduced the company's labor costs.

"We have looked at that," Anguilla conceded.

Though currencies in Thailand and Indonesia began to plummet in early July, he insisted the company won't see those benefits until this spring. He added that they will have a modest impact overall.

Also singing the Asian blues is Redwood City-based Oracle. Its stock plunged by 29%--an overall decline in market value of $9.44 billion--in a single day last month after announcing lower-than-expected profits.

"The economic situation in Asia-Pacific clearly had a significant impact," said Jeffrey Henley, Oracle's chief financial officer, in a prepared statement.

But analyst Miller said the company's remarks put too much of the blame on Asia. "That's not realistic at all," Miller said.

He pointed out that a worldwide competitor of Oracle, the German company SAP, has barely broken stride financially despite the Asian crisis.

For Oracle, Asia's financial crisis was "not what I'd consider a material factor" in the quarterly results, added James Pickrel, an analyst with Hambrecht & Quist in San Francisco.

"It's not like they were hiding behind Asia completely, but the way the news came out the Asian factor received the biggest emphasis."

A more forthright approach, Pickrel said, would have been to acknowledge that sales growth is slowing in such key markets as database and financial software.

On top of that, he said, "There's a range of new products out from the company, and none of them are contributing at the rate the company hoped they would."

Oracle officials failed to return phone calls this week for comment on the impact of the Asian financial crisis.

Western Digital of Irvine, a leading maker of the computer memory storage devices known as disk drives, also has pointed at Asia lately.

In a news release last month, Western Digital Chairman Chuck Haggerty said the company would post no operating profit for its recently completed second quarter largely because of "extremely aggressive pricing, principally by Japanese and Korean competitors."

But according to some analysts, the company's problems have far more to do with industrywide overexpansion and its late introduction of new technology than price-slashing Asian competitors.

David Takata, a technology analyst in Beverly Hills for Gruntal & Co., called the focus on Asia-related problems "a mild exaggeration." The main problem is that "disk drive companies themselves overbuilt their capacity, and Western Digital is as guilty as anyone," he said.

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